18 ms·

The problem with buy and hold and pretty much every current strategy is that its distorted by the huge 40 year bull market we've seen in the USA. Every American

by rr808 3y ago

The problem with buy and hold and pretty much every current strategy is that its distorted by the huge 40 year bull market we've seen in the USA. Every American asset has gone up big time - of course "time in the market" is a good thing. If you look at Japanese or European stock markets they tell a very different story. Similarly the next 40 years in the USA could be a miserable time for investors. I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever. No one really knows but it wont be as good as the last few decades.

samjmck 3y ago
Isn't that only a problem if you are only invested in the US? There exists ETFs that are invested in multiple developed countries, such as index funds that track the MSCI World.
- rr808 3y ago
  Yes. After continued under performance of non-US markets, not many people have a significant exposure to those places.
  - malfist 3y ago
    Are you sure about that? The standard boglehead portfolio has ~1/3 of stock holdings in non-us funds.
WXLCKNO 3y ago
This is what I think too. Now obviously we're possibly on the verge of another massive change in tech with AI but there's still nothing that guarantees that the market has to go up.
- brigadier132 3y ago
  The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. When you buy an index fund you are essentially betting on all these people collectively working hard to improve their lives and if incentives are correctly aligned this should also mean the value of these businesses growing.
  - wolverine876 3y ago
    > The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. They are composed of people doing that, people rigidly protecting their incomes and/or status, people cheating others, and especially these days, people trying to squeeze every drop of blood out of every other stakeholder (investors, customers, employees).
- blibble 3y ago
  > Now obviously we're possibly on the verge of another massive change in tech with AI could easily turn out to be another nft style "boom"
  - pixl97 3y ago
    It could be a massive nft style boom, but if it is an nft style boom, expect a massive nearly worldwide economic collapse due to growth constraints around population issues.
1270018080 3y ago
> No one really knows but it wont be as good as the last few decades. A little bit contradictory. If you don’t think the stock market is going to appreciate then it’s not for you. Don’t invest in it at all. You can stick with savings accounts, gold, and crypto scams.
the_gastropod 3y ago
Of course predicting the future is impossible. But there’s a lot more than 40 years of data to support the buy-and-hold idea. The updated Trinity Study spans from 1925 to 2009, so includes the worst economic calamity in US history. It concludes an inflation-adjusted 4% withdrawal rate is safe for 30 years in 95% of historical 30 year periods. An inflation-adjusted 3% withdrawal rate succeeded in every 30-year period.
bannedbybros 3y ago
[dead]
Devasta 3y ago
1 - People should be able to retire. 2 - Their retirement should be financed by 401ks and the like. 3 - Stock Markets can go down as well as up. You can't have all three, so the government will always ensure that the stock market goes up long term.
- PaulDavisThe1st 3y ago
  Or you can elect a government that fundamentally doesn't agree with #1.
  - jfthoi 3y ago
    I'm unsure if you're being facetious so I'll take your comment at face value. Government isn't a static thing - especially one that is elected by the people (for the people). Sooner or later members within said government will also consider retirement. So even if you can elect a government that disagrees with #1, you won't be able to hold it for too long.
    - PaulDavisThe1st 3y ago
      "People ought to be able to retire" ... I assume that you mean the idea that people who have worked most of their lives should be able to stop working something in the age range of 60-70, and then enjoy at least a moderately comfortable life until death. If that assumption is correct, this is a relatively new idea, at least in the sense that government has any active responsibility for it. I can absolutely guarantee you that there are currently elected members of the US Republican Party, and similar political parties in other countries, who do not agree with the concept that government has any role to play in this. Don't work hard enough during your life? Your problem. Don't save/invest appropriately ? Your problem. 100 or 150 years ago, the idea that there would ever be a US government that would take notable steps to try to ensure a moderately comfortable life during retirement would have seemed like a pipe dream. It remains something upon that some political ideologies do not agree with.
      - 3y ago
tlarkworthy 3y ago
I believe human ingenuity and power over the elements goes up 7% a year, of which, the stock market is a proxy for. We are a networked organism and good at leveraging innovation at a global scale through supply chains. I see no reason to be pessimistic, we have AI, we have better space flight, we constantly improving energy sources.
- wolverine876 3y ago
  Then why didn't the markets go up in Japan and Europe (per the GP)? Also, why do the US (and maybe other) securities markets increase when the underlying economy is performing poorly?
  - nickpp 3y ago
    Differences between countries, cultures and people do exist. These differences will manifest themselves as variations in productivity, ultimately leading to unequal growth rates.
    - deleted 3y ago
      [deleted]
  - tchaffee 3y ago
    US companies provide the most valuable services and products by a long shot. https://companiesmarketcap.com/ https://companiesmarketcap.com/
  - pixl97 3y ago
    >Then why didn't the markets go up in Japan and Europe Population aging and growth uncertainty is a big guess on my part. https://www.imf.org/en/News/Articles/2020/02/10/na021020-japan-demographic-shift-opens-door-to-reforms https://www.imf.org/en/News/Articles/2020/02/10/na021020-jap... The US is highly dependant on massive amount of immigration to maintain demand. Couple that with a few other things, such as the petrodollar, and you have the US behaving in an odd manner that I don't believe will last forever.
  - 3y ago
theptip 3y ago
> No one really knows but it wont be as good as the last few decades. Such confidence! The first part is of course true, but you’ll make money teaching the market that you are smarter if the latter is true. Perfectly possible that AI kicks the economy into overdrive in the next few years and growth increases. I wouldn’t bet my house on it, but also wouldn’t bet my house against it either.
- rubicon33 3y ago
  How would AI do that?
  - dannyw 3y ago
    I’m genuinely a little bit more productive with ChatGPT. A lot of tasks I do take 30 mins or a hours less, several times per week.
    - ghaff 3y ago
      So a basically trivial improvement in other words.
      - popinman322 3y ago
        Half an hour of time recovered using a system not specialized to the work at hand. With better tooling and integrations that could scale to several hours a day spent doing more valuable work.
      - thfuran 3y ago
        How is that trivial? Even one task done a few times a week taking half an hour less is at least a 2% increase in productivity (assuming these tasks are work related and a 40 hour work week). "A lot" of such tasks would easily add up to 10%+.
      - the_sleaze9 3y ago
        I believe his statement lies in the fact that wealth is not money, but productivity. He's saying if every atom of the economy is n% more productive, that will grow the economy by n%.
ais89 3y ago
and the 7% is skewed towards a small % of companies that have averaged up the S&P 500, usually big tech companies. If you look at the distribution and median return its actually far less.
kjkjadksj 3y ago
Part of the reason for the bull run is that people have 401ks. They have IRAs. They buy index funds. In either case the amount of americans who automatically devote a portion of their pay to buying equites has probably never been higher.
shagmin 3y ago
There are probably multiple layers of feedback loops going on, who knows how things will pan out. There's a sufficiently large enough pool of investors out there that will buy broad ETFs like SCHB, SPY, VT, VTI, etc., on any dip or just continue to DCA a little of every paycheck into those just due to its history. The US is geographically isolated from potential threats for the most part unlike Europe and Japan, is relatively self-sufficient, super diversified and lots of international exposure, and no country has as much clout on the international stage as the US for the time being so I think it makes sense the US continues to do much better. Sometimes you have trends like emerging markets, cryptos, etc., but broad US stock market seems like the default choice for high returns so long as there is capital to be allocated. Interest rates are the thing I think could change things, but who knows. If you can get a guaranteed 5% return that's pretty nice, but it's possible we just slide into being a more corrupt/untrustworthy country for investments or baby boomers suddenly taking a disproportionate amount of money out of the market as they retire, etc.,.
- user_named 3y ago
  Don't forget the Canadian threat
warner25 3y ago
I agree that the American stock market has been an outlier, and most Americans don't realize the extent to which that is true; it's good that you do. But compared to buying and holding a widely diversified and low cost portfolio, what was the better strategy for investors in other markets? What would be the better strategy for Americans over the next 40 years (not knowing if it will be a miserable time or not)? I think this is a case of "time in the market" being the least worst option. The market may reward it, or it may not, but hard times are hard times and I don't see any obvious way to avoid them without exposing yourself to a lot more risk in other ways.
- oceanplexian 3y ago
  People keep talking down the US but the only advanced economy reliably innovating at scale. Especially in the post-COVID era, as China faces growth collapse. You don't have to look far to see that all the major tech developments of our species are coming out of the US: Generative AI, Reusable Rockets, self-driving cars, mRNA, Genetic Engineering, NIF Fusion, VR, etc. The US could strike it out on any single item and spark another industrial revolution. Plus we're still king of the hill in so many other categories (World's largest producer of energy, world's largest agriculture producer, world's largest military, etc.) If you're an investor, the idea that you'd bet against the US economy is a hilariously bad take.
  - reducesuffering 3y ago
    Good investing has never been about X will make a lot of money, buy X. It's about what price are you buying the money that X will make. Right now, a lot of future money US will make is baked into the price of those US companies. You'll pay $100 for $4 of US earnings or $8 of UK/Japan/Netherlands/Canada/Sweden/etc. earnings. People already expect US earnings growth to be almost double. The question is do you think it will outpace even that? Even if you think US earnings growth will be somewhat better than the rest of developed economies, it's a worse investment. For example, developed economies index, VEA, outperformed US, VTI, last year.
paulddraper 3y ago
> I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever. Decades of something being true will do that
rakkhi 3y ago
Correct. Imagine if you bought and hold in Japan in the 1980's. Buy 2023, maybe you would have broken even [1] There are 2 problems: 1. Market timing works: a. With inside information e.g. US congress b. Take an outsised risk e.g. Nasem Taleb keep buying/selling deep out of the money options. Lose money every day to make an outsised gain 2. You are Warren Buffet. Which is basically buy stocks like you are buying a company. Have the option of buying preferential shares. And hey 1b monkeys on typewriters... Still totally agree with the OP. The last 40 years have been ridiculous from a macro perspective: 1. Interest rates, the most important price in the economy, the price of money, has fallen from 18% in the Paul Volker days till after covid close to 0. 2. Money has been printed like never before after the 08 collapse and covid. It is very difficult to look at 2023, with the US fed cash rate at approx 5%, global interest rates going up, price inflation at 7%+, US national debt at $33T and growing at $1T per month exponentially, and the US paying more on Interest expense (not principal, just Interest) than they spend on the military. I like Nassem Taleb. Invest still in index funds but invest in global infrastructure that is recession proof e..g [3]. Be anti-fragile [1] https://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=143.FM.M.JP.JPY.DS.EI.JAPDOWA.HSTA https://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=143.FM.M.J... [2] https://www.theatlantic.com/business/archive/2011/12/why-does-the-wealth-gap-between-congress-and-voters-matter/250546/ https://www.theatlantic.com/business/archive/2011/12/why-doe... [3] https://www.vanguard.com.au/personal/invest-with-us/fund?portId=8110 https://www.vanguard.com.au/personal/invest-with-us/fund?por...

by rr808 3y ago

samjmck 3y ago

Isn't that only a problem if you are only invested in the US? There exists ETFs that are invested in multiple developed countries, such as index funds that track the MSCI World.

rr808 3y ago
Yes. After continued under performance of non-US markets, not many people have a significant exposure to those places.
- malfist 3y ago
  Are you sure about that? The standard boglehead portfolio has ~1/3 of stock holdings in non-us funds.

WXLCKNO 3y ago

This is what I think too. Now obviously we're possibly on the verge of another massive change in tech with AI but there's still nothing that guarantees that the market has to go up.

brigadier132 3y ago
The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. When you buy an index fund you are essentially betting on all these people collectively working hard to improve their lives and if incentives are correctly aligned this should also mean the value of these businesses growing.
- wolverine876 3y ago
  > The market is composed of companies, each of these companies are composed of people trying to better their own lives by working hard. They are composed of people doing that, people rigidly protecting their incomes and/or status, people cheating others, and especially these days, people trying to squeeze every drop of blood out of every other stakeholder (investors, customers, employees).
blibble 3y ago
> Now obviously we're possibly on the verge of another massive change in tech with AI could easily turn out to be another nft style "boom"
- pixl97 3y ago
  It could be a massive nft style boom, but if it is an nft style boom, expect a massive nearly worldwide economic collapse due to growth constraints around population issues.

1270018080 3y ago

> No one really knows but it wont be as good as the last few decades. A little bit contradictory. If you don’t think the stock market is going to appreciate then it’s not for you. Don’t invest in it at all. You can stick with savings accounts, gold, and crypto scams.

the_gastropod 3y ago

Of course predicting the future is impossible. But there’s a lot more than 40 years of data to support the buy-and-hold idea. The updated Trinity Study spans from 1925 to 2009, so includes the worst economic calamity in US history. It concludes an inflation-adjusted 4% withdrawal rate is safe for 30 years in 95% of historical 30 year periods. An inflation-adjusted 3% withdrawal rate succeeded in every 30-year period.

bannedbybros 3y ago

[dead]

Devasta 3y ago

1 - People should be able to retire. 2 - Their retirement should be financed by 401ks and the like. 3 - Stock Markets can go down as well as up. You can't have all three, so the government will always ensure that the stock market goes up long term.

PaulDavisThe1st 3y ago
Or you can elect a government that fundamentally doesn't agree with #1.
- jfthoi 3y ago
  I'm unsure if you're being facetious so I'll take your comment at face value. Government isn't a static thing - especially one that is elected by the people (for the people). Sooner or later members within said government will also consider retirement. So even if you can elect a government that disagrees with #1, you won't be able to hold it for too long.
  - PaulDavisThe1st 3y ago
    "People ought to be able to retire" ... I assume that you mean the idea that people who have worked most of their lives should be able to stop working something in the age range of 60-70, and then enjoy at least a moderately comfortable life until death. If that assumption is correct, this is a relatively new idea, at least in the sense that government has any active responsibility for it. I can absolutely guarantee you that there are currently elected members of the US Republican Party, and similar political parties in other countries, who do not agree with the concept that government has any role to play in this. Don't work hard enough during your life? Your problem. Don't save/invest appropriately ? Your problem. 100 or 150 years ago, the idea that there would ever be a US government that would take notable steps to try to ensure a moderately comfortable life during retirement would have seemed like a pipe dream. It remains something upon that some political ideologies do not agree with.
    - 3y ago

tlarkworthy 3y ago

I believe human ingenuity and power over the elements goes up 7% a year, of which, the stock market is a proxy for. We are a networked organism and good at leveraging innovation at a global scale through supply chains. I see no reason to be pessimistic, we have AI, we have better space flight, we constantly improving energy sources.

wolverine876 3y ago
Then why didn't the markets go up in Japan and Europe (per the GP)? Also, why do the US (and maybe other) securities markets increase when the underlying economy is performing poorly?
- nickpp 3y ago
  Differences between countries, cultures and people do exist. These differences will manifest themselves as variations in productivity, ultimately leading to unequal growth rates.
  - deleted 3y ago
    [deleted]
- tchaffee 3y ago
  US companies provide the most valuable services and products by a long shot. https://companiesmarketcap.com/ https://companiesmarketcap.com/
- pixl97 3y ago
  >Then why didn't the markets go up in Japan and Europe Population aging and growth uncertainty is a big guess on my part. https://www.imf.org/en/News/Articles/2020/02/10/na021020-japan-demographic-shift-opens-door-to-reforms https://www.imf.org/en/News/Articles/2020/02/10/na021020-jap... The US is highly dependant on massive amount of immigration to maintain demand. Couple that with a few other things, such as the petrodollar, and you have the US behaving in an odd manner that I don't believe will last forever.
- 3y ago

theptip 3y ago

> No one really knows but it wont be as good as the last few decades. Such confidence! The first part is of course true, but you’ll make money teaching the market that you are smarter if the latter is true. Perfectly possible that AI kicks the economy into overdrive in the next few years and growth increases. I wouldn’t bet my house on it, but also wouldn’t bet my house against it either.

rubicon33 3y ago
How would AI do that?
- dannyw 3y ago
  I’m genuinely a little bit more productive with ChatGPT. A lot of tasks I do take 30 mins or a hours less, several times per week.
  - ghaff 3y ago
    So a basically trivial improvement in other words.
    - popinman322 3y ago
      Half an hour of time recovered using a system not specialized to the work at hand. With better tooling and integrations that could scale to several hours a day spent doing more valuable work.
    - thfuran 3y ago
      How is that trivial? Even one task done a few times a week taking half an hour less is at least a 2% increase in productivity (assuming these tasks are work related and a 40 hour work week). "A lot" of such tasks would easily add up to 10%+.
    - the_sleaze9 3y ago
      I believe his statement lies in the fact that wealth is not money, but productivity. He's saying if every atom of the economy is n% more productive, that will grow the economy by n%.

ais89 3y ago

and the 7% is skewed towards a small % of companies that have averaged up the S&P 500, usually big tech companies. If you look at the distribution and median return its actually far less.

kjkjadksj 3y ago

Part of the reason for the bull run is that people have 401ks. They have IRAs. They buy index funds. In either case the amount of americans who automatically devote a portion of their pay to buying equites has probably never been higher.

shagmin 3y ago

There are probably multiple layers of feedback loops going on, who knows how things will pan out. There's a sufficiently large enough pool of investors out there that will buy broad ETFs like SCHB, SPY, VT, VTI, etc., on any dip or just continue to DCA a little of every paycheck into those just due to its history. The US is geographically isolated from potential threats for the most part unlike Europe and Japan, is relatively self-sufficient, super diversified and lots of international exposure, and no country has as much clout on the international stage as the US for the time being so I think it makes sense the US continues to do much better. Sometimes you have trends like emerging markets, cryptos, etc., but broad US stock market seems like the default choice for high returns so long as there is capital to be allocated. Interest rates are the thing I think could change things, but who knows. If you can get a guaranteed 5% return that's pretty nice, but it's possible we just slide into being a more corrupt/untrustworthy country for investments or baby boomers suddenly taking a disproportionate amount of money out of the market as they retire, etc.,.

user_named 3y ago
Don't forget the Canadian threat

warner25 3y ago

I agree that the American stock market has been an outlier, and most Americans don't realize the extent to which that is true; it's good that you do. But compared to buying and holding a widely diversified and low cost portfolio, what was the better strategy for investors in other markets? What would be the better strategy for Americans over the next 40 years (not knowing if it will be a miserable time or not)? I think this is a case of "time in the market" being the least worst option. The market may reward it, or it may not, but hard times are hard times and I don't see any obvious way to avoid them without exposing yourself to a lot more risk in other ways.

oceanplexian 3y ago
People keep talking down the US but the only advanced economy reliably innovating at scale. Especially in the post-COVID era, as China faces growth collapse. You don't have to look far to see that all the major tech developments of our species are coming out of the US: Generative AI, Reusable Rockets, self-driving cars, mRNA, Genetic Engineering, NIF Fusion, VR, etc. The US could strike it out on any single item and spark another industrial revolution. Plus we're still king of the hill in so many other categories (World's largest producer of energy, world's largest agriculture producer, world's largest military, etc.) If you're an investor, the idea that you'd bet against the US economy is a hilariously bad take.
- reducesuffering 3y ago
  Good investing has never been about X will make a lot of money, buy X. It's about what price are you buying the money that X will make. Right now, a lot of future money US will make is baked into the price of those US companies. You'll pay $100 for $4 of US earnings or $8 of UK/Japan/Netherlands/Canada/Sweden/etc. earnings. People already expect US earnings growth to be almost double. The question is do you think it will outpace even that? Even if you think US earnings growth will be somewhat better than the rest of developed economies, it's a worse investment. For example, developed economies index, VEA, outperformed US, VTI, last year.

paulddraper 3y ago

> I can't believe how much people take for granted that stock markets "usually go up 7% a year" or whatever. Decades of something being true will do that

rakkhi 3y ago

Correct. Imagine if you bought and hold in Japan in the 1980's. Buy 2023, maybe you would have broken even [1] There are 2 problems: 1. Market timing works: a. With inside information e.g. US congress b. Take an outsised risk e.g. Nasem Taleb keep buying/selling deep out of the money options. Lose money every day to make an outsised gain 2. You are Warren Buffet. Which is basically buy stocks like you are buying a company. Have the option of buying preferential shares. And hey 1b monkeys on typewriters... Still totally agree with the OP. The last 40 years have been ridiculous from a macro perspective: 1. Interest rates, the most important price in the economy, the price of money, has fallen from 18% in the Paul Volker days till after covid close to 0. 2. Money has been printed like never before after the 08 collapse and covid. It is very difficult to look at 2023, with the US fed cash rate at approx 5%, global interest rates going up, price inflation at 7%+, US national debt at $33T and growing at $1T per month exponentially, and the US paying more on Interest expense (not principal, just Interest) than they spend on the military. I like Nassem Taleb. Invest still in index funds but invest in global infrastructure that is recession proof e..g [3]. Be anti-fragile [1] https://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=143.FM.M.JP.JPY.DS.EI.JAPDOWA.HSTA https://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=143.FM.M.J... [2] https://www.theatlantic.com/business/archive/2011/12/why-does-the-wealth-gap-between-congress-and-voters-matter/250546/ https://www.theatlantic.com/business/archive/2011/12/why-doe... [3] https://www.vanguard.com.au/personal/invest-with-us/fund?portId=8110 https://www.vanguard.com.au/personal/invest-with-us/fund?por...