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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]

#41

Post by trod1234 »

MarkusQ wrote: post #26
marsten wrote: post #18

Earlier quoted context omitted.

I've always found it amusing that mathematically it should be the rule of 70, but it's commonly rounded to 72 because the latter has more convenient divisors. 70 is divisible by 1, 2, 5, 7, 10, 14, 35, 70 72 is divisible by 1, 2, 3, 4, 6, 8, 9, 12, 18, 24, 36, 72

It's also because in the interest rate range we're normally dealing with (5%-10% APR) the approximation of 1+x/100 as 1.01^x in the derivation of the rule is off a bit, and something like 1.0097^x works somewhat better. ln(2)/ln(1.0097) is about 71.8, thus the use of 72 and it's convenient divisors.

Interesting, thanks for sharing this.

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

#42

Post by onlyrealcuzzo »

ty6853 wrote: post #6

If we're allowed to cherry pick years, now do gold https://sprott.com/media/3783/fig1-jh-gold-perf.png

The cool thing about about something with a consistently high return and a long-horizon (going back 100 years) - you're still getting a high return.

It's about ~6% CAGR vs ~8% if you picked the absolute best vs absolute worst time around the Great Depression.

If you include re-investing dividends, it's about ~8% vs ~10%. You're not getting anywhere near that with gold over any sufficiently long non-cherry picked time horizon.

The even better thing about the S&P is it has relatively low volatility. You're really unlikely to put all your eggs in the S&P at the absolute worst timing. Sure, it's possible. Not likely.

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

#43

Post by ryandrake »

jameslk wrote: post #31
ryandrake wrote: post #17

Earlier quoted context omitted.

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 sta…

> 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 only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?

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

#44

Post by nly »

dachris wrote: post #40

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, ther…

So many people's future retirement prosperity is now so tied to the performance of stocks that we better hope it continues.

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

#45

Post by ryandrake »

toasterlovin wrote: post #32
ryandrake wrote: post #17

Earlier quoted context omitted.

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.

If this were really true, they would offer similar returns.

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

#46

Post by ty6853 »

tjwebbnorfolk wrote: post #39
ryandrake wrote: post #17

Earlier quoted context omitted.

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.

Indeed. There's always the story of finding stacks of bills in the wall of granddaddies house despite the fact creditors and the bank were up his ass to the bitter end for medical bills.

Given the ever increasing number of people bankrupted by medical bills, divorce, child support, lawsuits, etc we're quickly moving into a world where it might be foolish to expect assets accessible to a brokerage or bank will still be there by the time you need them.

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

#47

Post by trod1234 »

rufus_foreman wrote: post #35
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…

I think the same could be said of anyone who has successfully traded regularly over several years.

To do that kind of business you have to have mastered yourself or set up systems where the emotional rollercoaster ride doesn't change your choices.

> I wanted to buy during this year's dip...

The Stock market hasn't had a real crash in quite a long time as evidenced by a number of things including the PE values and stock buybacks, lack of general price discoverability towards chaotic whipsaws and the indexes topping all time highs.

People are going to lose the shirts off their backs when it does come, and it will come suddenly without warning. Best to keep that in mind when greed might try to lead you astray. Greed is both a friend and a trader's worst enemy.

Printing money enrolls participants in boom bust cycles. We've had a boom for the last 10+ years nearly straight. The stock market is way overdue for a crash. Its an avalanche prone area with a massive snowpack built up. There's always some chaotic trigger that gets everything moving again.

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

#48

Post by jameslk »

ryandrake wrote: post #43
jameslk wrote: post #31

Earlier quoted context omitted.

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 sta…

> 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 only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?

The same type of argument can be made about bonds and even cash.

And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too.

Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it

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

#49

Post by ty6853 »

jameslk wrote: post #48
ryandrake wrote: post #43

Earlier quoted context omitted.

> 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 only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?

The same type of argument can be made about bonds and even cash. And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too. Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it

Holding stocks in the nation in which you live probably isn't very smart from a hedge perspective, considering US stocks don't have a locked correlation to foreign ones. Your assets would all be in the shitter at the same time you're out the job and need to liquidate them to survive.

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

#50

Post by cced »

marsten wrote: post #23
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.

A surprising number of 401(k) plans default to a money market fund for invested assets. Imagine retiring after a decades-long career and realizing what could have been.

> Imagine retiring after a decades-long career and realizing what could have been.

I'm not following what this means. Can you please elaborate?

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