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Ask HN: Is the stock market's growth largely anything more than inflation?

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Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#11

Post by dragontamer »

sleepdreamy wrote: post #9
throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

So how should I go about investing/creating a portfolio? I'm 29 and finally making decent money. Not sure how to move forward

Two-portfolio theory is a good place to start.

VTI (Vanguard Total Stock Market) + BND (Vanguard Total Bond Market).

If you're saving for retirement, 30% BND + 70% VTI is a good starting point. Bonds grow slower than stocks, but stocks are riskier than bonds. Both grow over time.

VTI charges a 0.03% fee/year.

BND charges a 0.03% fee/year.

These are very low fees. The management style is hands-off (which is why its so low): VTI buys every stock in the stock market proportional to their size. BND buys every bond in the bond market proportional to their size (ie: mostly US Treasuries, but also some company-debts). Since these are broad and diversified, you should perform decidedly "average", which is fine.

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If you're saving for something near term (ex: new car, new house) that's within 5 years, you'll want to be more-bonds and fewer-stocks, 50/50 or maybe even 70% bonds / 30% stocks

Research bonds and stocks very closely. Learn their details, how companies work, dividends / profits are distributed (in particular, learn the theory between dividends vs capital expenditures vs stock buybacks).

For Bonds, learn about inflation risk, interest-rate risk, and more.

Once you understand the basics, feel free to branch out and put small amounts of money into specific stocks (or specific stock-sectors).

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#12

Post by abakker »

sleepdreamy wrote: post #9
throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

So how should I go about investing/creating a portfolio? I'm 29 and finally making decent money. Not sure how to move forward

If it were easy, everyone would be doing it. Since it is easy to do what everyone is doing, your investments will not do better that the market. Therefore, if you want to beat the market, it is difficult. Consider the most efficient easy strategy to be minimizing fees.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#14

Post by mupuff1234 »

throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

That might be true for the US market but most listed companies are global.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#15

Post by throw8383833jj »

sleepdreamy wrote: post #9
throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

So how should I go about investing/creating a portfolio? I'm 29 and finally making decent money. Not sure how to move forward

the most important thing is diversification. First of all, max out your 401K immediately and then get an IRA if you're income is low enough. Within there buy the SPY and maybe VTI (you want as much diversification as possible). Outside, of the 401K and IRA, you also buy SPY, VTI (but remember, you won't be able to sell that in any year where you make income above 40K because of "capital gains", lolz "gains", history 100 years from now will call that a misnomer.)

If you invest in GOLD, do it in an IRA otherwise you will be hit with 28% collectibles tax, no matter how low your income is.

Get some bitcoin (or GBTC in an IRA), the two wrongest allocations for bitcoin are 0% and 100%, but many financial professionals today will recommend 3-5%.

Disclaimer: I know nothing and This is NOT financial advise.

Most importantly, try not to pick winners. that's a fools errand. Pros that know absolutely everything can't even beat the market, so just try and be average. If you can be average with the VTI, then you'll beat the returns of most people who try to pick winners.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#16

Post by ckardat123 »

throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

What metric are you using for productivity growth per capita? The data I'm looking at shows around a 25% increase (inflation-adjusted) over the past 2 decades in the US.

Source: https://ourworldindata.org/grapher/labor-productivity-per-ho...

Intuitively, it certainly seems like humans are a lot more productive now than we were two decades ago with wider adoption of the internet

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#18

Post by yieldcrv »

> What would the market look like if we corrected for the money supply?

It would look like it does right now! You're almost asking the right questions, but not quite. People look at stretched valuations and high price to equity ratios and other metrics, to forecast doom and gloom (big selloffs). It is true that earnings have not increased with prices for quite some time. But there is are decent metrics to track this kind of thing (which you won't find in Technical Analysis books from 40 years ago, so just burn those), one metric is to look at the price to equity ratio to treasury bill interest rate spreads.

During money supply expansion, whoever has access to cheap money then goes and buys stocks (amongst other things), hoping to increase that cheap money faster than the money is given to other people (diluting the purchasing power of the money the last person received). Many times these people are publicly traded corporations, who buyback their own stock, or their shareholders who also increase their positions in the same source of wealth. There is a psychological component, and when people say that, it really relies on identifying who the biggest movers in the market is and what they do and why. Hope that helps.

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#19

Post by austinsharp »

Not all companies (stocks) have the same sensitivity to inflation. Depends on all sorts of things that are business specific. One example is how easily price increases from suppliers can be passed on to customers. A company that sells a commodity into a very liquid market won't suffer as much.

At the other end of the spectrum, inflation decreases the real value of future cash flows, so tech stocks have been hammered. Here's an explanation I like: https://fullstackeconomics.com/rising-interest-rates-are-ham...

Re: Ask HN: Is the stock market's growth largely anything more than inflation?

#20

Post by throw8383833jj »

ckardat123 wrote: post #16
throw8383833jj wrote: post #8

There are several components that make up long term stock returns (from a macro level): - Population growth - Growth in productivity per capita - Dividends - Inflation It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down fr…

What metric are you using for productivity growth per capita? The data I'm looking at shows around a 25% increase (inflation-adjusted) over the past 2 decades in the US. Source: https://ourworldindata.org/grapher/labor-productivity-per-ho... Intuitively, it certainly seems like humans are a lot more productive now than we were two decades ago with wider adoption of the internet

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real...

Look at North ameria: 2000 to 2010: 0.73% 2010 to 2018: 1.45% Eurozone is just under 0.7% to 1% for the last 20 years.

Keep in mind I'm projecting forward over the next 100 years. Developing countries have slightly higher growth rates of 1.5% but they will one day be a developed country too, if they keep "growing".

Also, keep in mind that the BLS CPI overstates CPI by 2% (according to shadowstats.org ~ and the BLS's own CPI from the 80s). So, this means that real producitivy is also overstated by 2% since.

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