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See how a dollar would have grown over the past 94 years [pdf]

newyorklifeinvestments.com

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Re: See how a dollar would have grown over the past 94 years [pdf]

#31

Post by jameslk »

ryandrake wrote: post #17
fasthands9 wrote: post #7

When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not. Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.

On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time.

This is especially true for stocks vs bonds. Because the cash flows of bonds are fixed, prolonged inflation or rate spikes can deliver a loss that stays a loss, making long-term "safety" in bonds partly an illusion.

http://www.efficientfrontier.com/t4poi/Ch1.htm

Re: See how a dollar would have grown over the past 94 years [pdf]

#32

Post by toasterlovin »

ryandrake wrote: post #17
fasthands9 wrote: post #7

When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not. Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.

I'm not sure that a US government bond has a meaningfully different risk profile than an aggregate investment in US equity markets.

Re: See how a dollar would have grown over the past 94 years [pdf]

#33

Post by ashdksnndck »

actinium226 wrote: post #27

Astute observers will note that the $1 in stocks gets margin called shortly after the initial investment in the late 20's and so in a sense the return over 100 years is 0.

The title doesn’t mention owning stock on margin.

Re: See how a dollar would have grown over the past 94 years [pdf]

#34

Post by _vaporwave_ »

tiahura wrote: post #2

The small cap edge is surprising.

I thought the same initially but this may just be a case of recency bias. Small caps have underperformed large cap stocks for the last ~12 years but these things tend to go in cycles: https://blogs.cfainstitute.org/investor/2025/04/24/small-cap....

It will be interesting to see how the next cycle plays out with the recent concentration of returns in large cap tech stocks (Magnificent 7).

Re: See how a dollar would have grown over the past 94 years [pdf]

#35

Post by rufus_foreman »

dedicate wrote: post #19

This isn't a chart of returns; it's a chart of who had nerves of absolute steel. Be honest, who here has actually lived through a major dip and not been tempted to smash that "sell" button?

I don't get tempted to smash the sell button during major dips, I get tempted to smash the buy button. The only time I smashed the sell button was during the stock market bubble in 1999.

I wanted to buy during this year's dip but I took a look at my asset allocation and I was still way overweight in US stocks compared to my target so I couldn't justify it. Hopefully people freak out even more next time.

Stock market crashes are my happy place.

Re: See how a dollar would have grown over the past 94 years [pdf]

#36

Post by rufus_foreman »

fasthands9 wrote: post #7

When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

>> It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

This is known as "looking a gift horse in the mouth".

Re: See how a dollar would have grown over the past 94 years [pdf]

#37

Post by BlandDuck »

ryandrake wrote: post #17
fasthands9 wrote: post #7

When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not. Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.

Exactly, if it had been obvious at the time that "the market" would deliver a better return, for certain, then nobody would have bought bonds at those prices.

Then bond prices would have declined (and their expected returns or interest rate would have increased) until, in equilibrium, the anticipation was that the stocks and bonds would deliver comparable expected risk-adjusted returns.

Re: See how a dollar would have grown over the past 94 years [pdf]

#38

Post by nosianu »

trod1234 wrote: post #30
nosianu wrote: post #22

Earlier quoted context omitted.

> but when I did the math to see how much more it would have been I have a suggestion for all the many similar problems around probability: Reframe it to be more correct. Instead of looking against the arrow of time, backwards with full knowledge ask yourself the corresponding question looking forward , from where you are right now. And then remember that that was the position you were in back then. Questions that de…

This isn't useful or correct, and ends up being a bit circular getting into the weeds. The focus should be that the normal math formula for bond valuation doesn't account for yearly real or projected inflation. Almost everyone I have met doesn't know how to modify the standard formula correctly unless they've already done it at some point in the past. Its not a trivial exercise. You have to understand the formulas we…

> This isn't useful or correct

The formulas do not help you at all with the knowing. or not knowing, with being able to "predict" the past vs. being able to predict the future! They make assumptions.

I would make the claim my statement is useful for what I said, which was for somebody looking back at a decision of the long ago past with hindsight knowledge.

The post was not about somebody evaluating different investments either.

Oh and thanks, I guess, for completely disregarding that my comment was much more generalized? You threw away the vast majority of it.

Re: See how a dollar would have grown over the past 94 years [pdf]

#39

Post by tjwebbnorfolk »

ryandrake wrote: post #17
fasthands9 wrote: post #7

When I was born in 1990 my grandparents spent like 5k on government bonds that my dad didn't tell me about until I was 30. It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.

Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not. Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.

"Risk-free" is a popular shorthand for "The US government won't default". But default is far from the only risk inherent in bond ownership.

Risk is the chance something bad happens to you.

Held for 30 years, bonds are eaten alive by inflation. That's a bad thing that happens to you if you hold bonds for a long time.

Re: See how a dollar would have grown over the past 94 years [pdf]

#40

Post by dachris »

It's a nice graph, I think the most well known one is in "Stocks for the long run" [0]

I'm more concerned how it will grow over the next n (lets say 50) years.

Somehow, it doesn't really fit into my head that there will be another 7 doublings of money invested stock market over the coming 50 years (as others have commented, 10% annually is doubling every 7 years).

Reality is complex of course, there's inflation, there's taxes, dividends don't grow the stock market cap.

Still, I would assume less growth due to several factors. The last few decades have seen several tailwinds that can't repeat in the same way:

- falling corporate tax rates globally [1]

- falling interest rates [2] (since 1980, until 2020)

- rising P/E ratios (partly in response to falling interest rates) [3]

- demographic expansion [4]

- improvements in diversification (index funds, theoretically you need a lower risk premium than when investing in individual stocks)

And I'm not sure that headwinds coming from environmental degradation of many types are already priced in.

I still think that stocks will do better than bonds (there's a risk premium [5], those are real assets, there's innovation and growth), just be cautious about assuming that the future will mirror the past.

[0] https://en.wikipedia.org/wiki/Stocks_for_the_Long_Run

[1] https://taxfoundation.org/data/all/global/corporate-tax-rate...

[2] https://fred.stlouisfed.org/series/DGS10 (choose max in the time scale)

[3] https://www.multpl.com/s-p-500-pe-ratio

[4] https://en.wikipedia.org/wiki/World_population

[5] https://pages.stern.nyu.edu/~adamodar/ ERP currently at about 4.4%

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