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?

#91

Post by throw8383833jj » Thu, Jun 02, 2022, 4:02 AM UTC

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…

15%+ (CA has more added on) is not favorable when it's on your principle. If your $$ go up by x10 but your purchasing power remains the same, then 90% of your principle is being taxed at 15%. The term "capital gains" is becoming antiquated, going forward. Sure, the last 50 years have been great but no one is expecting the future to look anywhere near as rosy as the last 50 yrs. and so, the pizza keeps getting sliced into more pieces but you still have the same amount. The dollars in your retirement account may increase drastically but if the purchasing power is exactly the same, then you haven't actually gained anything. It's only in terms of accounting, that it's said to have made a capital gain: it's not a real gain.

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

#92

Post by yosefjaved1 » Thu, Jun 02, 2022, 4:14 AM UTC

By growth, do you mean the price of stocks or actual earnings?

Also, inflation rate is separate from the money supply. People have to be willing to spend and invest. If they're not willing to spend or invest then the prices of goods just stay the same or worse they begin to deflate. If you ever have a chance, then read about Japan's Lost Decades. Warning: you might get freaked out - https://en.m.wikipedia.org/wiki/Lost_Decades

There are actually a lot of scenarios that COULD happen to the stock market with a growing money supply; however, it's really hard to say if those implications will happen until they actually happen.

In general, the implication of a growing money supply just means that money becomes cheaper to borrow. When money becomes cheaper and you have the means to borrow it, then you have an advantage to take more risks.

The implication on the market CAN be the overvaluation by investors if they are borrowing and investing the money into stocks on exchanges like NYSE and NASDAQ, and have nowhere else to invest. There is a lot of retail investors and institutional investors that are borrowing due to cheap money - https://www.barrons.com/amp/articles/people-keep-borrowing-m...

Important thing to note though is the implication on those companies in the market. Some of them (not all of them) are able to borrow and invest the money to grow their businesses to makeup for what they borrowed. That in turn would increase the value of those companies, which in turn CAN increase the value of the market.

It could also be that those same companies are borrowing just to pay off debts. They don't use the money to actually invest which in turn would not lead to any growth and never have enough earnings to give investors.

Overall, it's really hard to know what the implications are until things actually happen.

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

#93

Post by chii » Thu, Jun 02, 2022, 5:19 AM UTC

dragontamer wrote: post #63

throw8383833jj wrote: post #52

Earlier quoted context omitted.

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.

The amount you can buy for I-bonds is too small for a retirement portfolio (which, i think needs to have a total asset of around $1million to make retirement self-sufficient).

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

#94

Post by chii » Thu, Jun 02, 2022, 5:29 AM UTC

alaricus wrote: post #50

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.

which then encourages investment (it is, after all, what financial products end up being used to finance).

This investment would, if done smartly, will produce more goods and services to justify the higher prices of those financial instruments.

Thus, the economy grows. The financial growth leads the goods/services growth. Unless, of course, the financial growth is spent poorly (which is of course, totally possible), and thus you get nothing out of the spent resources.

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

#95

Post by chii » Thu, Jun 02, 2022, 5:32 AM UTC

aynyc wrote: post #81

coned88 wrote: post #39

Earlier quoted context omitted.

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

The US dollar has lost 85-96% of it's value since the early 70's Can you explain that? I don't really understand that sentence.

The argument they're making is that because the original value of the dollar is worth X amount of gold, until the 70's (where we got off the gold standard), the "actual", gold backed value would've been a constant multiple of the price of gold today (since gold's value is stable under this assumption), and thus, the dollar lost a bunch of value.

i don't buy it, because the amount of possible goods/services purchasable today is much higher than back in the 70's.

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

#96

Post by chii » Thu, Jun 02, 2022, 5:38 AM UTC

Jordanpomeroy wrote: post #80

What about population growth? Is the stock market a big Ponzi scheme? Guess who’s holding the bag?

it's only a ponzi scheme if there's no productivity behind the investment.

The stock market is composed of companies that are mostly productive - the unproductive ones go bankrupt. Bad luck for those holding those shares, but this doesn't make the total stock market a ponzi scheme.

people use "ponzi schemes" too often to incorrectly describe price increases.

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

#97

Post by diffeomorphism » Thu, Jun 02, 2022, 5:42 AM UTC

>It seems like the stock markets (USA) growth is strongly correlated to inflation.

> So the market doesn't ...

No, your conclusion does not follow at all. That is like saying "if it rains the floor gets wet. So if I dump a bucket of water on the floor, it is going to rain."

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

#98

Post by shinryuu » Thu, Jun 02, 2022, 7:55 AM UTC

danielscrubs wrote: post #85

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.

Don’t forget the high taxes on investments in Japan. Basically, US is good for investors but Japan is good for workers. Japan’s median wealth is higher than US.

Not sure I would call Japan good for workers. There is a reason for japanese having the word "karoushi", which has the meaning of a person that has died due to overwork.

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

#99

Post by terry_lisp » Thu, Jun 02, 2022, 9:14 AM UTC

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…

No post body was provided.

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

#100

Post by youeseh » Thu, Jun 02, 2022, 9:22 AM UTC

SilverBirch wrote: post #74

coned88 wrote: post #37

Earlier quoted context omitted.

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.

I could be completely wrong about this, but the counter side of this is that when stock prices goes down (due to interest rates or whatever else) the value destruction is not equal to the money transacted. If you buy 1000 shares of TSLA for $1000 your position was $1m. When I buy 1 share for $5 after the crash you've lost 99.5% despite not transacting a penny. Hey presto! All that inflation disappeared!

This is why more seasoned traders pay attention to trading volume. It is also how many players manipulate the naive traders into thinking a stock is crashing or booming.