See how a dollar would have grown over the past 94 years [pdf] • Hacker News Board

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

#121

Post by southernplaces7 » Sat, Jun 07, 2025, 1:32 AM UTC

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

>that probably means the US is toast and therefore bonds are screwed too.

If the US becomes toast, whatever caused it to happen, and/or the geopolitical, economic consequences of it having happened, would likely be so enormous that stock and bond prices in your portfolio would be the very least among your problems.

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

#122

Post by recursivecaveat » Sat, Jun 07, 2025, 1:55 AM UTC

fuzzythinker wrote: post #93

maltyr wrote: post #20

Perfect time to revisit the Futurama episode where Fry realizes he's rich. https://www.youtube.com/watch?v=6JwkaLt9pf8

I don't watch Futurama, so I may be wrong in how the story goes. But I think he thought that he's rich but inflation shouldn't be much lower than interest (irl, it's actually way higher), so the 4 billion is likely worth 4 bucks or at most 4 hundred.

It seems like the episode treats him as legitimately rich, but you're right: assuming targeted 2% inflation, it's like $10. That's being pretty generous too, 1000 years is a long time to go without some kind of societal shakeup event where people stop honoring 800 year old numbers on a screen as legitimately valuable. It's not like there is any entity today who would feel obligated to give you $4 billion dollars for your 11th century banknote.

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

#123

Post by tjwebbnorfolk » Sat, Jun 07, 2025, 3:32 AM UTC

kgwgk wrote: post #107

tjwebbnorfolk wrote: post #39

Earlier quoted context omitted.

"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.

> Held for 30 years, bonds are eaten alive by inflation. 20-year and 30-year bonds yield 5% today. That's well above inflation expectations. You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.

You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free, then all I can say is I have a very different idea of what risk means.

I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.

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

#124

Post by kgwgk » Sat, Jun 07, 2025, 6:08 AM UTC

tjwebbnorfolk wrote: post #123

kgwgk wrote: post #107

Earlier quoted context omitted.

> Held for 30 years, bonds are eaten alive by inflation. 20-year and 30-year bonds yield 5% today. That's well above inflation expectations. You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.

You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free, then all I can say is I have a very different idea of what risk means. I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.

> You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free

I didn’t say anything about “risk-free” (the closest is the second paragraph but you don’t address it at all).

I was clearly commenting on the quoted sentence “Held for 30 years, bonds are eaten alive by inflation” which has not applied since the seventies, doesn’t seem the best assumption going forward, and has an easy solution as discussed.

> reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.

If your main objective is to beat inflation, getting inflation + 2.50% with certainty seems an attractive proposition! (Inflation-linked bonds have a “fixed” rate on top on inflation.)

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

#125

Post by Hasnep » Sat, Jun 07, 2025, 6:21 AM UTC

rufus_foreman wrote: post #36

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".

They just gasped, they didn't seem ungrateful to me.

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

#126

Post by kgwgk » Sat, Jun 07, 2025, 6:42 AM UTC

trod1234 wrote: post #25

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.

The problem is that most people don't know how to invest, and this has been done by purposeful intent. Financial education was removed from centralized education long ago. Bonds necessarily need to exceed the yearly inflation to retain their purchasing power. People claim these are risk free, but they aren't, even when held to maturity. You lose money from the inflation when the rate of interest is below the inflatio…

> several decades of almost zero low-interest rates in that time period

What are those “several decades” more precisely?

https://fred.stlouisfed.org/graph/?g=1JtLn

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

#127

Post by peterbecich » Sat, Jun 07, 2025, 7:11 AM UTC

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?

If I remember this article correctly https://www.wsj.com/personal-finance/retirement/the-401-k-ro..., the summary is some peoples' 401k accounts are not invested in the stock market. Rather the money sits for years collecting interest, growing far less.

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

#128

Post by trod1234 » Sat, Jun 07, 2025, 8:24 AM UTC

kgwgk wrote: post #126

trod1234 wrote: post #25

Earlier quoted context omitted.

The problem is that most people don't know how to invest, and this has been done by purposeful intent. Financial education was removed from centralized education long ago. Bonds necessarily need to exceed the yearly inflation to retain their purchasing power. People claim these are risk free, but they aren't, even when held to maturity. You lose money from the inflation when the rate of interest is below the inflatio…

> several decades of almost zero low-interest rates in that time period What are those “several decades” more precisely? https://fred.stlouisfed.org/graph/?g=1JtLn

The chart you linked isn't inflation indexed.

I believe the chart below is the one you should have been linking (at least one that's public, the reports I get are subscription only so I can't share those):

https://fred.stlouisfed.org/series/DFII10

Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria, with real negative rates 2011-2013, and 2020-2022.

Notwithstanding all the unstated shennanigans and other changes to try to make the numbers look more palatable on the surface, like the YTM reporting loophole, there is also the backroom deals between blackrock to swap old low rate treasuries for newer treasuries on the taxpayer dime (1), and the abandonment of the fractional reserve system (2020, reserves set to 0% for Basel 3) which call into question more foundational issues of the money system.

1 (https://www.bloomberg.com/news/articles/2020-05-21/how-larry...)

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

#129

Post by [deleted] » Sat, Jun 07, 2025, 9:39 AM UTC

trod1234 wrote: post #25

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.

The problem is that most people don't know how to invest, and this has been done by purposeful intent. Financial education was removed from centralized education long ago. Bonds necessarily need to exceed the yearly inflation to retain their purchasing power. People claim these are risk free, but they aren't, even when held to maturity. You lose money from the inflation when the rate of interest is below the inflatio…

[deleted]

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

#130

Post by kgwgk » Sat, Jun 07, 2025, 9:47 AM UTC

trod1234 wrote: post #128

kgwgk wrote: post #126

Earlier quoted context omitted.

> several decades of almost zero low-interest rates in that time period What are those “several decades” more precisely? https://fred.stlouisfed.org/graph/?g=1JtLn

The chart you linked isn't inflation indexed. I believe the chart below is the one you should have been linking (at least one that's public, the reports I get are subscription only so I can't share those): https://fred.stlouisfed.org/series/DFII10 Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria, with real ne…

> The chart you linked isn't inflation indexed.

Neither was your comment. The alternative reading "You lose money from the inflation when the rate of interest is below the inflation rate which it almost surely was given the several decades of almost zero low-interest REAL rates in that time period" wouldn't have made much sense. The interest rate is below the inflation rate when the real rates are negative - not just low.

> Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria.

How does that support the claim that the rate of interest was almost surely below the inflation rate during and that made you "lose money from the inflation" during that period? That happened only very briefly as you notice.

Investing in bonds didn't "lose money from the inflation" in 1990-2020. Actually it was an exceptionally good period to have bonds!

Buying 10-year bonds one after the other in 1990, 2000 and 2010 you got coupons in excess of 8%, 6% and 3% respectively with inflation rates over those decades around 3%, 2.5% and 2%.

The inflation over the 30 years is below 2.5%. $100 in 1990 was $260 in 2020.

Investing $100 in 10-year bonds in 1990 without even bothering with reinvesting results in over $180 in 2000.

Investing $180 in 10-year bonds in 2000 without even bothering with reinvesting results in over $280 in 2010.

Investing $280 in 10-year bonds in 2010 without even bothering with reinvesting results in over $360 in 2010.

That's more than 4% per annum - compared to an inflation below 2.5%. (I didn't include taxes but there was no reinvestment either and everything is rounded down at every step.)

You also got similar (slightly better) returns if you rolled over the bonds to keep constant duration at 10 years (and even better if you had longer duration bonds). The annualized return of the IEF ETF (7-10 year bonds) since inception in 2002 to 2020 is 4.5% - it definitely didn't "lose money from the inflation" which was just 2.1%.