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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?

#61

Post by goo »

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.

This is my favorite article about inflation https://economicsfromthetopdown.com/2021/11/24/the-truth-abo...

Inflation is not simply a matter of the government adding more money to the supply (although that's one of the actions that can help reduce the value of currency)... the flow of money (and power) is immensely complex, and inflation as a measure is a procrustean bed (https://en.wikipedia.org/wiki/Procrustes)

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

#62

Post by alaricus »

Inflation isn't a single number. It's reported as a single number because anything more doesn't fit into a headline.

Different things inflate in different amounts. Right now the inflation on fuel is much higher than the inflation on tomatoes or hotel prices where Russian instagirls used to visit.

When central banks started printing money, people didn't bid the price of bread, butter or automobiles up. So this didn't register as a increase in the cost of living (except for housing, which they did indeed bid up).

This central bank money went to financial assets like stocks. That is why the price increases in stocks have been faster than the price increases in consumer products.

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

#63

Post by dragontamer »

throw8383833jj wrote: post #52
dragontamer wrote: post #11

Earlier quoted context omitted.

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 year…

I mean, that or TIPS / I-Bonds, if you really care about inflation.

There's a lot of instruments out there.

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

#64

Post by svachalek »

coned88 wrote: post #34
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, i…

I think there's a subtle bit that a lot of people don't see about the stock market, that it's trading dollars for bits of companies. This says something about the value of those companies, but also about the value of dollars. I think a lot of what we've seen over the past two years makes little sense if you think about it in terms of the value of American companies, but from the perspective of the value of a dollar (to those who have easy access to them) it's all a lot more logical.

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

#65

Post by ericmay »

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

There's no great answer here. Even those advocating for something like a two or three-fund portfolio have to contend with great arguments for 100% equity allocations (https://www.gocurrycracker.com/path-100-equities/ for example - haven't vetted numbers myself).

But I do think I have some 100% guaranteed "advice" (this isn't financial advice and you would be stupid to listen to anything I write here) which is that you should always max out tax-advantaged accounts. It will depend on your income level and specifics, but you should basically max out your 401k and any IRA vehicles you have access too (depending on income level) with whatever you do. While the regulatory environment can and will change, based on what you know today and can predict, these accounts are huge up-front 0 risk ways to save even more money.

With all of that being said, generally it's advised to follow something like a 2 or 3 bucket portfolio with a mix of total US stock market (or S&P500) making up something like 90% at your age and then reducing by 10%/decade + emerging market funds + bonds. Allocations depend on goals/ideas.

Speaking of goals, the #1 thing to do is figure out your goals. Want to be financially independent at 35? Well you will want to put money into different accounts and probably different assets. Want to "work" until you are 50? That's a different strategy. Etc.

When it comes to investing, you don't get rich and then all of a sudden you are rich.

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

#66

Post by arrosenberg »

svachalek wrote: post #59
ericmay wrote: post #51

Earlier quoted context omitted.

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?

Would be much harder even if they wanted to. Lots of countries teach their kids English, only one teaches their kids Japanese.

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

#67

Post by throw8383833jj »

MrPowers wrote: post #25
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…

The biggest factor influencing long term stock returns in real growth in earnings. Companies don't pay out all profits to shareholders as dividends. They can also reinvest in their own business (e.g. build a new factory) or buy back shares. The go-forward nominal rate of return on stocks should be higher than the inflation rate + the dividend yield. The nominal rate of return could be closer to shareholder yield + in…

Look at it this way. In the forever long term, stock valuation (without dividends) can't exceed the GDP growth curve. Otherwise the warren buffet ratio would be meaningless. So what is GDP growth? It's population growth plus productivity growth. everything else just is just productivity growth. Sure, stocks can increase their earnings as a larger percentage of gdp, but that is also finite and will in the long term still fit the GDP growth curve.

So if Pop growth and productivity growth are 0 in the long term (it might be higher i don't know), GDP is Inflation. if GDP is inflation then equity returns without dividends is inflation as well.

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

#68

Post by ericmay »

PopAlongKid wrote: post #43
throw8383833jj wrote: post #15

Earlier quoted context omitted.

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…

> 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.

Yep. Which is why I think it's a great little bucket for REITs and perhaps dividend stocks where distributions would have counted toward your annual income but don't when you use the TRAD IRA.

Dividends are taxed at max 20% (AFAIK) but REIT dividends are taxed like income at your highest marginal rate, so if your marginal rate is high enough (above 20%) you may want to buy REITs in a traditional IRA.

This is not financial advice.

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

#69

Post by ericmay »

svachalek wrote: post #59
ericmay wrote: post #51

Earlier quoted context omitted.

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?

Both really. They can't because they won't, but also because they can't.

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

#70

Post by l30n4da5 »

svachalek wrote: post #59
ericmay wrote: post #51

Earlier quoted context omitted.

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?

only so much space on an island. Japan is pretty crowded as it is, isn't it?
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