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What We've Learned from 150 Years of Stock Market Crashes

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Re: What We've Learned from 150 Years of Stock Market Crashes

#61

Post by RivieraKid »

nine_zeros wrote: post #38
ram_rar wrote: post #24

While dollar cost averaging and index investing are solid strategies, this article overlooks an important consideration: the Realistic Rate of Return (RoR) needed for retirement planning. Yes, US markets historically recover (lately that notion seems to be challenged more often than not), but timing matters significantly. What happens if someone's retirement coincides with a market crash? Younger investors have time…

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens. As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Even a high-yield savings account should beat inflation on average. Such account has an interest rate similar to the Fed rate which is set to be above the expected inflation in normal economic conditions when the Fed is neither supporting nor slowing the economy.

Re: What We've Learned from 150 Years of Stock Market Crashes

#62

Post by skippyboxedhero »

DebtDeflation wrote: post #50
skippyboxedhero wrote: post #41

Earlier quoted context omitted.

Neither of those events were anything either. Stock markets go to zero. Capitalism is disruptive and politically unpopular (the US pumps technology into the rest of the world and the US is still the exception, other countries know it works...they just don't care). Even in the US, which is the best case, you have had decades of underperformance. A 50% dip that fixes itself quickly is nothing, the US is the best case o…

It's a fair point. And even short of "going to zero" the Nikkei didn't recover its 1989 high until last year. 35 years is a long time to get back to breakeven.

And most world indexes that sell funds based on historical returns do not factor in those going to zero events (for example, Austro-Hungary had one of the biggest stock markets in the world...until it didn't).

And capital freedom is itself extremely contingent historically. The reason why, for example, returns in the 40/50s were high in the US was because you couldn't take your money out of the country and the government told everyone to buy govt securities to pay for the war.

And what if you need to retire during those 35 years...these studies always look at infinite time periods, the human life is not infinite.

Issues on issues. Your financial knowledge has to only limited to the US after 1981 to not understand any of these points...but lots of people are making a ton of money selling this stuff.

Re: What We've Learned from 150 Years of Stock Market Crashes

#63

Post by mholt »

Tangential question, as I am not an economist and don't pretend to understand any of this: what would happen if the stock market didn't recover? (Surely, it could happen? Past performance is no guarantee of future results.)

The economy would effectively collapse, and I imagine our currency would be mostly worthless. People would withdraw what they could from bank accounts, which wouldn't be able to produce all the funds, so FDIC insurance would kick in, effectively printing money, but the economy has collapsed anyway?

^ That's just my intuitive speculation. I can't really grasp the scenario of stocks never recovering. Anyone with some education/background have a good explanation? (Not sure I want to trust AI with this question.)

Re: What We've Learned from 150 Years of Stock Market Crashes

#64

Post by velcrovan »

Bluecobra wrote: post #57
velcrovan wrote: post #46

Earlier quoted context omitted.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

Good point, the website looks like it's 25+ years old so who knows what is running under the hood to keep it going.

It's actually improved a lot since I started using it in 2016, but yes. Your session breaks if you use your browser's "Back" button. It used to require you to enter your password by clicking around on an on-page keyboard, I would always open dev tools, "edit as HTML" the read-only password input and paste the password right in from my password manager.

Re: What We've Learned from 150 Years of Stock Market Crashes

#65

Post by throw0101c »

darth_avocado wrote: post #47
ram_rar wrote: post #24

While dollar cost averaging and index investing are solid strategies, this article overlooks an important consideration: the Realistic Rate of Return (RoR) needed for retirement planning. Yes, US markets historically recover (lately that notion seems to be challenged more often than not), but timing matters significantly. What happens if someone's retirement coincides with a market crash? Younger investors have time…

You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s). You shouldn’t be really relying on selling assets to pay your monthly bills.

> You should always have 2-3 years of runway in cash or other safe liquid savings (CDs, Bonds) as you get older (6 months minimum when you’re in 20s and 30s).

Just before and just after retirement it's considered a good idea to go bond heavy to help mitigate sequence of returns risk:

* https://www.kitces.com/blog/managing-portfolio-size-effect-w...

* https://www.schwab.com/learn/story/timing-matters-understand...

* https://www.td.com/content/dam/tdgis/document/ca/en/pdf/insi...

Re: What We've Learned from 150 Years of Stock Market Crashes

#66

Post by horsawlarway »

velcrovan wrote: post #46
nine_zeros wrote: post #38

Earlier quoted context omitted.

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens. As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

I think this is an under appreciated comment. Almost all of our market data is predicated on a US government that places a huge emphasis on repaying its debts.

The current government is full of people who think it's clever, rather than short-sighted, to fuck people over.

It's not a joke that our credit ratings as a nation are slipping. It's real risk that those federal bonds may stop paying out.

Re: What We've Learned from 150 Years of Stock Market Crashes

#67

Post by nh23423fefe »

velcrovan wrote: post #46
nine_zeros wrote: post #38

Earlier quoted context omitted.

> Age-appropriate risk management becomes increasingly important as your investment horizon shortens. As you appear closer to retirement, make sure you invest in Bonds or other fixed income. It won't beat inflation but it will prevent you from draw-downs exactly when the market is down.

Call me crazy, but since the DOGE hatchet-wielding started, I've redeemed all my US bonds. I just don't have confidence that the people needed to keep TreasuryDirect running will still have their jobs if/when I need to redeem them in the future.

Are you going to post in the future when your panic is shown to be irrational?

Re: What We've Learned from 150 Years of Stock Market Crashes

#68

Post by rawgabbit »

mholt wrote: post #63

Tangential question, as I am not an economist and don't pretend to understand any of this: what would happen if the stock market didn't recover? (Surely, it could happen? Past performance is no guarantee of future results.) The economy would effectively collapse, and I imagine our currency would be mostly worthless. People would withdraw what they could from bank accounts, which wouldn't be able to produce all the fu…

I doubt the economy will collapse but you will see massive layoffs.

Many of the wealthiest people of the US officially have zero income and pay zero taxes. They learned they want to be paid in stocks and stock options. When they need cash, they found it was easy to get loans using their stocks as collateral. In other words, if the stock market permanently tanks, it will affect the top 0.1% and prevent them from doing their current tax avoidance scheme.

For most people, they will probably get laid off, as corporations' seemingly only answer to a falling stock price is to reduce get head count. In Japan's case with their stock market in the toilet for the past thirty years, it led to a bi-furcated economy. The lucky with regular jobs with full benefits; the unlucky with gig jobs with no benefits.

Re: What We've Learned from 150 Years of Stock Market Crashes

#69

Post by aeblyve »

https://www.federalreserve.gov/econres/feds/files/2023041pap...

This exploratory federal reserve article argues that much of the recent (i.e. 1989-2019) gains were categorically the result of corporate tax cuts. Perhaps one way of examining the new DOGE initiative.

Re: What We've Learned from 150 Years of Stock Market Crashes

#70

Post by wintermutestwin »

skippyboxedhero wrote: post #54
wintermutestwin wrote: post #21

Earlier quoted context omitted.

>There is a premium on mental health and market volatility. I find that, as soon as I pick up the crystal ball and try to play the prediction game, my mental health suffers greatly. What helps my stress levels the most is to have a portfolio that is well diversified (e.g. a risk parity style portfolio) and stay the course because the portfolio has elements that go up when equities go down. At the end of the day, the…

Risk parity got obliterated a few years ago. Risk limits were breached multiple times over on these strategies. Thinking that you are taking a safe option is a lie you tell yourself when you want to take the lazy option: just copying what you read in some book. It isn't safe, risk-party isn't diversification, you are still gambling. Btw, this was predictable too...the idea that bonds/equities wouldn't be correlated w…

It sounds to me like you are specifically calling out the one crash where equities and bonds both went down at the same time? And that you are saying because this happened, we are now in totally uncharted territory where nothing from the past can be assumed to happen in the future?

>risk-party isn't diversification

??? Diversification is the underlying principle behind a risk parity portfolio. https://www.portfoliovisualizer.com/asset-correlations?s=y&s...

You do realize that a risk parity portfolio is made up of other allocations than stocks/bonds?

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