4 ms·

Predictable? An index fund does not give predictable returns.

by danielmarkbruce 4y ago

pc86 4y ago
Over long timelines, and with rare exceptions, yes they do.
- reducesuffering 4y ago
  Sure, you just might spend 33 years for a 1.4% real return annually https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1990&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=IntlDeveloped&allocation1_1=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...
  - p_j_w 4y ago
    What percentage of 30 year spans give a 1.4% return or less? Better question: what's the cumulative distribution function of a 30 year investment span on an S&P 500 index fund?
    - reducesuffering 4y ago
      Both are relevant. It’s good to know what your average scenario for a 30 year span is. It’s also good to prepare for the worst case…
  - pc86 4y ago
    Yes, you might. The vast, vast majority of people won't. Some people are unlucky. That doesn't mean the entire system is nonsense.
    - danielmarkbruce 4y ago
      No one is saying the system is nonsense. They are saying returns aren't predictable over decades. Buffett highlighted this a few years back: the returns from 1964-81 - zero. From 1981-99 - up about 12x. These periods highlight that the returns don't meet any common sense definition of "predictable". Maybe if everyone was more precise on the definition of predictable it would resolve the discussion, but it doesn't appear that the common sense definition of predictable is met here.
- danielmarkbruce 4y ago
  Looking back it might appear so, but looking forward over any time horizon it is not predictable. Happy to arrange a long-term bet at even money - I'll guess you can't predict within 3% annualized what the total returns are over any time horizon for any of the common indices. And the difference between 4% or 7% over a long time is a lot.

Predictable? An index fund does not give predictable returns.

pc86 4y ago

Over long timelines, and with rare exceptions, yes they do.

reducesuffering 4y ago
Sure, you just might spend 33 years for a 1.4% real return annually https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1990&firstMonth=1&endYear=2023&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&portfolioNames=false&portfolioName1=Portfolio+1&portfolioName2=Portfolio+2&portfolioName3=Portfolio+3&asset1=IntlDeveloped&allocation1_1=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...
- p_j_w 4y ago
  What percentage of 30 year spans give a 1.4% return or less? Better question: what's the cumulative distribution function of a 30 year investment span on an S&P 500 index fund?
  - reducesuffering 4y ago
    Both are relevant. It’s good to know what your average scenario for a 30 year span is. It’s also good to prepare for the worst case…
- pc86 4y ago
  Yes, you might. The vast, vast majority of people won't. Some people are unlucky. That doesn't mean the entire system is nonsense.
  - danielmarkbruce 4y ago
    No one is saying the system is nonsense. They are saying returns aren't predictable over decades. Buffett highlighted this a few years back: the returns from 1964-81 - zero. From 1981-99 - up about 12x. These periods highlight that the returns don't meet any common sense definition of "predictable". Maybe if everyone was more precise on the definition of predictable it would resolve the discussion, but it doesn't appear that the common sense definition of predictable is met here.
danielmarkbruce 4y ago
Looking back it might appear so, but looking forward over any time horizon it is not predictable. Happy to arrange a long-term bet at even money - I'll guess you can't predict within 3% annualized what the total returns are over any time horizon for any of the common indices. And the difference between 4% or 7% over a long time is a lot.