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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?

#41

Post by PopAlongKid »

dragontamer wrote: post #11
sleepdreamy wrote: post #9

Earlier quoted context omitted.

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…

>If you're saving for something near term (ex: new car, new house) that's within 5 years

A more conservative suggestion that I read once and have mostly adhered to says that any money you expect to need in the next five years should not be in the stock market at all.

>BND (Vanguard Total Bond Market)

Individual bonds and bond funds are two quite different types of investment and should not be considered equivalent.[0]

[0]https://www.fidelity.com/learning-center/investment-products...

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

#42

Post by ChrisLomont »

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…

>You can forget about seeing any return above inflation.

That's not true. Here's a calculator you can play with that shows S&P 500 returns for any time period you like. Or you can go to FRED data and play around and get the same information.

https://dqydj.com/sp-500-return-calculator/

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

#43

Post by PopAlongKid »

throw8383833jj wrote: post #15
sleepdreamy wrote: post #9

Earlier quoted context omitted.

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…

>get an IRA if you're income is low enough.

There is no high-income restriction on contributing to a traditional IRA. Only the possible tax deduction is limited, however earnings on any contribution are still fully tax deferred.

>, you won't be able to sell that in any year where you make income above 40K because of "capital gains"

Let's clarify: for U.S. tax purposes, if your taxable income (which is much lower than gross income) as a single filer is below about $40K (double that if married filing jointly), your tax rate on long term capital gains is zero (for now). But even if you go over that, you still receive a highly favorable rate of only 15%, it doesn't go higher than that until taxable income gets up around $450K, so if you must sell with a gain, it's still quite tax-friendly. (Unfortunately, some states such as California have no special capital gains tax rate).

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

#44

Post by mjevans »

Imagine a stock market where shares _had_ to be held for at least a week. Possibly even one where each day it was a dutch auction match of buyers and sellers during the overnight accounting.

I think this would be a healthier form of investing in the ownership of companies.

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

#45

Post by VirusNewbie »

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…

>Jeremy Siegel, a finance professor at Wharton, wrote a great book called Stocks for the Long Run that shows stocks have grown about 7% per year (inflation adjusted) over the last 200 years

You two are talking past each other. When he says inflation, he means M2, you're referencing something that adjusts to CPI.

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

#46

Post by pizlonator »

I think that the stock market's rise since the 90s has been a very particular kind of inflation. It's a classic case of benchmark hacking.

At some point, journalists and media decided that the stock market indices are a good indicator of the economy. It's convenient. They don't have to actually investigate anything to see how the economy is doing - they just look at one number.

That's been the economy's benchmark for decades. I think that around the 90s, regulators started to bias their behavior based on this observation. These are people who tend to lose their jobs when the economy crashes and fails to swiftly recover. Nevermind that the stock market crashing doesn't necessarily mean that the economy crashed. But I think they realized that if they make choices that result in the stockmarket going up, then they get to keep their jobs (or they even get praised for being oh so smart).

So. We have a kind of inflation. It's really a case where the benchmark that is being reported as "the status of the economy" is being actively hacked by regulators. Given any opportunity to intervene, they will carefully finetune the intervention with the singular purpose of making the benchmark look good.

So. We have been getting poorer since the 90s while the stockmarket has been skyrocketing in a historically unprecendented way. These are two sides of the same coin, and that coin is that the purpose of modern monetary and fiscal policy in democratic countries is to elevate the stockmarket even if it makes everything else go to shit. They do this because they know that then, journalists will report that the govt is doing a Great Job and the regulators get to keep their jobs.

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

#47

Post by throw8383833jj »

ChrisLomont wrote: post #42
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…

>You can forget about seeing any return above inflation. That's not true. Here's a calculator you can play with that shows S&P 500 returns for any time period you like. Or you can go to FRED data and play around and get the same information. https://dqydj.com/sp-500-return-calculator/

i meant, going forward from here.

in the past, we had great returns due to increasing population, plus productivity increases and in large part due to dividends. all three of those are severly decreased going forward for the next 100 years.

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

#49

Post by alaricus »

pizlonator wrote: post #46

I think that the stock market's rise since the 90s has been a very particular kind of inflation. It's a classic case of benchmark hacking. At some point, journalists and media decided that the stock market indices are a good indicator of the economy. It's convenient. They don't have to actually investigate anything to see how the economy is doing - they just look at one number. That's been the economy's benchmark for…

I agree, but it's not just regulators. It's also politicians and to a lesser extent anyone else whose position depends on "the status of the economy".

Furthermore, if the stocks didn't go up liek they did, there would be a massive issue meeting pension and retirement obligations.

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

#50

Post by alaricus »

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?…

When government prints money, people don't go and drive the price or bread and butter up. They go and invest in financial markets, driving the price of financial products like stocks up.
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