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Investing Returns on the S&P500

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Re: Investing Returns on the S&P500

#271

Post by kgwgk »

ced wrote: post #204
jonknee wrote: post #149

Earlier quoted context omitted.

That's not how it works, the return of the index is the actual return of the included stocks while they are in the index . There will be winners and losers, but the return is actually what you get.

I'd appreciate if you could expand on that, because I share the same concern as GP. It seems to me that the index fund has to sell a lousy company at a low price (since it's being delisted) and buy a strong one that's being included in the index. Whereas the index, being just a number, can magically perform the swap without taking a hit.

The index "magically performs the swap" doing a calculation equivalent to selling at the rebalancing date the stocks that get out of the index (and buying those that replace them) at their price that day.

Re: Investing Returns on the S&P500

#272

Post by Inufu »

nradov wrote: post #267

This is a silly analysis in that it ignores investment costs. You can't invest in the S&P 500. You have to either buy an index mutual fund, or buy the individual component stocks. Either way the investment costs will significantly cut into long term returns, even with a fund like VFINX.

The expense ratio for VFINX is 0.16%, compared to average yearly returns of 6%.

Over 30 years, that's the difference between 5.74x and 5.48x your starting capital. Noticeable, but insignificant compared to the taxes you'll pay.

Re: Investing Returns on the S&P500

#273

Post by Evolved »

xiaoma wrote: post #184
jakozaur wrote: post #12

I don't think it is fair to say that next 100 years will be same as last 100 years: 1. GDP growth is not as high as it used to be anywhere in developed world: http://www.oecd.org/std/productivity-stats/oecd-compendium-o... 2. USA is superpower at the peak. Plenty of other stock market economies hasn't been so successful. E.g. Argentina used to be one of the richest country in the world. Investing in history is easy,…

> "anywhere in developed world" I hate this terminology. If the US has, in fact, "finished" developing, then the future of the S&P will be bleak. I don't think that's the case at all, though. I think development has just started and we'll see fantastic advances in bio-informatics, solar power, 3D printing and a number of other fields in the upcoming decades. When I was a teenager, I pirated music. I seriously hope my…

He probably means "developed world" as compared to third-world countries. I agree, though, that the U.S. have not finished developing but have instead just begun developing except on a new frontier now.

Re: Investing Returns on the S&P500

#274

Post by greedo »

vm wrote: post #252
tunesmith wrote: post #245

The other reason none of these returns are realistic for an average person: 1) People don't get a lump sum at the beginning of their investment history 2) Ah, but you say, dollar-cost-averaging. The problem there is that people get more money to invest when times are good, and less when times are bad. 3) As a result, even when buying in responsibly, people are buying more when the market is high, and less when the ma…

A lot of companies offer retirement plans where a % of income is invested monthly, a la dollar cost averaging (e.g. 401k plans). It's really easy to set up and let ride on autopilot.

But that still skews the dollars invested. At age 22 (college grad) you might make $50K. You put in 6% and get a 3% match, for $4500 into your retirement fund.

Fast forward to age 50, when you're making 200K (this is 28 years from now, so inflation and pay raises bump you very high), you're putting in the same %, but that equates to $18K/year.

So even with dollar cost averaging, the majority of your money is invested in a small, 10 year time window when you are at peak earnings.

Re: Investing Returns on the S&P500

#275

Post by toomuchtodo »

dharma1 wrote: post #171
kspaans wrote: post #133

Earlier quoted context omitted.

Market timing is a fool's game. Find out the right asset allocation for your personal risk tolerance and retirement goals, stick your money in, rebalance annually (contribute monthly if fees are low), and then sit and wait.

As a general rule yes. But if you are thinking of sticking a large amount of cash in the stock market right now and plan to stay in long term, I would at least give it a shot in terms of trying to time it right in the cycle. Right now we are quite high in the cycle - 9 years from the last crisis, end of QE, slowing growth - so at least in my view, it's an asymmetric bet to wait and see. But what do I know.

> As a general rule yes. But if you are thinking of sticking a large amount of cash in the stock market right now and plan to stay in long term, I would at least give it a shot in terms of trying to time it right in the cycle.

Vanguard says you're wrong.

https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c...

Re: Investing Returns on the S&P500

#276

Post by aorth »

specialist wrote: post #181
mac01021 wrote: post #17

Earlier quoted context omitted.

So what alternative method do you propose for predicting growth (or decline) over the next century?

Demographics. Africa, Nigeria in particular, looks like China and India of decades past.

Perhaps, but Nigeria is a disaster waiting to happen. Their economy is dangerously dependent on crude petroleum exports[0] (second only to Saudi Arabia, I guess). This, along with them having destroyed 95% of their forests[1] in the last few decades, and having an expected population growth from 180→400+ million by 2040, is absolutely unsustainable and will be depressing to watch unfold.

[0] http://atlas.media.mit.edu/en/profile/country/nga/

[1] http://www.focusonforests.org/fcontent/nigeria.htm

Re: Investing Returns on the S&P500

#277

Post by [deleted] »

jonknee wrote: post #246
ced wrote: post #204

Earlier quoted context omitted.

I'd appreciate if you could expand on that, because I share the same concern as GP. It seems to me that the index fund has to sell a lousy company at a low price (since it's being delisted) and buy a strong one that's being included in the index. Whereas the index, being just a number, can magically perform the swap without taking a hit.

Sometimes it's OK to sell a lousy company at a low price--it's a lousy company! The beauty of a wide index fund like the S&P is that any one company diving won't hurt you. Companies typically last in the S&P for a long time, so the potential gains of adding companies earlier or selling them at a different time average out. Even Facebook has more than doubled since being added to the S&P and that's the definition of a…

[deleted]

Re: Investing Returns on the S&P500

#278

Post by __derek__ »

jakozaur wrote: post #12

I don't think it is fair to say that next 100 years will be same as last 100 years: 1. GDP growth is not as high as it used to be anywhere in developed world: http://www.oecd.org/std/productivity-stats/oecd-compendium-o... 2. USA is superpower at the peak. Plenty of other stock market economies hasn't been so successful. E.g. Argentina used to be one of the richest country in the world. Investing in history is easy,…

This seems like a good place to insert a reference to Fooled by Randomness[1], which focuses on the point that you make in your second item.

[1]: https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Ince...

Re: Investing Returns on the S&P500

#279

Post by smelterdemon »

Redoubts wrote: post #142
JackFr wrote: post #23

Earlier quoted context omitted.

> USA is superpower at the peak. That remains to be seen > Argentina used to be richest country in the world. That is not true. In the early 20th century they were top 10, but never surpassed Britain or the US in GDP per capita.

> That remains to be seen What would a more powerful USA look like? It doesn't appear that the country is after an empire the same way the British had one 100 years ago, so raw aggression is out. I can't imagine a realistic scenario that doesn't require the implosion of other nations to embiggen America.

Wealth is not a zero sum game.

Re: Investing Returns on the S&P500

#280

Post by Rhinobird »

atkinswj wrote: post #157
Redoubts wrote: post #142

Earlier quoted context omitted.

> That remains to be seen What would a more powerful USA look like? It doesn't appear that the country is after an empire the same way the British had one 100 years ago, so raw aggression is out. I can't imagine a realistic scenario that doesn't require the implosion of other nations to embiggen America.

Embiggen?

Embiggen is a perfectly cromulent word.
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