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

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

#51

Post by ericmay » Wed, Jun 01, 2022, 9:13 PM UTC

idkyall wrote: post #31

i3oi3 wrote: post #29

Earlier quoted context omitted.

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…

I think it's hard to compare Japan with the US or UK or other countries because unlike those countries, Japan can't turn on what I'll call an immigration valve and just flat-out import people to grow the economy.

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

#52

Post by throw8383833jj » Wed, Jun 01, 2022, 9:13 PM UTC

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…

You've got some great advise that straight out of the investment handbook and has served investors very well for the last 100 years.

But, the mainstream investment handbook is a little out of date. With a 50 year Bond bubble brewing, bonds are close to an all time high right now, which means interest rates are close to all time lows. This means, you'll get very low returns from bonds, much lower than the last 50 years and almost certainly won't keep up with real inflation. Much of the bond returns from the last 50 yrs were from increasing bond prices/decreasing interest rates. those days are over. so, now we only have the yield left, which averages about 2% or so.

In a secular low rate world or ever low rates, risk assets, unfortunately are the only life boat available to rescue us from the onslaught of inflation. :(

this is Not financial advise.

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

#53

Post by erispoe » Wed, Jun 01, 2022, 9:13 PM UTC

coned88 wrote: post #40

greenthrow wrote: post #28

That is not how inflation works. Anyone complaining about the government printing money has an incredible naive view on the economy.

Mind explaining then? To me printing money is always bad.

Prices are a function of supply and demand, largely. New money being created and spent is only an issue when it durably creates more demand than supply can absorb. This is where inflation happens. With covid we had across the board stimulus that didn't care too much if supply was matching, but we also had supply disruptions everywhere.

This is incredibly hard (impossible?) to do in practice, but imagine that you create new money and use it to buy goods where supply can be perfectly adjusted in regards to demand. Now your money creation has zero effect on prices.

On top of that, a low level of inflation is actually a policy target. Low, but not null, because public policy wants to incentivize productive investment and not hoarding cash. And because deflation is much harder to curb (hello Japan) than inflation for a reasonably developed and productive economy.

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

#54

Post by alaricus » Wed, Jun 01, 2022, 9:15 PM UTC

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.

This is probably the worst time to be buying fixed income assets like bonds. You'll get crushed as the interest rates go up.

Commodities is a good place to be. This war does not look like it's going to end. You can expect high commodity prices as long as it continues.

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

#55

Post by guerrilla » Wed, Jun 01, 2022, 9:15 PM UTC

You might be interested in reading some value investors, like Jeremy Grantham, for example. Most see it as a kind of longer-term bubble that can be propped up in various ways and has nothing to do with the fundamentals of companies (which is what you or your funds should actually care about.)

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

#56

Post by jacobr1 » Wed, Jun 01, 2022, 9:15 PM UTC

jollybean wrote: post #30

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 this is missing a giant factor, which is let's say 'inflation leverage'. Inflation will hit some parts of the economy differently than others. Consumer goods, homes, stocks, bonds - different kinds of inflation. Quantitative Easing and other such policies, may impact the stock market differently than others. As interest rates drop, the amount of leverage goes up dramatically, causing bubble. Recent increases…

> Recent increases in valuations were not commensurate with profits, ergo, an ugly kind of inflation.

But we also have downturns that reduce returns significantly. If you average out the returns the presumption is that the cost of that "inflation leverage" is accounted in the inevitable bubble pop.

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

#57

Post by DOsinga » Wed, Jun 01, 2022, 9:16 PM UTC

aeternum wrote: post #33

i3oi3 wrote: post #29

Earlier quoted context omitted.

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%.

> MSCI China has returned over 12%

Not per year: https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa...

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

#58

Post by throw0101a » Wed, Jun 01, 2022, 9:18 PM UTC

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).

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

#59

Post by svachalek » Wed, Jun 01, 2022, 9:18 PM UTC

ericmay wrote: post #51

idkyall wrote: post #31

Earlier quoted context omitted.

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…

I think it's hard to compare Japan with the US or UK or other countries because unlike those countries, Japan can't turn on what I'll call an immigration valve and just flat-out import people to grow the economy.

Can't or won't?

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

#60

Post by staticman2 » Wed, Jun 01, 2022, 9:19 PM UTC

aeternum wrote: post #33

i3oi3 wrote: post #29

Earlier quoted context omitted.

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%.

I tried to look up what you said about China. IShares MSCI China ETF data on portfoliovisualizer.com only goes back to 2012 and shows 4.27% returns .

I don't know if your statement about MSCi China is correct but if so you are cherry picking based on an unusual start date.