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When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I

When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

ryandrake 1y ago
Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not. Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.
- jameslk 1y ago
  On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time. This is especially true for stocks vs bonds. Because the cash flows of bonds are fixed, prolonged inflation or rate spikes can deliver a loss that stays a loss, making long-term "safety" in bonds partly an illusion. http://www.efficientfrontier.com/t4poi/Ch1.htm http://www.efficientfrontier.com/t4poi/Ch1.htm
  - ryandrake 1y ago
    > On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time. This is only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?
    - jameslk 1y ago
      The same type of argument can be made about bonds and even cash. And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too. Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it
      - ty6853 1y ago
        Holding stocks in the nation in which you live probably isn't very smart from a hedge perspective, considering US stocks don't have a locked correlation to foreign ones. Your assets would all be in the shitter at the same time you're out the job and need to liquidate them to survive.
        jameslk 1y ago
        Yes I agree. I was using US stocks for the sake of comparison against US bonds. Otherwise, a diversified portfolio with risk adjusted to goals is what makes sense
      - narratives1 1y ago
        This is almost the definition of technical analysis: “chart always reverted to mean so it will always revert to mean” Note that almost every exchange outside the US has been flat or negative for decades. The US has held a precious position for a few generations that’s made “chart go up” feel like a given
        Kranar 1y ago
        >Note that almost every exchange outside the US has been flat or negative for decades. As someone who works in finance this struck me as a remarkable claim. Upon inspection it turns out to be spectacularly incorrect. After adjusting for inflation it's actually the opposite, the vast majority of countries have seen their own version of the S&P 500 grow over a 30 year period, after adjusting for inflation, not stagnation or decline. Developing countries, particularly those in Asia, have seen incredible returns over a 30 year period, albeit with a great deal of volatility involved. Our neighbor to the north, Canada, has seen gains that are slightly below the U.S., but our neighbor to the south, Mexico has seen about the same growth as our own, once again accounting for Mexico's own inflation. Europe has also experienced a great deal of growth with many European countries even growing moreso than the U.S., for example Germany. While there are examples of decline, they are in countries that are both poor and have unstable governments. Most countries that are strictly poor but don't suffer from instability have for the most part seen growth rather than stagnation. So I don't know exactly what led you to believe your claim that "almost every exchange" has been flat or negative, but it's certainly not correct.
    - jajko 1y ago
      Yeah buying Norwegian airlines stock for example would have been a brilliant idea, right. I mean country like Norway with their sovereign fund, oil, very moral population and good government etc, nothing can ever go wrong.
      - kimbernator 1y ago
        It's hardly fair to portray stock market investment in that way, though. Nobody should be investing in a single stock for 30 years. A diversified sector EFT is just as easy to buy and comes with diversification so a single failing company doesn't have that much of an impact.
    - Lerc 1y ago
      I guess the questions to be asked would be Will the US economy completely collapse in the next 30 years? Will the US government completely collapse in the next 30 years. For the past century I think the answers to those questions would have been, "Almost certainly not" and "Not a chance in hell" I honestly didn't know where they stand today, but there's definitely been movement.
      - tmtvl 1y ago
        The past century, you say... wasn't there a little thing called 'the great depression' somewhere around a century ago?
        Lerc 1y ago
        Wasn't a complete collapse. It took a significant hit, but still functioned.
    - kimbernator 1y ago
      Realistically, all that actually matters is where I land relative to the population at large. Since so much of the world economy is tied to stocks, by buying into it I will remain at least at parity with my current socioeconomic status regardless of whether the market goes up or down. Nobody with real money is just holding it in cash in case the whole stock thing doesn't work out. If things go the way they have been for a while now, I'll be able to retire comfortably. If stocks don't gain or lose a penny for the next 40 years, I think society as a whole will have reframed retirement. If society collapses, it didn't matter anyways.
  - taeric 1y ago
    I mean... the risk of risky assets is that they won't last that long. Any asset you can look back on having held for a long time, is by definition less risky than you could have been. No?
  - scubazealous 1y ago
    Bonds are considered safer because short of the US losing WWIII there is practically no way the US bonds would not pay out or lose value. US Bonds are safe and predictable, backed up by the immense military and resources of the nation. Investing in Apple 30 years ago would net a much higher return on $5k but even Apple was considered a unsafe investment in the 90s. On the other hand, Enron was considered a safe investment by many but went bankrupt almost overnight and shares became practically worthless.
    - kgwgk 1y ago
      > there is practically no way the US bonds would not pay out or lose value. Bonds can "lose value" and they did so quite strongly in 2022/23. If you bought 20-year bonds in 2020 for $100 they are worth $60 now (and were as low as $55 in 2023). Getting $1 per year is far from compensating the loss. They will recover gradually until they "pay out" $100 but right now they're underwater.
  - floundy 1y ago
    The Nikkei 225 is still below its peak value from December of 1989. The US is an outlier in terms of historical average stock market returns and there is no guarantee this outperformance will continue into the future. Actually I'd say it's less likely, given that should it continue, the US market cap will eat the entire world stock market. The US stock market is currently 62% of the world's stock market capitalization.
    - ManBeardPc 1y ago
      Only if you invested everything in the Nikkei on the height of the market though. Many US companies are pretty global and have a lot of sales outside the USA. In that sense the risk is a lot less concentrated outside of extreme political events.
      - floundy 1y ago
        Many international companies are global, and have a lot of sales to the US. But I never see anybody using that as a justification for not investing in the US. As to the Nikkei retort this seems to be hindsight bias and ignorance of historical context, the general consensus at the time (both inside and outside of Japan) was that the Japanese economy was going to take over the world.
    - tokyoseb 1y ago
      The Nikkei 225 may be below its 1989 peak in price terms but you can’t ignore the dividends which an actual investment in the index would have paid during that period. On a total return basis (if you had reinvested the dividends into the index as you received them) the Nikkei passed its 1989 peak in 2021.
      - deanmoriarty 1y ago
        I struggle to understand why an educated crowd like HN routinely forgets dividends when posting any sort of financial charts. Total returns are what matters.
  - cortesoft 1y ago
    > The longer a risky asset is held, the less chance of loss you’ll have I understand what you are trying to say here, but it really depends on what the “risky asset” is. If you hold a diversified set of risky assets, like a stock market index fund, then what you say is correct. However, there are other risky assets that don’t hold to this “a long time horizon reduces risk” statement. For example, if you put all your investment in a single stock, that is a risky asset that does not necessarily revert to the mean over time. Many companies go out of business, and the stock goes to zero and will never recover no matter how long you wait. It is important to note what kind of risk you are taking.
- toasterlovin 1y ago
  I'm not sure that a US government bond has a meaningfully different risk profile than an aggregate investment in US equity markets.
  - ryandrake 1y ago
    If this were really true, they would offer similar returns.
    - toasterlovin 1y ago
      Famously, Mr. Market deals in what things cost, not what they are worth.
- BlandDuck 1y ago
  Exactly, if it had been obvious at the time that "the market" would deliver a better return, for certain, then nobody would have bought bonds at those prices. Then bond prices would have declined (and their expected returns or interest rate would have increased) until, in equilibrium, the anticipation was that the stocks and bonds would deliver comparable expected risk-adjusted returns.
  - JackFr 1y ago
    Very few entities have a 98 year horizon. People sure don't. Some insurance companies do I suppose. A more interesting graph would be to show me the 30 year return at each point along the way. My gues is that stocks would still mostly come out on top, but not the runaway you see here.
- tjwebbnorfolk 1y ago
  "Risk-free" is a popular shorthand for "The US government won't default". But default is far from the only risk inherent in bond ownership. Risk is the chance something bad happens to you. Held for 30 years, bonds are eaten alive by inflation. That's a bad thing that happens to you if you hold bonds for a long time.
  - ty6853 1y ago
    Indeed. There's always the story of finding stacks of bills in the wall of granddaddies house despite the fact creditors and the bank were up his ass to the bitter end for medical bills. Given the ever increasing number of people bankrupted by medical bills, divorce, child support, lawsuits, etc we're quickly moving into a world where it might be foolish to expect assets accessible to a brokerage or bank will still be there by the time you need them.
  - kgwgk 1y ago
    > Held for 30 years, bonds are eaten alive by inflation. 20-year and 30-year bonds yield 5% today. That's well above inflation expectations. You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.
    - tjwebbnorfolk 1y ago
      You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free, then all I can say is I have a very different idea of what risk means. I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.
      - kgwgk 1y ago
        > You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free I didn’t say anything about “risk-free” (the closest is the second paragraph but you don’t address it at all). I was clearly commenting on the quoted sentence “Held for 30 years, bonds are eaten alive by inflation” which has not applied since the seventies, doesn’t seem the best assumption going forward, and has an easy solution as discussed. > reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase. If your main objective is to beat inflation, getting inflation + 2.50% with certainty seems an attractive proposition! (Inflation-linked bonds have a “fixed” rate on top on inflation.)
- eweise 1y ago
  isn't the stock market risk free over a 30 year span? Maybe with the exception of the depression.
  - BJones12 1y ago
    The US stock market has not had a negative return over any 30 year span. There are 30 year spans with total returns under 10%, which significantly lag what bonds returned in those spans.
nosianu 1y ago
> but when I did the math to see how much more it would have been I have a suggestion for all the many similar problems around probability: Reframe it to be more correct. Instead of looking against the arrow of time, backwards with full knowledge ask yourself the corresponding question looking forward, from where you are right now. And then remember that that was the position you were in back then. Questions that deal directly or indirectly with probabilities become confusing, and frankly stupid, when you violate the arrow of time and make "backward predictions". One should just not ask that question, not even for fun. They not only make no sense, our psyche suffers when we try, even if just a little. This is part of another kind of problems: Asking why a given answer is wrong, for example in multiple choice questions. One of the best courses I took was an audio cassette pilot license theory course. One thing the speaker said about the multiple choice part of the exam was this. DO NOT (with a lot of emphasis and repetition in the audio) try to dwell on why a point is wrong. Concentrate on the true statements alone. Reason was similar to why raising the question why person XYS is NOT a pedophile still creates the association in the brains of people exposed to statements like that repeatedly. Apart from that, the number of potential wrong statements exceeds the valid ones by many orders of magnitude. Similarly, just do not think about problems that deal with probabilities and predictions looking backward. It's just not a valid way to think about them. If you must, reformulate to make them forward-looking. The problem of words and thoughts is the universe checks their validity only very rarely directly and immediately. If we don't restrain ourselves, our thoughts end up not representing reality more and more. Thinking requires quite a bit of self-discipline, we have to place the missing rails ourselves.
- trod1234 1y ago
  This isn't useful or correct, and ends up being a bit circular getting into the weeds. The focus should be that the normal math formula for bond valuation doesn't account for yearly real or projected inflation. Almost everyone I have met doesn't know how to modify the standard formula correctly unless they've already done it at some point in the past. Its not a trivial exercise. You have to understand the formulas well enough to modify them to account for the loss in purchasing power that compounds yearly, as a difference between the interest rate and real inflation over the bond terms. Most years, inflation has been well above that 2% margin dramatically impacting the rate of return or real yield.
marsten 1y ago
A surprising number of 401(k) plans default to a money market fund for invested assets. Imagine retiring after a decades-long career and realizing what could have been.
- cced 1y ago
  > Imagine retiring after a decades-long career and realizing what could have been. I'm not following what this means. Can you please elaborate?
  - jlmcguire 1y ago
    I believe they mean realizing that if you had invested into stocks instead of money market you'd have likely realized a quite large return. Money markets seek to keep your returns to around inflation.
  - peterbecich 1y ago
    If I remember this article correctly https://www.wsj.com/personal-finance/retirement/the-401-k-rollover-mistake-that-costs-retirement-savers-billions-c7a19dfa?reflink=desktopwebshare_permalink https://www.wsj.com/personal-finance/retirement/the-401-k-ro..., the summary is some peoples' 401k accounts are not invested in the stock market. Rather the money sits for years collecting interest, growing far less.
trod1234 1y ago
The problem is that most people don't know how to invest, and this has been done by purposeful intent. Financial education was removed from centralized education long ago. Bonds necessarily need to exceed the yearly inflation to retain their purchasing power. People claim these are risk free, but they aren't, even when held to maturity. You lose money from the inflation when the rate of interest is below the inflation rate which it almost surely was given the several decades of almost zero low-interest rates in that time period. There are some general rules that anyone should know. Rule #1 is don't lose your principal investment (don't lose money). Rule #2 is don't invest in a casino, always manage your risk, and know when its unmanageable. Rule #3 invest in yourself, understand the business, limit debt, and focus on value. People today don't realize the market has been rigged through a number of convoluted ways into that of a casino. Price discovery is gone because most transactions happen off exchange in the dark. In 2024, over 50% of transactions occurred off-exchange in dark pools. You then also have payment for order flow, synthetic shares via options through predatory middlemen, and no real law enforcement mechanism for when those big players break the rules; and they do on the regular as they did in GME/FRC, and too many other places to count. You've also got large banks pumping the prices up through non-fractional reserve based debt backing options contracts which they use to yield farm, and profits funneled away from businesses into stock buybacks hollowing them out of any value. No visibility, no price discovery, no economic calculation. These things fail when about 1/4 of the market is off-exchange, its been at crisis for a long time. There is no real opportunity for investment when you allow those rules to be broken. Its not an actual investment.
- kgwgk 1y ago
  > several decades of almost zero low-interest rates in that time period What are those “several decades” more precisely? https://fred.stlouisfed.org/graph/?g=1JtLn https://fred.stlouisfed.org/graph/?g=1JtLn
  - trod1234 1y ago
    The chart you linked isn't inflation indexed. I believe the chart below is the one you should have been linking (at least one that's public, the reports I get are subscription only so I can't share those): https://fred.stlouisfed.org/series/DFII10 https://fred.stlouisfed.org/series/DFII10 Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria, with real negative rates 2011-2013, and 2020-2022. Notwithstanding all the unstated shennanigans and other changes to try to make the numbers look more palatable on the surface, like the YTM reporting loophole, there is also the backroom deals between blackrock to swap old low rate treasuries for newer treasuries on the taxpayer dime (1), and the abandonment of the fractional reserve system (2020, reserves set to 0% for Basel 3) which call into question more foundational issues of the money system. 1 (https://www.bloomberg.com/news/articles/2020-05-21/how-larry-fink-s-blackrock-is-helping-the-fed-with-bond-buying https://www.bloomberg.com/news/articles/2020-05-21/how-larry...)
rufus_foreman 1y ago
>> It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped. This is known as "looking a gift horse in the mouth".
- Hasnep 1y ago
  They just gasped, they didn't seem ungrateful to me.
NoboruWataya 1y ago
I believe the first broadly diversified ETF didn't come about until a few years later, so realistically there wasn't an easy way for a retail investor to invest 5k in "the market" back then. (EDIT: Not true, see below.)
- sokoloff 1y ago
  Vanguard launched an S&P 500 fund for retail investors in 1976.
  - NoboruWataya 1y ago
    I stand corrected! I was just thinking about SPY and its ilk.
    - taeric 1y ago
      Well, your "5k" figure is still probably accurate. They had much larger minimums at launch.
      - sokoloff 1y ago
        I graduated in 1993 and going back through my old Quickbooks file, my 1993 IRA contribution went to a broad-based fund at Twentieth Century (now American Century). It was a half-year of working and all I could scrape together was $2000 and they accepted it to invest. I suspect making a mutual fund investment for $5000 (over $10,000 today) would have been possible three years prior.
        taeric 1y ago
        Amusingly, for 1993, looks like you maxed out what you could even do in an IRA? Searching for "Vanguard S&P mutual fund minimum 1993" shows that many had a minimum of 3000? I'm guessing that is the same general search you were doing? I'm torn, as I want to think this isn't wrong. However, I also remember you could buy a car for 10k EASY in the early nineties. Was a pretty decent sum to make in a year. Especially if it was on top of all other expenses. I'd also hazard that for many, getting a car to commute to a job would have probably been a better investment. (Of course... this is only true if you use the car for the added productivity.)
kgwgk 1y ago
If they bought 30-year bonds, yielding 8%-9% per year, you may have received only the 5k in the end but what happened with the 13k in coupons?
- kgwgk 1y ago
  Also, if you had been born in 2000 you may have preferred the bonds. It took 20 years for equities to outperform.

ryandrake 1y ago

Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not. Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.

jameslk 1y ago
On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time. This is especially true for stocks vs bonds. Because the cash flows of bonds are fixed, prolonged inflation or rate spikes can deliver a loss that stays a loss, making long-term "safety" in bonds partly an illusion. http://www.efficientfrontier.com/t4poi/Ch1.htm http://www.efficientfrontier.com/t4poi/Ch1.htm
- ryandrake 1y ago
  > On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time. This is only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?
  - jameslk 1y ago
    The same type of argument can be made about bonds and even cash. And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too. Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it
    - ty6853 1y ago
      Holding stocks in the nation in which you live probably isn't very smart from a hedge perspective, considering US stocks don't have a locked correlation to foreign ones. Your assets would all be in the shitter at the same time you're out the job and need to liquidate them to survive.
      - jameslk 1y ago
        Yes I agree. I was using US stocks for the sake of comparison against US bonds. Otherwise, a diversified portfolio with risk adjusted to goals is what makes sense
    - narratives1 1y ago
      This is almost the definition of technical analysis: “chart always reverted to mean so it will always revert to mean” Note that almost every exchange outside the US has been flat or negative for decades. The US has held a precious position for a few generations that’s made “chart go up” feel like a given
      - Kranar 1y ago
        >Note that almost every exchange outside the US has been flat or negative for decades. As someone who works in finance this struck me as a remarkable claim. Upon inspection it turns out to be spectacularly incorrect. After adjusting for inflation it's actually the opposite, the vast majority of countries have seen their own version of the S&P 500 grow over a 30 year period, after adjusting for inflation, not stagnation or decline. Developing countries, particularly those in Asia, have seen incredible returns over a 30 year period, albeit with a great deal of volatility involved. Our neighbor to the north, Canada, has seen gains that are slightly below the U.S., but our neighbor to the south, Mexico has seen about the same growth as our own, once again accounting for Mexico's own inflation. Europe has also experienced a great deal of growth with many European countries even growing moreso than the U.S., for example Germany. While there are examples of decline, they are in countries that are both poor and have unstable governments. Most countries that are strictly poor but don't suffer from instability have for the most part seen growth rather than stagnation. So I don't know exactly what led you to believe your claim that "almost every exchange" has been flat or negative, but it's certainly not correct.
  - jajko 1y ago
    Yeah buying Norwegian airlines stock for example would have been a brilliant idea, right. I mean country like Norway with their sovereign fund, oil, very moral population and good government etc, nothing can ever go wrong.
    - kimbernator 1y ago
      It's hardly fair to portray stock market investment in that way, though. Nobody should be investing in a single stock for 30 years. A diversified sector EFT is just as easy to buy and comes with diversification so a single failing company doesn't have that much of an impact.
  - Lerc 1y ago
    I guess the questions to be asked would be Will the US economy completely collapse in the next 30 years? Will the US government completely collapse in the next 30 years. For the past century I think the answers to those questions would have been, "Almost certainly not" and "Not a chance in hell" I honestly didn't know where they stand today, but there's definitely been movement.
    - tmtvl 1y ago
      The past century, you say... wasn't there a little thing called 'the great depression' somewhere around a century ago?
      - Lerc 1y ago
        Wasn't a complete collapse. It took a significant hit, but still functioned.
  - kimbernator 1y ago
    Realistically, all that actually matters is where I land relative to the population at large. Since so much of the world economy is tied to stocks, by buying into it I will remain at least at parity with my current socioeconomic status regardless of whether the market goes up or down. Nobody with real money is just holding it in cash in case the whole stock thing doesn't work out. If things go the way they have been for a while now, I'll be able to retire comfortably. If stocks don't gain or lose a penny for the next 40 years, I think society as a whole will have reframed retirement. If society collapses, it didn't matter anyways.
- taeric 1y ago
  I mean... the risk of risky assets is that they won't last that long. Any asset you can look back on having held for a long time, is by definition less risky than you could have been. No?
- scubazealous 1y ago
  Bonds are considered safer because short of the US losing WWIII there is practically no way the US bonds would not pay out or lose value. US Bonds are safe and predictable, backed up by the immense military and resources of the nation. Investing in Apple 30 years ago would net a much higher return on $5k but even Apple was considered a unsafe investment in the 90s. On the other hand, Enron was considered a safe investment by many but went bankrupt almost overnight and shares became practically worthless.
  - kgwgk 1y ago
    > there is practically no way the US bonds would not pay out or lose value. Bonds can "lose value" and they did so quite strongly in 2022/23. If you bought 20-year bonds in 2020 for $100 they are worth $60 now (and were as low as $55 in 2023). Getting $1 per year is far from compensating the loss. They will recover gradually until they "pay out" $100 but right now they're underwater.
- floundy 1y ago
  The Nikkei 225 is still below its peak value from December of 1989. The US is an outlier in terms of historical average stock market returns and there is no guarantee this outperformance will continue into the future. Actually I'd say it's less likely, given that should it continue, the US market cap will eat the entire world stock market. The US stock market is currently 62% of the world's stock market capitalization.
  - ManBeardPc 1y ago
    Only if you invested everything in the Nikkei on the height of the market though. Many US companies are pretty global and have a lot of sales outside the USA. In that sense the risk is a lot less concentrated outside of extreme political events.
    - floundy 1y ago
      Many international companies are global, and have a lot of sales to the US. But I never see anybody using that as a justification for not investing in the US. As to the Nikkei retort this seems to be hindsight bias and ignorance of historical context, the general consensus at the time (both inside and outside of Japan) was that the Japanese economy was going to take over the world.
  - tokyoseb 1y ago
    The Nikkei 225 may be below its 1989 peak in price terms but you can’t ignore the dividends which an actual investment in the index would have paid during that period. On a total return basis (if you had reinvested the dividends into the index as you received them) the Nikkei passed its 1989 peak in 2021.
    - deanmoriarty 1y ago
      I struggle to understand why an educated crowd like HN routinely forgets dividends when posting any sort of financial charts. Total returns are what matters.
- cortesoft 1y ago
  > The longer a risky asset is held, the less chance of loss you’ll have I understand what you are trying to say here, but it really depends on what the “risky asset” is. If you hold a diversified set of risky assets, like a stock market index fund, then what you say is correct. However, there are other risky assets that don’t hold to this “a long time horizon reduces risk” statement. For example, if you put all your investment in a single stock, that is a risky asset that does not necessarily revert to the mean over time. Many companies go out of business, and the stock goes to zero and will never recover no matter how long you wait. It is important to note what kind of risk you are taking.
toasterlovin 1y ago
I'm not sure that a US government bond has a meaningfully different risk profile than an aggregate investment in US equity markets.
- ryandrake 1y ago
  If this were really true, they would offer similar returns.
  - toasterlovin 1y ago
    Famously, Mr. Market deals in what things cost, not what they are worth.
BlandDuck 1y ago
Exactly, if it had been obvious at the time that "the market" would deliver a better return, for certain, then nobody would have bought bonds at those prices. Then bond prices would have declined (and their expected returns or interest rate would have increased) until, in equilibrium, the anticipation was that the stocks and bonds would deliver comparable expected risk-adjusted returns.
- JackFr 1y ago
  Very few entities have a 98 year horizon. People sure don't. Some insurance companies do I suppose. A more interesting graph would be to show me the 30 year return at each point along the way. My gues is that stocks would still mostly come out on top, but not the runaway you see here.
tjwebbnorfolk 1y ago
"Risk-free" is a popular shorthand for "The US government won't default". But default is far from the only risk inherent in bond ownership. Risk is the chance something bad happens to you. Held for 30 years, bonds are eaten alive by inflation. That's a bad thing that happens to you if you hold bonds for a long time.
- ty6853 1y ago
  Indeed. There's always the story of finding stacks of bills in the wall of granddaddies house despite the fact creditors and the bank were up his ass to the bitter end for medical bills. Given the ever increasing number of people bankrupted by medical bills, divorce, child support, lawsuits, etc we're quickly moving into a world where it might be foolish to expect assets accessible to a brokerage or bank will still be there by the time you need them.
- kgwgk 1y ago
  > Held for 30 years, bonds are eaten alive by inflation. 20-year and 30-year bonds yield 5% today. That's well above inflation expectations. You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.
  - tjwebbnorfolk 1y ago
    You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free, then all I can say is I have a very different idea of what risk means. I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.
    - kgwgk 1y ago
      > You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free I didn’t say anything about “risk-free” (the closest is the second paragraph but you don’t address it at all). I was clearly commenting on the quoted sentence “Held for 30 years, bonds are eaten alive by inflation” which has not applied since the seventies, doesn’t seem the best assumption going forward, and has an easy solution as discussed. > reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase. If your main objective is to beat inflation, getting inflation + 2.50% with certainty seems an attractive proposition! (Inflation-linked bonds have a “fixed” rate on top on inflation.)
eweise 1y ago
isn't the stock market risk free over a 30 year span? Maybe with the exception of the depression.
- BJones12 1y ago
  The US stock market has not had a negative return over any 30 year span. There are 30 year spans with total returns under 10%, which significantly lag what bonds returned in those spans.

nosianu 1y ago

> but when I did the math to see how much more it would have been I have a suggestion for all the many similar problems around probability: Reframe it to be more correct. Instead of looking against the arrow of time, backwards with full knowledge ask yourself the corresponding question looking forward, from where you are right now. And then remember that that was the position you were in back then. Questions that deal directly or indirectly with probabilities become confusing, and frankly stupid, when you violate the arrow of time and make "backward predictions". One should just not ask that question, not even for fun. They not only make no sense, our psyche suffers when we try, even if just a little. This is part of another kind of problems: Asking why a given answer is wrong, for example in multiple choice questions. One of the best courses I took was an audio cassette pilot license theory course. One thing the speaker said about the multiple choice part of the exam was this. DO NOT (with a lot of emphasis and repetition in the audio) try to dwell on why a point is wrong. Concentrate on the true statements alone. Reason was similar to why raising the question why person XYS is NOT a pedophile still creates the association in the brains of people exposed to statements like that repeatedly. Apart from that, the number of potential wrong statements exceeds the valid ones by many orders of magnitude. Similarly, just do not think about problems that deal with probabilities and predictions looking backward. It's just not a valid way to think about them. If you must, reformulate to make them forward-looking. The problem of words and thoughts is the universe checks their validity only very rarely directly and immediately. If we don't restrain ourselves, our thoughts end up not representing reality more and more. Thinking requires quite a bit of self-discipline, we have to place the missing rails ourselves.

trod1234 1y ago
This isn't useful or correct, and ends up being a bit circular getting into the weeds. The focus should be that the normal math formula for bond valuation doesn't account for yearly real or projected inflation. Almost everyone I have met doesn't know how to modify the standard formula correctly unless they've already done it at some point in the past. Its not a trivial exercise. You have to understand the formulas well enough to modify them to account for the loss in purchasing power that compounds yearly, as a difference between the interest rate and real inflation over the bond terms. Most years, inflation has been well above that 2% margin dramatically impacting the rate of return or real yield.

marsten 1y ago

A surprising number of 401(k) plans default to a money market fund for invested assets. Imagine retiring after a decades-long career and realizing what could have been.

cced 1y ago
> Imagine retiring after a decades-long career and realizing what could have been. I'm not following what this means. Can you please elaborate?
- jlmcguire 1y ago
  I believe they mean realizing that if you had invested into stocks instead of money market you'd have likely realized a quite large return. Money markets seek to keep your returns to around inflation.
- peterbecich 1y ago
  If I remember this article correctly https://www.wsj.com/personal-finance/retirement/the-401-k-rollover-mistake-that-costs-retirement-savers-billions-c7a19dfa?reflink=desktopwebshare_permalink https://www.wsj.com/personal-finance/retirement/the-401-k-ro..., the summary is some peoples' 401k accounts are not invested in the stock market. Rather the money sits for years collecting interest, growing far less.

trod1234 1y ago

The problem is that most people don't know how to invest, and this has been done by purposeful intent. Financial education was removed from centralized education long ago. Bonds necessarily need to exceed the yearly inflation to retain their purchasing power. People claim these are risk free, but they aren't, even when held to maturity. You lose money from the inflation when the rate of interest is below the inflation rate which it almost surely was given the several decades of almost zero low-interest rates in that time period. There are some general rules that anyone should know. Rule #1 is don't lose your principal investment (don't lose money). Rule #2 is don't invest in a casino, always manage your risk, and know when its unmanageable. Rule #3 invest in yourself, understand the business, limit debt, and focus on value. People today don't realize the market has been rigged through a number of convoluted ways into that of a casino. Price discovery is gone because most transactions happen off exchange in the dark. In 2024, over 50% of transactions occurred off-exchange in dark pools. You then also have payment for order flow, synthetic shares via options through predatory middlemen, and no real law enforcement mechanism for when those big players break the rules; and they do on the regular as they did in GME/FRC, and too many other places to count. You've also got large banks pumping the prices up through non-fractional reserve based debt backing options contracts which they use to yield farm, and profits funneled away from businesses into stock buybacks hollowing them out of any value. No visibility, no price discovery, no economic calculation. These things fail when about 1/4 of the market is off-exchange, its been at crisis for a long time. There is no real opportunity for investment when you allow those rules to be broken. Its not an actual investment.

kgwgk 1y ago
> several decades of almost zero low-interest rates in that time period What are those “several decades” more precisely? https://fred.stlouisfed.org/graph/?g=1JtLn https://fred.stlouisfed.org/graph/?g=1JtLn
- trod1234 1y ago
  The chart you linked isn't inflation indexed. I believe the chart below is the one you should have been linking (at least one that's public, the reports I get are subscription only so I can't share those): https://fred.stlouisfed.org/series/DFII10 https://fred.stlouisfed.org/series/DFII10 Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria, with real negative rates 2011-2013, and 2020-2022. Notwithstanding all the unstated shennanigans and other changes to try to make the numbers look more palatable on the surface, like the YTM reporting loophole, there is also the backroom deals between blackrock to swap old low rate treasuries for newer treasuries on the taxpayer dime (1), and the abandonment of the fractional reserve system (2020, reserves set to 0% for Basel 3) which call into question more foundational issues of the money system. 1 (https://www.bloomberg.com/news/articles/2020-05-21/how-larry-fink-s-blackrock-is-helping-the-fed-with-bond-buying https://www.bloomberg.com/news/articles/2020-05-21/how-larry...)

rufus_foreman 1y ago

>> It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped. This is known as "looking a gift horse in the mouth".

Hasnep 1y ago
They just gasped, they didn't seem ungrateful to me.

NoboruWataya 1y ago

I believe the first broadly diversified ETF didn't come about until a few years later, so realistically there wasn't an easy way for a retail investor to invest 5k in "the market" back then. (EDIT: Not true, see below.)

sokoloff 1y ago
Vanguard launched an S&P 500 fund for retail investors in 1976.
- NoboruWataya 1y ago
  I stand corrected! I was just thinking about SPY and its ilk.
  - taeric 1y ago
    Well, your "5k" figure is still probably accurate. They had much larger minimums at launch.
    - sokoloff 1y ago
      I graduated in 1993 and going back through my old Quickbooks file, my 1993 IRA contribution went to a broad-based fund at Twentieth Century (now American Century). It was a half-year of working and all I could scrape together was $2000 and they accepted it to invest. I suspect making a mutual fund investment for $5000 (over $10,000 today) would have been possible three years prior.
      - taeric 1y ago
        Amusingly, for 1993, looks like you maxed out what you could even do in an IRA? Searching for "Vanguard S&P mutual fund minimum 1993" shows that many had a minimum of 3000? I'm guessing that is the same general search you were doing? I'm torn, as I want to think this isn't wrong. However, I also remember you could buy a car for 10k EASY in the early nineties. Was a pretty decent sum to make in a year. Especially if it was on top of all other expenses. I'd also hazard that for many, getting a car to commute to a job would have probably been a better investment. (Of course... this is only true if you use the car for the added productivity.)

kgwgk 1y ago

If they bought 30-year bonds, yielding 8%-9% per year, you may have received only the 5k in the end but what happened with the 13k in coupons?

kgwgk 1y ago
Also, if you had been born in 2000 you may have preferred the bonds. It took 20 years for equities to outperform.