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Investing Returns on the S&P500

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Re: Investing Returns on the S&P500

#71

Is it possible to do it for dollar cost averaging? That is what happens if one didn't invest in a lumpsum but invested $1000 every month -- how does the returns look like for different time periods?

It's discussed near the bottom of the writeup, but the author suggests somebody else may be better suited to do it:

What about Dollar Cost Averaging (DCA) instead of Lump Sum Investing (LSI)?

This one is going to be a little more difficult. I've included the original code and it's open-source, so if you want to play with the numbers, you can try to do this yourself. However, there are a couple points I'd like to keep in mind:

•You're working with a "cash multiplier" as the main result. You'd be trading in a unitless scale for a scale with units since you'll need to specify a base value. Perhaps the act of buying a single share of SP500 per year might help with keeping the scale nondimensional?

•There's inflation data in there, but at some point you're going to have to account for that if you're using dollars as a scale. How does one compare investing a dollar in 1902 vs. 2002?

•DCA will probably cause some scaling issues. You'll need to accurately tune your algorithm to reflect an equivalent investment under the LSI algorithm I provide.

My prediction is that DCA will "thin out" the plot and bring a lot more values closer to the average. This makes investing a bit safer, but at the cost of slower gains.

Re: Investing Returns on the S&P500

#72
What of opportunity cost? That should be factored in just as inflation is.

> After 20 years, you're almost guaranteed to sell high.

Not if you factor in opportunity cost. If I invest $100K and after 20 years I sell at $110K, which works out to a 0.5% APR, I wouldn't consider that selling high.

Re: Investing Returns on the S&P500

#73
post #22

Looking at the discussions here I find it interesting that even in something as number driven as the stock market everybody argues about the meaning and the validity of the numbers. There really is no clear picture. But somehow the regular guy is supposed to navigate his way through this jungle of conflicting, confusing or meaningless numbers. And considering the long time frames most people don't have much opportuni…

Most people have a financial adviser, but for the industrious I recommend: http://jlcollinsnh.com/stock-series/ And for the lazy, this is a good resource: https://www.bogleheads.org/wiki/Lazy_portfolios

I doubt most people have a financial adviser. What percent of people even have savings more than a single paycheck?

Re: Investing Returns on the S&P500

#74
post #22

Looking at the discussions here I find it interesting that even in something as number driven as the stock market everybody argues about the meaning and the validity of the numbers. There really is no clear picture. But somehow the regular guy is supposed to navigate his way through this jungle of conflicting, confusing or meaningless numbers. And considering the long time frames most people don't have much opportuni…

Most people have a financial adviser, but for the industrious I recommend: http://jlcollinsnh.com/stock-series/ And for the lazy, this is a good resource: https://www.bogleheads.org/wiki/Lazy_portfolios

What? Most* people (at least in the USA) don't even own a single stock, let alone have a financial adviser.

*(Actually, looks like it depends on your source: 48%[1] or 52%[2], so let's say "about half of people")

1: http://money.cnn.com/2015/04/10/investing/investing-52-perce...

2: http://www.gallup.com/poll/190883/half-americans-own-stocks-...

Re: Investing Returns on the S&P500

#75
an oft-neglected nugget of info that has great bearing on a buy-and-hold approach, esp with mutual funds: FEES

Fees can kill your returns

There are many low-fee or no-fee options

Re: Investing Returns on the S&P500

#76

It's funny that this is so non-intuitive. My wife continues to try to "time the market" despite me telling her that it's pointless over such a long time horizon. Maybe this will help convince her.

That's because most people (perhaps subconsciously) view the market as zero sum. What goes up must come down.

Negative sum, all that fun hardware and hard workers live off trading commissions.

Something to think about is the market originally existed to raise capital for massive industrial projects like transcontinental railroads and Ma Bell and steel mills and factories in general.

That's methodically been destroyed and soon will be as economically relevant as selling farm tractors is today.

True its diversified out into providing capital to set up financialization schemes, holding companies, stuff like that. But in the very long run I'm not seeing a purpose in having a stock market. That would tend to make it go away.

Take America 2016 and just turn all the dials up to 20 and call predictions for 2036. The last industrial employer closed years ago so no need to raise money for factories full of workers. The last privately funded construction project was built long ago and all construction not just sports stadiums and corporate HQs are completely government funded, no need for stock market funds if all the money comes from taxpayers. Income inequality has accelerated to the point of there no longer being a consumer economy, no need to finance consumerism like retail stores or car loans by selling stock. That also means no advertising because there's almost no value left to extract once all the blood has been squeezed from the stone, which in a country where no one can afford medical care, higher ed, or housing means they don't need to sell stock because they've crashed and no longer exist for all practical purposes. Of course this sounds all rather negative but theres plenty of good news. I'll continue to front money to my local farmers for my vegetable CSA and my occasionally "half a cow" purchase... although none of that requires stocks. Now that software has eaten the world and no computers cost more than a $5 Raspberry Pi, I can work a startup at my local makerspace with practically no money and certainly no need to raise money by selling stock, capitalist industrialism was so 19th century, I don't need to sell $25K of stock to buy a Sun SunOS minicomputer to serve DNS in a world of cloud computing and $5 raspberry pis. There's no need to invest 401K funds because everyone except the hyper wealthy is dirt poor, so no financial market demand.

Yes yes the interval from 1850 to 2000 or so was an era of needing massive investment to build industrial infrastructure. And we need great piles of cash in say 2050 to build... what? Nothing, would be my guess. So the marketplace to raise great piles of cash will go away, more or less.

The future being unevenly distributed, you should be able to find a country today thats de-industrialized (or never industrialized to begin with) and has wide enough income inequality that the population has mostly gone back to barter (probably computer / smart phone assisted agent bartering, but no currency anyway). One where most of the population works non traditional jobs, more like subsistence farmers or subsistence economy in general. How about subsistence farming in Columbia, how healthy is the fraction of the Columbian stock market that focuses on or works closely with subsistence farmers? Oh there isn't one? Oh. Well that's the future of the NYSE given recent trends.

Re: Investing Returns on the S&P500

#77
post #65

Earlier quoted context omitted.

1. If you're right 51% of the time when you invest you're going to get rich. Unfortunately the odds of you being right 51% of the time are incredibly low. 2. Heed Rule #1, and put most (if not all) of your money in broad market ETFs. 3. If you DO decide to actively invest, think about your strengths both in terms of character and industry knowledge and play to those. I don't know jack about healthcare and have had my…

Ignorant question: Why ETFs rather than the equivalent mutual funds (which I think are usually available)? I have some sense of the differences, but I've never taken the time to figure out the pros and cons. (I've been investing mostly in index funds for the past 15 years or so; ETFs weren't really on my radar when I started.)

For most practical purposes, there's not much difference between ETFs and Mutual Funds.

Some point out some greater risk in ETFs because they can lend their securities : http://www.etf.com/etf-education-center/21031-understanding-...

Re: Investing Returns on the S&P500

#78
post #34

I am not a financial advisor and this is not financial advice! Robinhood seems like an OK way to keep a free portfolio of ETFs approximating a Vanguard all-in-one fund. My super-unscientific portfolio is loosely based on Vanguard's LifeStrategy Growth & Moderate Growth funds with a sliver of MGK that seemed to both boost returns and moderate declines. A $5k portfolio would be 6 MGK (10%), 19 VTI (40%), 23 VXUS (20%),…

Stay far away from Robinhood. What a bunch of scammers. Not only is their software terribly buggy - and in core functions, too, like... Oh, I don't know, calculating the actual portfolio value instead of giving a figure 200% off. But their customer service blatantly ignores droves of customers' emails when those customers report bugs or request that their so-called Instant account be degraded because it turns out to be something completely different than what is advertised.

Seems their game is to trick people into depositing money and then trap their money there if the person cares to leave, because that means RH can't front-run the person's trades anymore.

And this by the way is only one of their numerous issues.

No well informed person could conscionably recommend RH. In fact I wouldn't be too surprised if they get sued or even some sort of criminal charges.

Re: Investing Returns on the S&P500

#79
post #65

Earlier quoted context omitted.

1. If you're right 51% of the time when you invest you're going to get rich. Unfortunately the odds of you being right 51% of the time are incredibly low. 2. Heed Rule #1, and put most (if not all) of your money in broad market ETFs. 3. If you DO decide to actively invest, think about your strengths both in terms of character and industry knowledge and play to those. I don't know jack about healthcare and have had my…

Ignorant question: Why ETFs rather than the equivalent mutual funds (which I think are usually available)? I have some sense of the differences, but I've never taken the time to figure out the pros and cons. (I've been investing mostly in index funds for the past 15 years or so; ETFs weren't really on my radar when I started.)

ETFs are generally cheaper to own in terms of their expense ratios, something like <=1% vs 1% – 3% for mutual finds. It‘s easier to get into and out of ETFs; They trade all day just as a stock does. Mutual funds you enter into at the market‘s close at a price set at that time. Also, ETFs are bit more transparent as to their capital gains taxes costs. Less surprises when you liquidate.

Re: Investing Returns on the S&P500

#80

Is it possible to do it for dollar cost averaging? That is what happens if one didn't invest in a lumpsum but invested $1000 every month -- how does the returns look like for different time periods?

It is only over 10 years, but Vanguard has a short analysis of Dollar Cost Averaging at https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c...
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