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

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

#81

Post by JackFr »

BlandDuck wrote: post #37
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.

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.

Very few entities have a 98 year horizon. People sure don't. Some insurance companies do I suppose.

A more interesting graph would be to show me the 30 year return at each point along the way. My gues is that stocks would still mostly come out on top, but not the runaway you see here.

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

#82

Post by kimbernator »

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?

Realistically, all that actually matters is where I land relative to the population at large. Since so much of the world economy is tied to stocks, by buying into it I will remain at least at parity with my current socioeconomic status regardless of whether the market goes up or down. Nobody with real money is just holding it in cash in case the whole stock thing doesn't work out.

If things go the way they have been for a while now, I'll be able to retire comfortably. If stocks don't gain or lose a penny for the next 40 years, I think society as a whole will have reframed retirement. If society collapses, it didn't matter anyways.

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

#83

Post by cortesoft »

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 longer a risky asset is held, the less chance of loss you’ll have

I understand what you are trying to say here, but it really depends on what the “risky asset” is. If you hold a diversified set of risky assets, like a stock market index fund, then what you say is correct.

However, there are other risky assets that don’t hold to this “a long time horizon reduces risk” statement. For example, if you put all your investment in a single stock, that is a risky asset that does not necessarily revert to the mean over time. Many companies go out of business, and the stock goes to zero and will never recover no matter how long you wait.

It is important to note what kind of risk you are taking.

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

#84

Post by andrewmcwatters »

deanmoriarty wrote: post #80
tokyoseb wrote: post #77

Earlier quoted context omitted.

The Nikkei 225 may be below its 1989 peak in price terms but you can’t ignore the dividends which an actual investment in the index would have paid during that period. On a total return basis (if you had reinvested the dividends into the index as you received them) the Nikkei passed its 1989 peak in 2021.

I struggle to understand why an educated crowd like HN routinely forgets dividends when posting any sort of financial charts. Total returns are what matters.

I don’t know how many people in tech you’ve worked with, but the number of other people I’ve interacted with who actually read quarterly reports of publicly traded businesses has been exactly zero.

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

#85

Post by kgwgk »

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.

If they bought 30-year bonds, yielding 8%-9% per year, you may have received only the 5k in the end but what happened with the 13k in coupons?

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

#86

Post by floundy »

tokyoseb wrote: post #77
floundy wrote: post #54

Earlier quoted context omitted.

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 capitalizatio…

The Nikkei 225 may be below its 1989 peak in price terms but you can’t ignore the dividends which an actual investment in the index would have paid during that period. On a total return basis (if you had reinvested the dividends into the index as you received them) the Nikkei passed its 1989 peak in 2021.

My point still stands, as the original comment was discussing the risk of loss over 30 years, with no additional investment that was 32 years of the investment being below its peak value.

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

#87

Post by PopAlongKid »

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?

>Be honest, who here has actually lived through a major dip and not been tempted to smash that "sell" button?

Honestly, I've lived through four (1987[0], dot-com, 2008 recession, 2020 coronavirus) and was not tempted. For the first two, I was much too far away from retirement to worry about it, and for the third, I was still over ten years away from even beginning to think about retirement distributions, and because of my experience with the first two, again was not tempted. The fact that my investments for much of that time were in pre-tax accounts helped me avoid feeling some pain as well.

Nowadays, I try to keep, in addition to an emergency fund, about a year's worth of retirement distributions in money market equivalents, even inside my IRA.

[0]My employer started a 401k plan prior to 1987

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

#88

Post by baron816 »

d_burfoot wrote: post #69

Note that the government has huge incentives to downplay the inflation rate. Over the time period of the graph, the price of gold went up by about 100x; I would consider that a more accurate estimate of inflation than the 18x number implied by the chart. Due to the way exponentials work, you can hide a lot of inflation over 100 years by claiming the annual rate is just half a percent lower than it really is.

Statistics like CPI really aren’t meant to be used to track inflation over many decades. It’s really only meaningful over a handful of years, and only when we’re talking about the economy as a whole (not to use it to say any individual or group is better or worse off). A dollar today can buy many things it could not buy 100 years ago.

The price of gold is a completely useless measure of inflation. Governments have a long history of manipulating its price as a policy goal. Even today, governments buy and hold large quantities of gold.

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

#89

Post by eweise »

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.

isn't the stock market risk free over a 30 year span? Maybe with the exception of the depression.

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

#90

Post by narratives1 »

Kranar wrote: post #71
narratives1 wrote: post #65

Earlier quoted context omitted.

This is almost the definition of technical analysis: “chart always reverted to mean so it will always revert to mean” Note that almost every exchange outside the US has been flat or negative for decades. The US has held a precious position for a few generations that’s made “chart go up” feel like a given

>Note that almost every exchange outside the US has been flat or negative for decades. As someone who works in finance this struck me as a remarkable claim. Upon inspection it turns out to be spectacularly incorrect. After adjusting for inflation it's actually the opposite, the vast majority of countries have seen their own version of the S&P 500 grow over a 30 year period, after adjusting for inflation, not stagnati…

African, Asian, and Latam exchanges included, many of which go defunct. Japan’s has been basically flat among developed countries
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