Bond funds are different than bonds. With bonds, you can hold them to maturity and not get whacked.
You can hold bond funds to the maturity date of the underlying bonds and get the same result (minus fees). But in either case, you still get whacked with inflation, which would show up on this chart as a drop.
At an individual bonds maturity I get the full principal back. How do I do that principal back from a bond fund if the value has dropped due to the macro environment?
Well, I can't anymore, but, I might have instead said something about how religion is commonly maligned for such practices. This is only to show that modern investment practices bear strong elements of ritualistic faith. Your response is most welcome. Thank you.
> This is only to show that modern investment practices bear strong elements of ritualistic faith. Conversely, ritualistic faith has a long history of financial investing, evidenced by its tendency to procure very high value real estate for itself with the funds of it's adherents. Also, the cathedrals of Europe are glistening with the golden dividends that accrued from religious investment in the conquest of the Amer…
Further, it seems religion may have developed as a part of the need to keep track of resources in ancient Sumeria. My impression is that the studies said something along the lines of by establishing a priest class wich survives on tithes but also function as clerks/scribes that society enters a new new level of economic development.
This period has been very special because of the 401k, which is itself part of the growth story of the corporate legal structure. I think this is coming to an end. Corporate boards and officers no longer represent the best long-term interests of the companies and shareholders they represent. It’s also a very precarious legal status as an arbitrary judicial ruling can make or break a company. Finally, and perhaps most…
I liked your explanation but you undermine your write up by discussing something you clearly have no business discussing: >> People tithe and sacrifice to their church for a promise of rewards in the afterlife. This is a fundamental misunderstanding of tithing and I’m not going to get into that at the moment, but it makes me consider if you are discussing other things in your write up that you don’t have experience w…
If you are not going to get into it then consider commenting when you are ready. I find it bullying behavior when you put down a person, establish yourself as expert but refuse to provide why is it that way. This is not to say OP was correct but he is likely lousy or just informal in all academic meanings of the word that you probably understand deeply that general public likely don’t care because they focus on practical meaning or the meaning as applicable to usual encounters ignoring outliers. For instance, one can make statement that “terrorist are evil” but you can write 10,000 words academic essay on why it is not that way citing hundred outliers and perspectives from other side. This doesn’t give you power to put down a person calling him non-expert and questioning everything else they said because in general public encounter that statement has meaning that is well understood without academic idiosyncrasies.
This is offtopic but I am tired of pretentious people. The money supply must grow exponentially because liquidity premiums aka interest payments. You can now either choose to eliminate liquidity premiums and hence abolish inflation and exponential growth in the money supply or you can choose to have inflation and an exponentially growing money supply with endless increases in public debt. The fact that if the money s…
The money supply must grow because of population increase. Population was almost exponential growth in the last century, but now it has essentially stopped so we are entering a new paradigm. The stock market under a declining population will be fascinating to watch.
Automation will allow us to produce more with less people resources leading to increased consumption per capita of goods and services letting the game continue.
Population decline will not be kind to society without AI/Robotics to take care of us.
I liked your explanation but you undermine your write up by discussing something you clearly have no business discussing: >> People tithe and sacrifice to their church for a promise of rewards in the afterlife. This is a fundamental misunderstanding of tithing and I’m not going to get into that at the moment, but it makes me consider if you are discussing other things in your write up that you don’t have experience w…
Actually I'm heartened to see people defending religion on HN. Tithing to a church you truly belong to is probably a better use of your money, even purely by personal benefit, than tithing Wall Street. I hope that I've introduced some of those ideas in the text by making a negative comparison to the church. But yes; it was sloppy and possibly interpreted as disparaging of religious practice itself, so for that I apol…
You might be even more heartened to know that one of the top most and highly respected computer scientist, Donald Knuth, is ardently religious. The contrast between his works that is extraordinarily precisely well reasoned after decades of thinking and his complete submission to ancient religion where logical reasoning is not all that welcome, is absolutely a thing to behold. It makes me marvel at complexity and perhaps still evolving nature of our brains that can even do this. I used to be very interested in personalities who you would absolutely consider highly intellectual and utterly rational but at the same time extremely religious. My observation was that these people had developed some sort of switch in their brain which suddenly turns on and off depending on subject matter. One very common trait was also that all of these high IQ people were exposed into religious practices since very early age with a lot of non-negotiable enforcement from otherwise very loving parents. It seemed to me that part of their growing brain had just carved out area which was basically off limits to questioning ancient religious practices. Human brain is fascinating thing.
You don't really need that on a logarithmic plot since the ratio of stock prices is always a constant vertical separation. It is very necessary on linear pricing plots.
Can you tell at a glance which asset had a better return since the start date until March of 2009? A plot of total ROI (with all assets starting at y = 0) would make that obvious (for any given end date). As far as I can tell, the different intercepts just add noise (price of a single stock) that is not helpful to visualize what the plot is supposed to be showing (total returns).
To within a fraction of a percent? Probably not, but to within a reasonable fraction of total performance over 13 years... yes. Look at the initial separation and the final separation and see if the are larger or smaller or look the same. If you can't see it, use a larger monitor. I'd see the point of scaling them when looking at VFISX vs GOOG since there would be a huge range on the scale, but even there you can see the current draw downs are very similar (38% vs 28%). So you can see a 10% (Look at the link for VFISX,VFITX,VUSTX where they start with a ~100% separation (4,5.5,8) and end with very low separation (<+/-3%). In June of 2020 there's a blip where VUSTX goes up 20-25% over VFISX (about a quarter of the original separation) and VFITX is about a third of that or 7-8% over VFISX. So you can see ~3% difference in performance over 12 years or (0.25% annualized).
If the goal is to demonstrate relative performance over time, wouldn't it be useful to use a normalization such that all lines either start at the same point (e.g. simulating investing X amount) or ending at the same point (showing requirement to get to X final amount)?
Isn't the comparison of relative performance in the trend line? That's a year over year % change for every asset, so it doesn't matter what value you start with.
Yeah it's the trendline's slope, but it might be a bit hard to compare them since the angles are not that dissimilar.
How is it not true? All these numbers are relative, and you can make the choice of comparing them to whatever reference point you want.
The y-axis has actual meaning: it tells you the purchasing power of a public stock, which will never be 0. What you could do is normalize it by the value of the stock at the start of the chart, which would make the charts start at 1. On a log plot this is the equivalent of dividing all the values by the starting value, which moves the lines up/down but does not change their shape. This could make it easier to compare…
As another commenter points out, it completely depends on what feature of the data you're trying to highlight, or what question you're trying to answer.
I don't think anyone looking at this chart really cares about the inflation-adjusted value of one share in a specific year, I think the main point of this chart is the real returns of stocks, bonds and cash (or an approximation of such represented by the selected indices), over time.
There are three charts on the linked website - bonds, dollars and stocks. None of them are exactly measures of wealth. My question is about how their properties as mutual numeraires could allow them to all fall at the same time.
People are willing to pay fewer dollars for each asset class.
People can't be willing to pay fewer dollars for the third asset class, which is dollars.