Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

newyorklifeinvestments.com

Post reply on HN
Print view View original

51–60 of 139 posts

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

#51

Post by taeric »

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…

I mean... the risk of risky assets is that they won't last that long. Any asset you can look back on having held for a long time, is by definition less risky than you could have been. No?

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

#52

Post by jlmcguire »

cced wrote: post #50
marsten wrote: post #23

Earlier quoted context omitted.

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?

I believe they mean realizing that if you had invested into stocks instead of money market you'd have likely realized a quite large return. Money markets seek to keep your returns to around inflation.

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

#53

Post by scubazealous »

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…

Bonds are considered safer because short of the US losing WWIII there is practically no way the US bonds would not pay out or lose value. US Bonds are safe and predictable, backed up by the immense military and resources of the nation.

Investing in Apple 30 years ago would net a much higher return on $5k but even Apple was considered a unsafe investment in the 90s. On the other hand, Enron was considered a safe investment by many but went bankrupt almost overnight and shares became practically worthless.

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

#54

Post by floundy »

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…

The Nikkei 225 is still below its peak value from December of 1989. The US is an outlier in terms of historical average stock market returns and there is no guarantee this outperformance will continue into the future. Actually I'd say it's less likely, given that should it continue, the US market cap will eat the entire world stock market. The US stock market is currently 62% of the world's stock market capitalization.

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

#55

Post by NoboruWataya »

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.

I believe the first broadly diversified ETF didn't come about until a few years later, so realistically there wasn't an easy way for a retail investor to invest 5k in "the market" back then.

(EDIT: Not true, see below.)

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

#56

Post by mjburgess »

ashdksnndck wrote: post #33
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.

But nor does it include owning stocks in companies that go out of business, or indeed, nations.

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

#57

Post by jameslk »

ty6853 wrote: post #49
jameslk wrote: post #48

Earlier quoted context omitted.

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.

Yes I agree. I was using US stocks for the sake of comparison against US bonds. Otherwise, a diversified portfolio with risk adjusted to goals is what makes sense

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

#58

Post by sokoloff »

NoboruWataya wrote: post #55
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.

I believe the first broadly diversified ETF didn't come about until a few years later, so realistically there wasn't an easy way for a retail investor to invest 5k in "the market" back then. (EDIT: Not true, see below.)

Vanguard launched an S&P 500 fund for retail investors in 1976.

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

#60

Post by floundy »

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.

Incorrect, the DJIA lost around 90% of its index value in the Great Depression, so the theoretical portfolio in this exercise would have declined to around 10 cents, but holding an asset at a negative return does not result in a margin call if one is not trading with leverage.

In practice, it would have been a toss-up between individuals' outcomes because index funds as we are familiar with them today did not exist at the time. The DJIA was a price index but there was no way to invest in the DJIA basket as there is today, so brokers picked stocks on behalf of investors. So it's certain that some investors' portfolios did decline to zero during this time due to bankruptcies of all the companies they happened to be holding.

Post reply on HN