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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?

#31

Post by idkyall »

i3oi3 wrote: post #29
MrPowers wrote: post #22

Yes, stock market growth is largely driven by the real growth in earnings and dividends. Nominal figures are not adjusted for inflation. "Real" numbers are adjusted for inflation (in economics-speak). The stock market (e.g. S&P 500 index) has real earnings that have consistently grown over time (although earnings are quite volatile). The real dividends paid by the companies that make up the stock market have also gro…

I was discussing low-load index investing with a friend, and the 7% over the last 200 years sounds great. He suggested the hypothesis that that's a reflection of the rise of the United States as a superpower over the last 200 years, and if anything were to impugn the United States' status as the market of refuge, those numbers would not be predictive of consistent long-run returns in the future. That's a hard hypothe…

Here's a source referencing the UK stock market: https://globalfinancialdata.com/stocks-for-the-very-long-run...

"Between 1692 and 2018, stock prices increased at an average rate of 1.87% per annum before inflation and 0.36% after inflation, and with reinvested dividends averaging 5.04% per annum, investors received a total return of 6.62% per year. £1"

Now, that being said, during this time frame, clearly the UK is also a western superpower, and after a certain point in time the UK & US stock markets probably have a very strong correlation with the rise of electronic trading/risk management.

For another example of an older equity market, we might look to Japan, which has had a negative rate of return: https://www.afrugaldoctor.com/home/japans-lost-decades-30-ye...

That being said, as we see in that article the monthly $833 purchase DCA still gave a positive return over 30 years.

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

#32

Post by dsr_ »

i3oi3 wrote: post #29
MrPowers wrote: post #22

Yes, stock market growth is largely driven by the real growth in earnings and dividends. Nominal figures are not adjusted for inflation. "Real" numbers are adjusted for inflation (in economics-speak). The stock market (e.g. S&P 500 index) has real earnings that have consistently grown over time (although earnings are quite volatile). The real dividends paid by the companies that make up the stock market have also gro…

I was discussing low-load index investing with a friend, and the 7% over the last 200 years sounds great. He suggested the hypothesis that that's a reflection of the rise of the United States as a superpower over the last 200 years, and if anything were to impugn the United States' status as the market of refuge, those numbers would not be predictive of consistent long-run returns in the future. That's a hard hypothe…

The US stock market is semi-unique: there are others around the world in the 20th-21st centuries that are comparable, but also correlated.

https://en.wikipedia.org/wiki/List_of_stock_exchanges

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

#33

Post by aeternum »

i3oi3 wrote: post #29
MrPowers wrote: post #22

Yes, stock market growth is largely driven by the real growth in earnings and dividends. Nominal figures are not adjusted for inflation. "Real" numbers are adjusted for inflation (in economics-speak). The stock market (e.g. S&P 500 index) has real earnings that have consistently grown over time (although earnings are quite volatile). The real dividends paid by the companies that make up the stock market have also gro…

I was discussing low-load index investing with a friend, and the 7% over the last 200 years sounds great. He suggested the hypothesis that that's a reflection of the rise of the United States as a superpower over the last 200 years, and if anything were to impugn the United States' status as the market of refuge, those numbers would not be predictive of consistent long-run returns in the future. That's a hard hypothe…

UK stock markets have returned a similar 7.5% over the last 119 years (~4.9% above inflation).

MSCI China over the last 2 decades has returned over 12%.

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

#34

Post by coned88 »

MrPowers wrote: post #22

Yes, stock market growth is largely driven by the real growth in earnings and dividends. Nominal figures are not adjusted for inflation. "Real" numbers are adjusted for inflation (in economics-speak). The stock market (e.g. S&P 500 index) has real earnings that have consistently grown over time (although earnings are quite volatile). The real dividends paid by the companies that make up the stock market have also gro…

> I think it's better to correct for inflation. The money supply can grow and it doesn't necessarily cause inflation (see the 2008 monetary response to the Great Financial Crisis as an example).

I may be a layman but I'm pretty sure that was just one type of inflation.

> I'm not sure this is true. In the 70s, inflation was high and stock returns are low. In the 90s, inflation was low and returns were high. In 2021, inflation was high and returns were high.

I'm not exactly talking about returns. I mean prices. In my eyes when you look at the S&P 500, every time there's money printing it's like a rolling snowball. It just gets bigger and bigger. But it's weird because that growth itself is not reflective of companies doing things but just them investing money or buying back stocks.

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

#37

Post by coned88 »

theandrewbailey wrote: post #10

> The more money the government prints the more the stock market goes up. I'm not an economist, but I have some speculation (no pun intended): When the government prints money, most of it ends up with the rich. The smart rich know that it's unwise to have lots of money lying around, so they buy investment assets, like real estate and stocks. When quantitative easing started in 2008-ish, guess what got more expensive?…

You're the one who seems to get what I'm saying exactly. It's like a big snowball that the more you feed it the more it grows as it rolls.

I can't tell if this is good or bad or not. Because it seems like funny money to me.

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

#38

Post by coned88 »

ezconnect wrote: post #35

There's no other place to park cash right now. Central banks have zero and some negative interest rates. Having cash on bank is very expensive so the stock market is the new bank.

I'm worried about a complete crash that would plummet everything. Imagine if every year the stock market represented real industry and work and value. It would be strong and sturdy. But with this money being so loose. It's similar to if I just gave you decks of cards year after year and said build, build, build. That house of cards is not going to be great and can collapse.

What happens in 80 years when milk is $34 a gallon?

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

#39

Post by coned88 »

aynyc wrote: post #13

My unsubstantiated view is the growth of broad market index funds. Because billions coming in to buy and hold, why would it drop value?

Because the money is funny money that's not real or robust. The US dollar has lost 85-96% of it's value since the early 70's. Just my view atleast
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