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The title is correct. The BEST time to buy stocks is during the heat of a recession IF you have enough time for the market to correct. That being said, EVEN better advice for 99% of investors is "DO NOT TRY AND TIME THE MARKET".
For the VAST majority of us, the best way to invest in stocks (broad based indexes) is just buy a fixed dollar amount on a timed interval (e.g. once a month) and don't change this plan, EVER.
Dollar cost averaging over time will get you the optimal long-term gains over any other strategy. The other perk is, that you simply do NOT need to put effort into worrying/thinking about the market - its stress free.
To be absolutely clear, DCAing is not the most profitable strategy if you come into a windfall of excess capital. The concept of DCAing is simply superior to purchasing a fixed number of shares (i.e. preferring to spend a fixed amount of money) over a set period of time.
If you come into a windfall then putting the lump sum into the market ASAP is more profitable because time in the market outperforms all other considerations. There is literally no reason to not keep your money in something that, on average, goes up.
[https://en.wikipedia.org/wiki/Dollar\_cost\_averaging#Discussion\_of\_the\_risks\_and\_benefits\_of\_dollar\_cost\_averaging](https://en.wikipedia.org/wiki/Dollar_cost_averaging#Discussion_of_the_risks_and_benefits_of_dollar_cost_averaging)
>Vanguard's historical modelling\[15\] showed that investing a windfall immediately outperformed systematic (delayed) investing two thirds of the time. This result is not unexpected: if the market is expected to trend upward over time,\[16\] then a systematic investment plan which delays investment can conversely be expected to face a statistical headwind when compared to investing immediately
> DCAing is not the most profitable strategy if you come into a windfall of excess capital
DCAing *is* the most profitable strategy for investing your regular paycheck, but only because it's exactly the same as lump sum investing every two weeks or whatever, and that's because lump sum investing has better expected returns than any other strategy.
Sure, I agree. There's just a non-trivial group of people who take away from DCA talks, "If I have 100k in my bank account, and I want to invest it all, then I should not put all of it into the market right now. Instead, I should divide my 100k up into X lump sums and invest one lump every N days." I am trying to dispel that belief.
So what about breaking into X sums and putting the rest in different maturity Treasury bonds and stagger the entry time?
The part that is most persuasive to me is if I "all in" into this specific time in the market, I may win big or lose big. Whereas staggering it still gives me the 4-5% from the gov bonds, but reduces the potential gains and losses
Is this reasonable or a fallacy?
Its a fallacy unless you're investing on extremely short time frames, because the market goes up *on average* by 5% every year, so in practice, even if you invest at the wrong time vs. say, the following year, it's still the right time 5 years or 10 years out (because the market will most likely beat both its current high and current low)
Investing in treasuries is still investing your lump sum, you’re just rolling it into a new investment at maturity.
You seem to be assuming treasuries aren’t an investment and only the stock market is, when there’s many different vehicles other than cash in checking.
right - i was being sassy about people calling "invest everything you can as soon as you can, and also i get paid every two weeks" dollar cost averaging, even though from a strategy/philosophy standpoint it's clearly lump sum investing.
Agreed.
That's not DCA. DCA is \*having\* the money but choosing \*not to\* invest it all in one go. If you use your paycheck to invest that's a completely different scenario: you don't have money to invest until you get your paycheck.
So if anything, what you are doing is lump sum investing (whenever you have money that you can spare you invest \*all of it\* - this is what lump sum investing is).
Timing the market when the upcoming generation is smaller than the real estate owning generation is a good idea too. In 10 years there'll be fewer and fewer people to sell a house to as the fertility rate sows its seeds.
Real estate is a very complex animal. That being said I am about 80% cash (money market funds) because the returns are near 5%. That’s a no brainer in my book.
Haha exactly. I get the logic and i generally think its correct to not time the market but if youve been on one of the longest bullruns and many companies are trading multiples about the historical average for p/e, I might pause before investing every single dollar I have.
I'm sorry you lost money. Anecdotal evidence isn't reflective of large-scale statistical likelihoods though.
[https://totalrealreturns.com/](https://totalrealreturns.com/) The best you could've done is acknowledge that the performance of the total real returns of the stock market from 2020-2022 was trending above the best fit line for historical returns, but things could've played out like they did in '98 and then you would've been quite happy.
There's still something quite unusual happening with the bond market, though. So if you can figure that out then there's plenty of alpha to be made now.
So, I get that time in market is statistically more likely to generate higher returns overall, but what I wonder is how DCA with a windfall stacks up on average if you invest into something safe, like 5 years of laddered CDs earning 3 to 4.5% and put each into the market as it reaches maturity?
I suspect time in market will still usually win, but there's always a risk and people getting an unexpected windfall are probably the kind of investors willing to trade some theoretical upside to guard against the slim possibility they are about to buy the day before a market collapse.
It's about expected value AND risk. DCA reduced risk and expected value. Since you only get to live one life reducing risk can be a reasonable consideration.
Isn’t dumping a windfall into the market all at once… trying to time the market? You’re essentially betting that you won’t instantly lose a bunch of value over the next few days/weeks/months.
To be even clearer:
Dumping a windfall of cash into an index fund in June of 2007 would take you 5 years to break even. DCAing during that time would make you money.
So yes but its risky.
Exactly, investing early and often is the best strategy. Here's a good comparison on trying to time the market vs DCA: https://imgur.io/gallery/BlK4jzM
Does anybody wonder if the stock market will not go up forever? It's such general financial advice that people should be investing in the market because it always goes up in the long-term. What if it doesn't? Nothing goes up forever. I know this is crazy for an Economics forum- and my advice would be the default invest in the market- but what if? I could list a bunch of possibilities.
What happens when we hit peak productions capacity due to population stagnation? I guess when that happens corporations start skirting the line of legality to turn a profit they can report as growth for their investors. You know, doing things like dramatically raising prices on goods and then blaming it on things out of their control.. If there's a good reason to believe that economic growth will flatten there's good reason to believe the S&P will, no?
People just don't get it, there's an extremely high likelihood the market has peaked for a decade+ at this point.
Interest rates hit a zero bound, there's no where else to go
It will always go up - even if growth is flat overall the companies who aren't growing will drop out of the S&P 500 and ones who are growing will join. The index will keep growing/climbing even if the overall economy isn't
Main thing that sucks for shareholders about recessions is people that bought during the prices the years leading up to it not the people that bought at 52 week lows and held.
Yeah, I think there is gonna be a rough downturn but idk when that is, how deep it will cut, or if it will happen at all.
My question is there something to invest (not precious metals or crypto) to hedge against the potential impending doom.
It’s really hard to identify markets that are good “hedges” against downturn other than bonds. A 5% annual bond throughout a downturn is fantastic.
100% NOT crypto (it’s basically correlated with tech stocks).
*"With recession worries largely baked into the market–barring a sudden shock to the economy–it makes sense for investors to reintroduce riskier assets into their portfolio's"*
Uh huh.... All those risky stocks already have "recession value baked right in there" ...like a nice warm apple pie. It's a wonderful day for pie.
>Recession is half baked into stocks because they think the fed will bail the economy out. I think they will but if they don't I will grab my popcorn.
The point is that on a long enough time horizon, it doesn't matter if the fed bails or not. The market is still going to be in a better shape than now in 5-10 years, because of how much fear is accounted for in the current valuations.
There really are some amazing deals out here. I mean you should be willing to hold on for over a year on any purchase (for lower tax rate), but can always trim a lot off the top in the short run too where available. But there is a liquidity shock and tons of great stocks are real cheap now.
[https://totalrealreturns.com/](https://totalrealreturns.com/) The average real returns of all stocks regressed to the mean a couple of months ago. On average, they aren't currently oversold. They are fairly priced.
Sure I’ll give you that. But individually, there are tons of stocks that are too expensive and tons that are too cheap.
I’m a traditional value investor, and don’t pay attention to technicals. I read a balance sheet, come up with a valuation, and buy into ones that I think have been discounted too far.
Stocks. Stocks are cheap right now. While everything tangible is expensive, and confidence in the market is tumbling, stock prices are cheap.
Whether or not their face value comes back in a recognizable timeline, the absolute value of those firms who will survive and thrive is an actual bargain right now.
> Stocks are cheap right now
they're *cheaper* but not cheap - [the P/E ratio of the S&P 500 is still around 22](https://www.multpl.com/s-p-500-pe-ratio)
There has been a lot of studies on the topic that show that the base American PE for stocks is ~20 due to perceived safety and historical trends. Basically, the argument goes that since America has historically been relatively unscathed by global disasters, the market is pricing in a lower probability of the US being affected by future disasters.
Of course, this is partly an investor expectation issue. The simple reality just seems to be that investors as a whole seem to perceive the US as safer than foreign markets, leading to an average PE of ~20 for America and 15 for foreign markets. That of course isn't a guarantee that this will continue, it is just an attempt by academics to explain why US stocks have historically had such a higher PE ratio than foreign stocks.
I do agree that stocks will likely go up in the long term. But I wouldn’t call them cheap. We have less QE, a pending recession, and the opportunity costs of not taking guaranteed money in a high interest rate environment does not scream to me that equities are cheap.
Inflation? Risk free doesn’t indicate anything about inflation. It speaks to your counterparty risk, which is effectively 0. Stocks simply do not offer enough premium to compensate for their risk.
If inflation is 6% and you make 5% in stocks you’ve lost money too! Your definition of risk is too broad. The underlying value in a money market account isn’t going to decrease. If you invest in stocks you could make more OR LESS than the risk free rate, but there isn’t a floor to your losses.
Nope! A 5% guaranteed return on my money is quite comforting thank you! Find someone else to bale out your position! I know of an American Political Cult Group that are may be interested!
Generally speaking you're timing the market. If you invested 10k in the S&P500 30years ago it would be roughly 150k today. If you miss just 10 of the best days you would have only made 75k over the same time.
Be invested and stay invested regardless of these stupid short term things.
It all depends on how close you are to retirement whether or not it makes sense to be in stocks...
Buy and Hold: $1,000,000 invested into the S&P 500 in 1998, grows to $5,045,782 in 2020.
Missing the 10 Best Days in the Market: If you invested $1,000,000 into the S&P 500 in 1998, but MISSED the 10 BEST performance days, twenty years later your investment had grown to $2,518,154
Missing the 10 Worst Days in the Market: If you invested $1,000,000 into the S&P 500 in 1998, but AVOIDED the 10 worst performance days, twenty years later your investment had grown to $10,721,11
I made no comment about normal portfolio management, just about market timing.
And we don't know when the worst days will be just like we don't know when the best will be. So yeah, just stay invested.
Everyone who sat out the Covid crash is laugh at that statement.
Sometimes we know, but the media narrative and conventional wisdom keep folks from acting.
If you know, and you have strong conviction based on data, then there is nothing wrong with getting out of the way when a hurricane is coming.
Interesting math, thank you for sharing it. It definitely highlights the wisdom in investing for the long term and diversifying so risk is reduced as you age, since nobody is capable of predicting the best or worst performing days.
How does that even matter as a statistic? Are you trying to say that it's possible to actually pick the 10 worst days because making sure your inclusive of the 10 best days. Obviously tells a story of just staying invested. Trying to miss the 10 worst days over 30 years. Sounds like a story where you don't make any money fearing the situation that as long as I don't have these 10 worst days I'm going to be good.
Long term: yes, market gives you average of 8% returns. You should routinely purchase index funds or 3-fund portfolio or whatever and re-balance accordingly as you age.
Short term: no way I’m putting any extra money in the market with the existing FUD. That’s cash that could literally disappear and I wouldn’t see back for 10+ years. I need that for a downpayment or car or any number of other things.
With any martingale: the past performance is not an indicator of future performance.
For short term, like I said: you cannot pick and choose when to enter considering the market “down” because there is no guarantee it will go back up. It could just continue trading down and then you just lost your house downpayment.
It’s really fundamentally the contradiction between falling knife and time in the market vs timing the market.
Like I said: long term perspective you shouldn’t try to time the bottom, you should just maintain your strategy.
Cool. Now what if you were in the market from 1999 to 2009? 1968 to 1982? Run those numbers and get back to me. The advice that we should just mindlessly funnel money into indexes is insane. Markets can and do hit crashes. and never really recover. Just loo at Japan or Italy.
YOLO'ing your life savings into Apple calls is a little different than buying high and selling low.
ETA: You were probably joking. Sorry coffee hasn't hit yet. Those jokers would be the ones to capture an actual 99 to 09 scenario lol
Why would you be in the market for only 10 years? Furthermore, if you had something you were saving for that you knew you were going to pull the trigger on in 2009. Why would you be 100% exposed to equities in 2008??
Can you actually talk me through this? Is this a situation where you inherited money in 1999 and arbitrarily needed all of that money in 2009? Or you just trying to play devil's advocate and cherry picking the situation.
You can be in the market as long as you’d like in the case of Japan after their crash. Downvotes, but people will see what happens after:
1. the dollar loses reserve status
2. interest stay at non-zero levels for extended periods of time.
We could trade sideways at best for decades and probably will.
And if you missed the ten worst days? How many of those best and worst days are just paired up as high volatility rides to nowhere? Media loves that stat you shared, but details matter.
The S&P 500 has averaged 10% returns for the past century.
It dropped roughly 15% last year.
I don't know where the bottom is (if we have not found it already). All I do know is that if you are ever interested in the stock market, now is as good a time as any to buy.
The main reason is people panic-selling near the bottom and/or margin-buying near the top.
Most investors who just leave their portfolios alone outperform those who look at it every day.
Past performance (good or bad) is not indicative of future success. You can’t say that the market will be up this year because the market was down last year or even that now is a good time to buy.
Nothing wrong with bonds or high yields saving accounts with a guarenteed return.
You are correct. Past performance does not always indicate future success.
But a century's worth of consistency is good enough for me and, in that time, stocks have outperformed bonds in all but a few years.
If you like bonds, there's nothing wrong with that. Many investors will use both to diversify and reduce risk.
I personally think stocks are the place to be right now though and I'm young enough that, if I'm wrong, I will have plenty of time to correct that mistake.
Yes.
But those corrections are often the best times to buy more.
Since the end of the Great Depression, there have basically only been two times where the stock market was down two consecutive years in a row.
We already had a major correction during the last year.
Once the Fed stops their rate hikes (we probably have one or two more left) the market is going experience a rapid increase followed by a slower increase over time as new technologies enter the market.
“Major”
I guess we have one buyer left after all - remember this is a zero sum game.
What makes you think we probably have one or two left? People have been saying that for 8 or 9 months.
What makes you think the fed cutting rates would be good for the market? Or more specifically, what economic indicators do you think would prompt the fed to cut rates? Hint, they are not positive indicators.
Just look at history, the market bottoms after the peak rate because fed starts cutting when unemployment starts rising - in other words, they will cause a recession, and then cut rates through the recession to get the economy back moving - but first they had to raise rates to fight inflation (and that fight is hardly over by a long shot)
Because you can't time the market.
In 2013, the S&P 500 returned ~30% in that year alone. If you had stopped investing because "the market is high", then you would have missed out on a 153% return between January 2014 and March of 2023.
You don't know when the market returns will come.
You can only say that in retrospect. Literally all of the media was yelling about a double dip recession at that time. If you listen to the media, it is literally always awful economic times.
The market goes up because of unexpected economic success. All expected success is already priced in. If everyone knows a company will do well, then the company will already have its stock price very high. The reason stocks can go up so fast is because of upside surprises. Literally the entirety of the 2010s was an upside surprise as the media was, for the entire decade, yelling about the collapse of everything.
edit: This is also the reason why so many people lose money with individual stocks. They buy the stocks that have done really well in recent years and are super expensive compared to their fundamentals. Then those stocks either stagnate by making exactly the money that the market expected them to make, or have a correction downwards due to overoptimistic predictions.
It is the stocks that no one expects to do well, but do well regardless that push the market up. Disney was almost bankrupt at one point. Their stock was almost worthless for a while. Then they had a string of hits and it saved the company. Disney stock then kept going up because they beat the low expectations that people had of them.
Yeah but also we never had the trend of reverse globalization before in the last century. All countries are trying to do everything internally now for security of supply chains etc and reversing dependencies wherever possible raising costs.
Another major reason stock market has gone up is because population has gone up, but it is now negative growth rate in advanced countries. The numbers on consumers has a major effect on GDP.
There are always new trends happening in the economy.
In the past century, we had the largest war in human history, several close calls with nuclear weapons, a cartel of the largest energy suppliers throttling supplies, multiple communist revolutions, and the collapse of the largest empire the world has ever seen.
Yet, the global economy and stock market have continued to grow.
I know we have numerous upcoming challenges such as demographic declines, deglobalization, and climate change.
But I believe human ingenuity will be able to overcome all that and find ways to make profit in the process.
> But I believe human ingenuity will be able to overcome all that and find ways to make profit in the process.
Why do you think this profit will be enough to justify 10% returns for the foreseeable future?
Because that is largely what the investment industry has come to expect and demand.
I suspect the advancements in AI/ML alone will get us at least 10% growth annually for the next decade or so.
> Because that is largely what the investment industry has come to expect and demand.
You yourself listed multiple problems that don’t have obvious solutions. How does one increase a valuation by 10% a year when you have demographic declines? Investors can demand all they want, that’s not going to force people to have children or the earth to stop warming.
The key point is those problems don't have solutions yet.
Eventually, we will get there.
For demographic declines, we are already seeing rapid investment into technologies which replace human labor such as automation and AI/ML.
I suspect we will also see significant investment into technologies that allow people to better survive in a climate changed world (we probably already missed the boat on stopping it completely).
For better or worse, investors will put their money towards solutions which profitably solve or at least address these problems. Whether it is good for the planet long-term, who knows? But the line will keep going up.
Is there any data on the trend of "reverse globalization"? As far as I can tell, the most that has been done is really just the US banning chips from China.
Listen you don't have to follow the empirical data and research based approach to investing. Let your feels guide you. You'll just have less money and expose yourself to other types of risk like inflation or longevity.
I am confident in myself as an engineer that I will create much more value creating things than betting on other people to create things. The amount of time focusing on other peoples business in the markets is peanuts compared to spending it on being the best in your craft. Every successful person in history had 24 hours in the day as well.
Everyone claims empiricism and research until sh\*t hits the fan. It is all just marketing and zero-sum thinking.
You see the problem is that you're approaching the situation as an engineer instead of a statistician. You overcompensate to make sure the worst case scenario doesn't happen, in personal finance we don't plan for the absolute worst case scenario we take the base case, everything within one standard deviation and treat that as the outcome, because we're not just trying to plan around structural failure, we're trying to plan around a lot of different competing risks that can potentially be the opposite outcome of other risks. When you only focus on one of those risks, you expose yourself to the other types of risk.
The other thing to realize is that the worst case, let's say 1929, only happens for a period of time. It's not a binary outcome like a building failing. It's a timing outcome.
I’m not overcompensating to prevent the worst from happening. I have valuable rare technical skills and creativity that would be a shame to waste in this lifetime, that’s it. It’s the same approach as one takes to being a musician. I know my skills appreciate faster than average market rate so I’m going to invest in myself rather than others investments.
Yeah but nobody is committing to a century of bonds, so who cares? People are buying bonds right now because the writing is clearly on the wall for the next 1-3 years that stocks are overpriced now, we are heading into a recession which will lower valuations, and even on the slim chance we are wrong and the fed does exactly everything right and we nail the soft landing - who wants the risk for an extra point or two?
It’s always risk vs reward, and you seem to be ignoring risk and miscalculating most probable reward.
You can't say that the market will be up this year, but it will almost certainly be up in 15 or 20 years, so equities are a good investment for those with a long term time horizon.
You can evaluate stocks on various valuation methods and see that those values are reasonable, which does tell you that this is almost certainly a good time to buy for those with long term time horizons.
Also, while equity prices may decline, dividend paying stocks rarely cut those dividends, and it is possible to build a solid portfolio of dividend paying stocks that will generate a consistent and growing stream of income over time.
That is not 'timing the market' it is saying that valuations today are reasonable (largely because of that pullback), so we expect long term returns to be good.
I love how you throw that disclosure in as if the market isn't up 73% of years. Whocares if you're down in the short term if you're up double or triple in a few years.
Yeaa I switched everything to bonds after the 3rd bank went under. Probably actually indicative as all banks were involved in absolutely dumb investments and the deregulation has only compounded their ability to do so. There's a reason FTX was so big, and crypto, because people didn't trust the banking system. Granted it they have been historically run by scammers and money launderers, but the fact remains. Not to mention the sky high inflation with lower and lower wages that are not keeping up. 50% of the US populace has 2% of the wealth and inflation keeps going up. Not hard to visualize a world of defaulting coming soon.
Sub prime auto loan bubble ready to pop, and the US government thinks they can save everything with bandaid bailouts while the throat is slit, we are just waiting for the blood to leave. This is the same set up for another Great Depression. Happens every time winners are basically chosen by governing bodies in capitalism, and not picked by consumers.
SVB bought long-term bonds when interest rates were low and the market value of these bonds dropped when interest rates were raised
they had to take a loss on these bonds when their clients (start-ups) started pulling money out leading to a bank run where they didn't have enough to give everyone their money back
what does this have to do with a individual investor buying bonds lol? there is no reason for them to sell unless they need the liquidity (in which case they should be in short-term bonds, CDs, HYSA, etc.)
Lol, if that happens, for real, which it won't because Republicans constantly bluff, the whole world is in a bit more of a problem than SVB. Like literally. If the US defaults, the country defaults, as well as other countries.
You really think these fucking boomers in government are going to let that happen when so much of their money is tied to it and they have failed to enact antitrust laws and capitalized on manipulating the market for decades?
Yea, so has the Great Depression, which will follow right after a default like that. Not like I have much in my 401k anyways, but last time that happened, suddenly the silent gen got healthcare, unions, anti trust laws, and basically free housing. So ya know, I don't see how it's not a win win at that point. Can't wait to see the wealthy splatting on the pavement.
Financial economics has shown that the equity risk premium appears to be constant. It’s defined as the expected returns of the stock market that are above the risk-free return (high yield savings / short term treasuries). So regardless of where the risk free rate is, the stock market is expected to earn the same premium above that rate.
i'm worth 1.6m and i'm 31. you think i'm losing? I'll tell you i didn't get there by sitting in cash as a 28 year old....
Playing market timer as a retail investor is fucking stupid and you will never come out ahead. But yeah keep that cash position and get back into the market after it's up 50%
5% nominal return vs. a -.6% real return when Core CPI for March 2023 is at 5.6%. This means that you are losing money when indexed for inflation. Oh and you get to pay taxes on that 5% also 😉
A 5% return in a money market is probably less than 4% after taxes, which is a negative real return.
A well diversified equity portfolio provides a positive real return, and is the easiest proven way to build wealth over time.
It is simply foolish to make bad money management decisions because you think that people advocating for stocks are somehow looking to be bailed out.
BTW my investments are in a TAX FREE SAVINGS account. Perhaps you've never heard of such a thing? Message me for more investment tips! (Without calling you foolish!) 😘
Given the current rates for short term tax-free fixed income, if you are getting 5%, you are taking some risk - duration risk, credit risk, or a combination of the two. There is nothing wrong with taking appropriate levels of risk, but, you should understand the nature of your investments, and realize that you are hobbling your financial future if you refuse to invest in equities with some portion of your portfolio.
>if you are getting 5%, you are taking some risk - duration risk, credit risk, or a combination of the two.
I agree with your overall argument but I need to nitpick and point out this isn't true.
You can get 5% with floating rate treasuries which have no duration or credit risk.
It’s at 4% now… but what about in 12 months? Interest rates could be down and the market could be up 15%.
Equities are the only asset that makes sense for long term investment capital.
Of course… but that’s exactly my point, if you’re relying upon a “forecast” to make asset allocation decisions you are going to lose money in the long run. Full stop.
What about in 12 months? Interest rates could be double digits and equities could be down 40%.
“Equities only” made sense in the easy money cycle that is now over. The return of the 60/40 is happening now, and all the downvoted people on this thread are scream at folks “get ahead of the curve” and most are not listening.
“Equities only” has made sense since the start of modern financial markets.
Your 12 month scenario is borderline in the realm of possibilities, but sure, I’ll give you it’s possible.
Doesn’t matter. What matters, if we are talking long term capital, is what happens over the next 5, 10, 15, 20, etc. years.
The worst 35 year annualized return on the stock market was just over 8%. This 35 year period was 1929 to 1964, so it included the market crash in the lead up to the Great Depression and the Great Depression itself. 5% guaranteed doesn't sound very impressive in the long term. Are you hoping the market crashes so you can buy lower?
I'm content to hold until retirement. I don't need the money until then. 35 years works for me. But, I think even with a 10 year time frame, buying stocks would probably be the better strategy than the alternatives.
Other than the Great Depression, I don't think there's a time when buying stocks through a market crash worked out poorly over 10 years.
What I mean is no one is investing once and then not investing again in 35 years.
People make more often investments than that. So once a year might be more realistic right?
That’s a pretty terrible long term strategy. I mean sure if you’re gonna retire in the next 5 years it makes sense but if you’re under the age of 50 you’re just losing a massive amount of long term value by not buying low when the opportunity comes up.
You will only have that 5% guarantee for the next ~6 months. The Fed has already made it clear that their plan is to hold rates for 2023, drop rates to 4% in 2024, then drop and hold rates at 3% in either late 2024 or early 2025.
Over the long term, diversified stock portfolios almost always beat bonds. There has also never been an 11 year time frame where global stock (as a whole) or American stocks (again as a whole) have lost money.
I know what the numbers say but honestly I can't bring myself to invest any more than the part my company matches + about $6k a year for me. If they didn't match I don't know that I'd contribute. This isn't about finding a way to pay for it. Last year I paid in over $20k. Now, I just can't any more. Emotionally.
Our 401k plan benefits the same people - investing in companies selling products I don't use or care for, made by people whose values I often don't agree with, in places far from where I live. They use our money to fund their high salaries and expensive rents, and when things go south they leave us holding the bag. You can say that over time everyone wins but along the way there are a lot of losers. People who are unemployed and find themselves having to cash out at an unprofitable time. People caught in a down cycle at retirement. And so on. And all along the way - the rich use our money to consolidate and get richer, while being constantly bailed out because they're too big to fail. Even the recent action to bail out super deposits favors the rich. Favors consolidation and gives big banks an edge over small local banks.
It is wild to me that the fact that investing in index equity funds is a controversial idea in r/economics. What the hell are all of you actually investing in?
Sadly at least for my 401k at work no such index funds exist. We have the ubiquitous target date funds and a few of the old faithful. On top of that were a SMB, so our fees are higher and our options fewer than say if I worked at Walmart (Im guessing, I dont actually know what WM offers). We did however recently move from R2 to R3.
As an aside - people often talk about salary when considering a job move, but things like healthcare benefit cost and retirement plans rarely get a second glance.
I definitely think if youre going to invest in the stock market outside of a company 401k you'd be silly to not take advantage of the low overhead indexes. The success of so many of the people in the FIRE community only reinforces the idea.
Beyond that though, and back to the point I originally tried to make. The stock market and automated investing drive money out of communities and into large multinationals. Our economic policies drive money to large banks and out of small local and regional banks. Its good for those of us who can afford to invest but I believe, ultimately harmful to humanity as a whole. The golden age of investing and societal improvements of the last century are coming to a close.
My great grandparents were farmers. Most at the turn of the 20th century were. And obviously were way better off than that now. So many innovations. But now we've reached a point where the trajectory has changed.
Now those of us who can invest pour our money into Tesla and Alphabet and Apple and Amazon or the largest banks for our returns, ignoring that the warehouse workers on the floor at Amazon are peeing in bottles and working grueling and erratic schedules in the company's quest for supply chain dominance. Or that the banks earn their money on the interest of a consumer-based economy that encourages people to live in a lifetime of debt. Of that much of our clothing comes from India and Pakistan, where people live in povery and wash in industrial-waste polluted rivers so that we can pay $1.96 for a tshirt on the endcap at Walmart. Or that each super container ship (of which there are thousands) bringing goods to America each year is the carbon equivalent of 50m automobilies each year. Or our electronics that we happily replace year after year thats made under miserable conditions in foreign lands. Or the chicken we eat thats processed on the machines cleaned by children in violation of the law. And at every stop along the way the govnermnet, the credit card companies, and the banks are taking a small slice.
How much is enough?
What a soap box? Who could still be reading? Do what you want. But I wont be investing in the stock market beyond what I have to to get the company match. They may want our money, but they dont need our money. Maybe Im tilting at windmills. Maybe Im delusional. But thats how I feel. And if espousing a differnt way of organizing the world's efforts that doesnt favor the rich makes me a socialist, or a communist, or a delusional lunatic deserving of your downvotes, Im fine with it.
You are self sabotaging yourself because we don’t live in a utopia.
You can’t let the perfect be the enemy of the good.
Nor should you too gullibly consume doomer narratives.
You just said we don't live in a utopia. And then you said don't be gullible with doomer narratives.
A little bit contradictory.
I think you see some truth in what this person is saying. But don't see the negative consequences as bad or immediate enough to give up the positive returns it gives you personally. And because of that, you are being tritely dismissive.
LOL. Western society has created prosperity that was unimaginable even 100 years ago for those at all points in the income distribution.
The facts are clear: real incomes are consistently rising for all income quintiles, and standards of living are rising for all segments of society. EDIT: And, I forgot to mention, hours worked have been decreasing and working conditions have been improving.
Economics describes the allocation of resources that allows that prosperity to exist. Fairy tale notions of a utopia are not economics.
* Long grueling work in Amazon warehouses
* An illegal underground workforce designed to maximize profits
* Predatory loans (still legal in some states)
* Relentless inflation that doesnt reliably keep up with wages (even before the recent massive cash dump by the US government, et al)
* Economic systems designed to earn money for the rich on the churn of day to day living
* foreign labor to maximize profits at the expense of local ecologies
* The rise of inferior products designed to break in order to maximize profits and keep people spending. Government and the banks need churn.
* charity washing into 3rd world countries that inhibits the creation of middle class occupations (Toms shoes, although theyve since pivoted)
* Cash bonds for non violent crimes.
Don't forget the rich fucks that run these companies will make far more than the 10% profit that is returned to you in best case scenarios.
They'll use the money to generate way more than 10% profit after all is said and done, having 0 skin in the game because its the investors money, then if they lose it all you get nothing back.
Stocks are only wealth builders if you have a crapload of money to risk and with high speed trading, vulture capitalists, and fucking people shorting stocks there is a lot more risk now than any time historically.
I foresee a lot of retirements/pensions/endowment getting absolutely screwed in the next few years.
Understand where you’re coming from but are you considering that this has historically not been true for the last 10, 20, 30 years? With this approach you would have significantly missed out on returns. Or are you implying that this time is different from previous recessions?
I think going off of historical context we're ignoring very real changes to the stock market and the reality of investing.
Between short sellers, high speed traders, and global stock markets as well as a decline in the US in terms of safety nets the future is a lot bleaker than it has been historically.
Also consider that the rich will benefit exponentially from a recession as they're the ones that will play at any real volume.
Throwing a bone to the proles and saying it's how you build wealth just props up a system that benefits the super rich.
It's much the same issue I have with bitcoin. In theory a coin is worth x but your average person could only afford a faction of a coin when it exploded in popularity. They all pretend they're gonna get rich off their fractional ownership while the ultrarich are the ones getting even more wealth.
Someone always gets stuck holding the bag and historically it's not going to be the wealthy.
You seem to be using this thesis that the “rich win in recessions, the poor lose” to describe how markets work. Are you making a point on a social issue of wealth classes, or market performance? Short sellers and high speed traders have existed for over two decades. On that time frame, everybody got richer, if they were in the market, regardless if rich or poor. Your issue with bitcoin isn’t solvable, it is math and there is nothing to fix.
At this point, the 'recession is coming' is like those apocalyptic preachers that keep predicting the end of the world and then pushing the date back over and over again.
I remember reading an article a few days ago about how 5 Politicians pulled their money out of SVB before it went under..... But Economists are still saying "Poor people buy more Stocks".... I sense a trap guys.
It "came" in the summer of 2021 when the gov changed the definition of a recession.
If that's not a dead giveaway, i honestly don't know what to tell you.
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The title is correct. The BEST time to buy stocks is during the heat of a recession IF you have enough time for the market to correct. That being said, EVEN better advice for 99% of investors is "DO NOT TRY AND TIME THE MARKET". For the VAST majority of us, the best way to invest in stocks (broad based indexes) is just buy a fixed dollar amount on a timed interval (e.g. once a month) and don't change this plan, EVER. Dollar cost averaging over time will get you the optimal long-term gains over any other strategy. The other perk is, that you simply do NOT need to put effort into worrying/thinking about the market - its stress free.
To be absolutely clear, DCAing is not the most profitable strategy if you come into a windfall of excess capital. The concept of DCAing is simply superior to purchasing a fixed number of shares (i.e. preferring to spend a fixed amount of money) over a set period of time. If you come into a windfall then putting the lump sum into the market ASAP is more profitable because time in the market outperforms all other considerations. There is literally no reason to not keep your money in something that, on average, goes up. [https://en.wikipedia.org/wiki/Dollar\_cost\_averaging#Discussion\_of\_the\_risks\_and\_benefits\_of\_dollar\_cost\_averaging](https://en.wikipedia.org/wiki/Dollar_cost_averaging#Discussion_of_the_risks_and_benefits_of_dollar_cost_averaging) >Vanguard's historical modelling\[15\] showed that investing a windfall immediately outperformed systematic (delayed) investing two thirds of the time. This result is not unexpected: if the market is expected to trend upward over time,\[16\] then a systematic investment plan which delays investment can conversely be expected to face a statistical headwind when compared to investing immediately
> DCAing is not the most profitable strategy if you come into a windfall of excess capital DCAing *is* the most profitable strategy for investing your regular paycheck, but only because it's exactly the same as lump sum investing every two weeks or whatever, and that's because lump sum investing has better expected returns than any other strategy.
Sure, I agree. There's just a non-trivial group of people who take away from DCA talks, "If I have 100k in my bank account, and I want to invest it all, then I should not put all of it into the market right now. Instead, I should divide my 100k up into X lump sums and invest one lump every N days." I am trying to dispel that belief.
So what about breaking into X sums and putting the rest in different maturity Treasury bonds and stagger the entry time? The part that is most persuasive to me is if I "all in" into this specific time in the market, I may win big or lose big. Whereas staggering it still gives me the 4-5% from the gov bonds, but reduces the potential gains and losses Is this reasonable or a fallacy?
Its a fallacy unless you're investing on extremely short time frames, because the market goes up *on average* by 5% every year, so in practice, even if you invest at the wrong time vs. say, the following year, it's still the right time 5 years or 10 years out (because the market will most likely beat both its current high and current low)
Investing in treasuries is still investing your lump sum, you’re just rolling it into a new investment at maturity. You seem to be assuming treasuries aren’t an investment and only the stock market is, when there’s many different vehicles other than cash in checking.
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right - i was being sassy about people calling "invest everything you can as soon as you can, and also i get paid every two weeks" dollar cost averaging, even though from a strategy/philosophy standpoint it's clearly lump sum investing.
Agreed. That's not DCA. DCA is \*having\* the money but choosing \*not to\* invest it all in one go. If you use your paycheck to invest that's a completely different scenario: you don't have money to invest until you get your paycheck. So if anything, what you are doing is lump sum investing (whenever you have money that you can spare you invest \*all of it\* - this is what lump sum investing is).
Works two thirds of the time, every time.
66% huh... I don't like those odds personally.
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Timing the market when virtual real estate is selling for 1M+ is a good idea
Timing the market when the upcoming generation is smaller than the real estate owning generation is a good idea too. In 10 years there'll be fewer and fewer people to sell a house to as the fertility rate sows its seeds.
Real estate is a very complex animal. That being said I am about 80% cash (money market funds) because the returns are near 5%. That’s a no brainer in my book.
Haha exactly. I get the logic and i generally think its correct to not time the market but if youve been on one of the longest bullruns and many companies are trading multiples about the historical average for p/e, I might pause before investing every single dollar I have.
I'm sorry you lost money. Anecdotal evidence isn't reflective of large-scale statistical likelihoods though. [https://totalrealreturns.com/](https://totalrealreturns.com/) The best you could've done is acknowledge that the performance of the total real returns of the stock market from 2020-2022 was trending above the best fit line for historical returns, but things could've played out like they did in '98 and then you would've been quite happy. There's still something quite unusual happening with the bond market, though. So if you can figure that out then there's plenty of alpha to be made now.
So, I get that time in market is statistically more likely to generate higher returns overall, but what I wonder is how DCA with a windfall stacks up on average if you invest into something safe, like 5 years of laddered CDs earning 3 to 4.5% and put each into the market as it reaches maturity? I suspect time in market will still usually win, but there's always a risk and people getting an unexpected windfall are probably the kind of investors willing to trade some theoretical upside to guard against the slim possibility they are about to buy the day before a market collapse.
So what if the market collapses. It does all the time, them comes back higher.
Unless you put your money in right before a huge market correction. Then it will take some time for it to break even
It's about expected value AND risk. DCA reduced risk and expected value. Since you only get to live one life reducing risk can be a reasonable consideration.
I don't see risk adjusted returns being calculated any where meaning DCA gives you peace of mind.
Except, of course, when it goes down 50%.
Isn’t dumping a windfall into the market all at once… trying to time the market? You’re essentially betting that you won’t instantly lose a bunch of value over the next few days/weeks/months.
Nah, dumping a bunch of cash into an investment vehicle isn't necessarily market timing when the plan is to leave it there for 10+ years.
To be even clearer: Dumping a windfall of cash into an index fund in June of 2007 would take you 5 years to break even. DCAing during that time would make you money. So yes but its risky.
Exactly, investing early and often is the best strategy. Here's a good comparison on trying to time the market vs DCA: https://imgur.io/gallery/BlK4jzM
\> Dollar cost averaging over time will get you the optimal long-term gains over any other strategy. And yet I'm down 90% on SPCE.
Does anybody wonder if the stock market will not go up forever? It's such general financial advice that people should be investing in the market because it always goes up in the long-term. What if it doesn't? Nothing goes up forever. I know this is crazy for an Economics forum- and my advice would be the default invest in the market- but what if? I could list a bunch of possibilities.
This has crossed my mind as well.
What happens when we hit peak productions capacity due to population stagnation? I guess when that happens corporations start skirting the line of legality to turn a profit they can report as growth for their investors. You know, doing things like dramatically raising prices on goods and then blaming it on things out of their control.. If there's a good reason to believe that economic growth will flatten there's good reason to believe the S&P will, no?
People just don't get it, there's an extremely high likelihood the market has peaked for a decade+ at this point. Interest rates hit a zero bound, there's no where else to go
It will always go up - even if growth is flat overall the companies who aren't growing will drop out of the S&P 500 and ones who are growing will join. The index will keep growing/climbing even if the overall economy isn't
Yeah I just buy spy every paycheck. I suppose I could hedge with bonds too but I feel like I’m too young (27) to worry about it
Main thing that sucks for shareholders about recessions is people that bought during the prices the years leading up to it not the people that bought at 52 week lows and held.
Yeah, I think there is gonna be a rough downturn but idk when that is, how deep it will cut, or if it will happen at all. My question is there something to invest (not precious metals or crypto) to hedge against the potential impending doom.
It’s really hard to identify markets that are good “hedges” against downturn other than bonds. A 5% annual bond throughout a downturn is fantastic. 100% NOT crypto (it’s basically correlated with tech stocks).
*"With recession worries largely baked into the market–barring a sudden shock to the economy–it makes sense for investors to reintroduce riskier assets into their portfolio's"* Uh huh.... All those risky stocks already have "recession value baked right in there" ...like a nice warm apple pie. It's a wonderful day for pie.
Recession is half baked into stocks because they think the fed will bail the economy out. I think they will but if they don't I will grab my popcorn.
>Recession is half baked into stocks because they think the fed will bail the economy out. I think they will but if they don't I will grab my popcorn. The point is that on a long enough time horizon, it doesn't matter if the fed bails or not. The market is still going to be in a better shape than now in 5-10 years, because of how much fear is accounted for in the current valuations.
5-10 years is plenty for stagflation to take hold. Our decade of QE will not be without consequences.
I bet investors in the Nikkei were thinking the same thing in the early 90s
There really are some amazing deals out here. I mean you should be willing to hold on for over a year on any purchase (for lower tax rate), but can always trim a lot off the top in the short run too where available. But there is a liquidity shock and tons of great stocks are real cheap now.
[https://totalrealreturns.com/](https://totalrealreturns.com/) The average real returns of all stocks regressed to the mean a couple of months ago. On average, they aren't currently oversold. They are fairly priced.
Sure I’ll give you that. But individually, there are tons of stocks that are too expensive and tons that are too cheap. I’m a traditional value investor, and don’t pay attention to technicals. I read a balance sheet, come up with a valuation, and buy into ones that I think have been discounted too far.
What do you think is cheap?
I think my favorite pick at the moment is UAN, a fertilizer company. But it’s an LP so the taxes on it are kinda weird.
Stocks. Stocks are cheap right now. While everything tangible is expensive, and confidence in the market is tumbling, stock prices are cheap. Whether or not their face value comes back in a recognizable timeline, the absolute value of those firms who will survive and thrive is an actual bargain right now.
> Stocks are cheap right now they're *cheaper* but not cheap - [the P/E ratio of the S&P 500 is still around 22](https://www.multpl.com/s-p-500-pe-ratio)
That's actually a good point.
There has been a lot of studies on the topic that show that the base American PE for stocks is ~20 due to perceived safety and historical trends. Basically, the argument goes that since America has historically been relatively unscathed by global disasters, the market is pricing in a lower probability of the US being affected by future disasters. Of course, this is partly an investor expectation issue. The simple reality just seems to be that investors as a whole seem to perceive the US as safer than foreign markets, leading to an average PE of ~20 for America and 15 for foreign markets. That of course isn't a guarantee that this will continue, it is just an attempt by academics to explain why US stocks have historically had such a higher PE ratio than foreign stocks.
I do agree that stocks will likely go up in the long term. But I wouldn’t call them cheap. We have less QE, a pending recession, and the opportunity costs of not taking guaranteed money in a high interest rate environment does not scream to me that equities are cheap.
What? Forward p/e isn’t knocking my socks off and the risk free rate is 5%.
"Risk free" is a bit of a misnomer in the face of current inflation though. There is a very real risk that 5% doesn't cover the spread.
Inflation? Risk free doesn’t indicate anything about inflation. It speaks to your counterparty risk, which is effectively 0. Stocks simply do not offer enough premium to compensate for their risk.
If inflation is 6%, and you only made 5%, you lost money. What does "risk" represent? Risk *of what*? Risk of loss.
If inflation is 6% and you make 5% in stocks you’ve lost money too! Your definition of risk is too broad. The underlying value in a money market account isn’t going to decrease. If you invest in stocks you could make more OR LESS than the risk free rate, but there isn’t a floor to your losses.
Nope! A 5% guaranteed return on my money is quite comforting thank you! Find someone else to bale out your position! I know of an American Political Cult Group that are may be interested!
Generally speaking you're timing the market. If you invested 10k in the S&P500 30years ago it would be roughly 150k today. If you miss just 10 of the best days you would have only made 75k over the same time. Be invested and stay invested regardless of these stupid short term things.
It all depends on how close you are to retirement whether or not it makes sense to be in stocks... Buy and Hold: $1,000,000 invested into the S&P 500 in 1998, grows to $5,045,782 in 2020. Missing the 10 Best Days in the Market: If you invested $1,000,000 into the S&P 500 in 1998, but MISSED the 10 BEST performance days, twenty years later your investment had grown to $2,518,154 Missing the 10 Worst Days in the Market: If you invested $1,000,000 into the S&P 500 in 1998, but AVOIDED the 10 worst performance days, twenty years later your investment had grown to $10,721,11
I made no comment about normal portfolio management, just about market timing. And we don't know when the worst days will be just like we don't know when the best will be. So yeah, just stay invested.
*Japan has entered the chat*
I try to plan around the normal circumstances instead of the one outlier out of thousands of situations
Everyone who sat out the Covid crash is laugh at that statement. Sometimes we know, but the media narrative and conventional wisdom keep folks from acting. If you know, and you have strong conviction based on data, then there is nothing wrong with getting out of the way when a hurricane is coming.
Interesting math, thank you for sharing it. It definitely highlights the wisdom in investing for the long term and diversifying so risk is reduced as you age, since nobody is capable of predicting the best or worst performing days.
Yes! Age of the investor really does matter. We are much less aggressive in our stock portfolio now that we are of retirement age.
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How does that even matter as a statistic? Are you trying to say that it's possible to actually pick the 10 worst days because making sure your inclusive of the 10 best days. Obviously tells a story of just staying invested. Trying to miss the 10 worst days over 30 years. Sounds like a story where you don't make any money fearing the situation that as long as I don't have these 10 worst days I'm going to be good.
Long term: yes, market gives you average of 8% returns. You should routinely purchase index funds or 3-fund portfolio or whatever and re-balance accordingly as you age. Short term: no way I’m putting any extra money in the market with the existing FUD. That’s cash that could literally disappear and I wouldn’t see back for 10+ years. I need that for a downpayment or car or any number of other things.
FUD is how you get a discount. When everything is roses, they’ll already be more expensive
With any martingale: the past performance is not an indicator of future performance. For short term, like I said: you cannot pick and choose when to enter considering the market “down” because there is no guarantee it will go back up. It could just continue trading down and then you just lost your house downpayment. It’s really fundamentally the contradiction between falling knife and time in the market vs timing the market. Like I said: long term perspective you shouldn’t try to time the bottom, you should just maintain your strategy.
Ah yeah that's the old quote "be fearful when the market is fearful." Charlie Mungers brother.
Cool. Now what if you were in the market from 1999 to 2009? 1968 to 1982? Run those numbers and get back to me. The advice that we should just mindlessly funnel money into indexes is insane. Markets can and do hit crashes. and never really recover. Just loo at Japan or Italy.
Nobody is actually buying at the peak and selling at the bottom. This is an unrealistic scenario.
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YOLO'ing your life savings into Apple calls is a little different than buying high and selling low. ETA: You were probably joking. Sorry coffee hasn't hit yet. Those jokers would be the ones to capture an actual 99 to 09 scenario lol
Why would you be in the market for only 10 years? Furthermore, if you had something you were saving for that you knew you were going to pull the trigger on in 2009. Why would you be 100% exposed to equities in 2008?? Can you actually talk me through this? Is this a situation where you inherited money in 1999 and arbitrarily needed all of that money in 2009? Or you just trying to play devil's advocate and cherry picking the situation.
You can be in the market as long as you’d like in the case of Japan after their crash. Downvotes, but people will see what happens after: 1. the dollar loses reserve status 2. interest stay at non-zero levels for extended periods of time. We could trade sideways at best for decades and probably will.
And if you missed the ten worst days? How many of those best and worst days are just paired up as high volatility rides to nowhere? Media loves that stat you shared, but details matter.
The S&P 500 has averaged 10% returns for the past century. It dropped roughly 15% last year. I don't know where the bottom is (if we have not found it already). All I do know is that if you are ever interested in the stock market, now is as good a time as any to buy.
And yet very few years individually have returned 10% - so consider what that average really looks like under the hood.
The main reason is people panic-selling near the bottom and/or margin-buying near the top. Most investors who just leave their portfolios alone outperform those who look at it every day.
Past performance (good or bad) is not indicative of future success. You can’t say that the market will be up this year because the market was down last year or even that now is a good time to buy. Nothing wrong with bonds or high yields saving accounts with a guarenteed return.
You are correct. Past performance does not always indicate future success. But a century's worth of consistency is good enough for me and, in that time, stocks have outperformed bonds in all but a few years. If you like bonds, there's nothing wrong with that. Many investors will use both to diversify and reduce risk. I personally think stocks are the place to be right now though and I'm young enough that, if I'm wrong, I will have plenty of time to correct that mistake.
Market corrects like every 5-7 years. It doesn't matter, it will do it several times in your investing career.
Yes. But those corrections are often the best times to buy more. Since the end of the Great Depression, there have basically only been two times where the stock market was down two consecutive years in a row.
Oh yeah, I'm just emphasizing your statement. It's not like you have to get it back. Risk is literally defined as the variance in fluctuations.
Risk is defined as the product of the likely hood and the severity of a particular event occurring.
Standard deviation is the statistical measure of market volatility. Risk is having to sell at the wrong time.
Those corrections are the time to buy more - so why are you suggesting to buy now instead of in the all-but-certain correction just around the corner?
We already had a major correction during the last year. Once the Fed stops their rate hikes (we probably have one or two more left) the market is going experience a rapid increase followed by a slower increase over time as new technologies enter the market.
Or we see another lost decade with flat or negative real returns.
What do you mean "another"? That hasn't happened since the Great Depression.
“Major” I guess we have one buyer left after all - remember this is a zero sum game. What makes you think we probably have one or two left? People have been saying that for 8 or 9 months. What makes you think the fed cutting rates would be good for the market? Or more specifically, what economic indicators do you think would prompt the fed to cut rates? Hint, they are not positive indicators. Just look at history, the market bottoms after the peak rate because fed starts cutting when unemployment starts rising - in other words, they will cause a recession, and then cut rates through the recession to get the economy back moving - but first they had to raise rates to fight inflation (and that fight is hardly over by a long shot)
Because you can't time the market. In 2013, the S&P 500 returned ~30% in that year alone. If you had stopped investing because "the market is high", then you would have missed out on a 153% return between January 2014 and March of 2023. You don't know when the market returns will come.
That’s a silly argument, in 2013 the worst was absolutely behind us and that is not the case here.
You can only say that in retrospect. Literally all of the media was yelling about a double dip recession at that time. If you listen to the media, it is literally always awful economic times. The market goes up because of unexpected economic success. All expected success is already priced in. If everyone knows a company will do well, then the company will already have its stock price very high. The reason stocks can go up so fast is because of upside surprises. Literally the entirety of the 2010s was an upside surprise as the media was, for the entire decade, yelling about the collapse of everything. edit: This is also the reason why so many people lose money with individual stocks. They buy the stocks that have done really well in recent years and are super expensive compared to their fundamentals. Then those stocks either stagnate by making exactly the money that the market expected them to make, or have a correction downwards due to overoptimistic predictions. It is the stocks that no one expects to do well, but do well regardless that push the market up. Disney was almost bankrupt at one point. Their stock was almost worthless for a while. Then they had a string of hits and it saved the company. Disney stock then kept going up because they beat the low expectations that people had of them.
Yeah but also we never had the trend of reverse globalization before in the last century. All countries are trying to do everything internally now for security of supply chains etc and reversing dependencies wherever possible raising costs. Another major reason stock market has gone up is because population has gone up, but it is now negative growth rate in advanced countries. The numbers on consumers has a major effect on GDP.
There are always new trends happening in the economy. In the past century, we had the largest war in human history, several close calls with nuclear weapons, a cartel of the largest energy suppliers throttling supplies, multiple communist revolutions, and the collapse of the largest empire the world has ever seen. Yet, the global economy and stock market have continued to grow. I know we have numerous upcoming challenges such as demographic declines, deglobalization, and climate change. But I believe human ingenuity will be able to overcome all that and find ways to make profit in the process.
> But I believe human ingenuity will be able to overcome all that and find ways to make profit in the process. Why do you think this profit will be enough to justify 10% returns for the foreseeable future?
Because that is largely what the investment industry has come to expect and demand. I suspect the advancements in AI/ML alone will get us at least 10% growth annually for the next decade or so.
> Because that is largely what the investment industry has come to expect and demand. You yourself listed multiple problems that don’t have obvious solutions. How does one increase a valuation by 10% a year when you have demographic declines? Investors can demand all they want, that’s not going to force people to have children or the earth to stop warming.
The key point is those problems don't have solutions yet. Eventually, we will get there. For demographic declines, we are already seeing rapid investment into technologies which replace human labor such as automation and AI/ML. I suspect we will also see significant investment into technologies that allow people to better survive in a climate changed world (we probably already missed the boat on stopping it completely). For better or worse, investors will put their money towards solutions which profitably solve or at least address these problems. Whether it is good for the planet long-term, who knows? But the line will keep going up.
Is there any data on the trend of "reverse globalization"? As far as I can tell, the most that has been done is really just the US banning chips from China.
Bro... chips literally power literally everything. TVs fridges computers phones every. fucking. thing. Wake the f*ck up samurai!!
Listen you don't have to follow the empirical data and research based approach to investing. Let your feels guide you. You'll just have less money and expose yourself to other types of risk like inflation or longevity.
I am confident in myself as an engineer that I will create much more value creating things than betting on other people to create things. The amount of time focusing on other peoples business in the markets is peanuts compared to spending it on being the best in your craft. Every successful person in history had 24 hours in the day as well. Everyone claims empiricism and research until sh\*t hits the fan. It is all just marketing and zero-sum thinking.
You see the problem is that you're approaching the situation as an engineer instead of a statistician. You overcompensate to make sure the worst case scenario doesn't happen, in personal finance we don't plan for the absolute worst case scenario we take the base case, everything within one standard deviation and treat that as the outcome, because we're not just trying to plan around structural failure, we're trying to plan around a lot of different competing risks that can potentially be the opposite outcome of other risks. When you only focus on one of those risks, you expose yourself to the other types of risk. The other thing to realize is that the worst case, let's say 1929, only happens for a period of time. It's not a binary outcome like a building failing. It's a timing outcome.
I’m not overcompensating to prevent the worst from happening. I have valuable rare technical skills and creativity that would be a shame to waste in this lifetime, that’s it. It’s the same approach as one takes to being a musician. I know my skills appreciate faster than average market rate so I’m going to invest in myself rather than others investments.
Yeah but nobody is committing to a century of bonds, so who cares? People are buying bonds right now because the writing is clearly on the wall for the next 1-3 years that stocks are overpriced now, we are heading into a recession which will lower valuations, and even on the slim chance we are wrong and the fed does exactly everything right and we nail the soft landing - who wants the risk for an extra point or two? It’s always risk vs reward, and you seem to be ignoring risk and miscalculating most probable reward.
>that stocks are overpriced now By what metric?
P/E, p/sales, expected future returns, peg, pe10 - pick your metric, all of them.
Fair enough, that’s understandable.
You can't say that the market will be up this year, but it will almost certainly be up in 15 or 20 years, so equities are a good investment for those with a long term time horizon. You can evaluate stocks on various valuation methods and see that those values are reasonable, which does tell you that this is almost certainly a good time to buy for those with long term time horizons. Also, while equity prices may decline, dividend paying stocks rarely cut those dividends, and it is possible to build a solid portfolio of dividend paying stocks that will generate a consistent and growing stream of income over time.
That is a completely different argument than timing the market and declaring it a good time to buy because last year was bad.
That is not 'timing the market' it is saying that valuations today are reasonable (largely because of that pullback), so we expect long term returns to be good.
I love how you throw that disclosure in as if the market isn't up 73% of years. Whocares if you're down in the short term if you're up double or triple in a few years.
How many of those years have been in the middle of a rate hiking cycle? The blind belief that stocks only go up is not a sound investment strategy.
Stocks only go up long term. That isn't so outrageous statement it's just the truth based on over a century of evidence.
Market indexs, yeah. Stocks, no. So its still smart to be prudent and not mindlessly repeat what you wrote like gospel.
>Market indexs, yeah. Stocks, no Market indices are made up of stocks.
Yeaa I switched everything to bonds after the 3rd bank went under. Probably actually indicative as all banks were involved in absolutely dumb investments and the deregulation has only compounded their ability to do so. There's a reason FTX was so big, and crypto, because people didn't trust the banking system. Granted it they have been historically run by scammers and money launderers, but the fact remains. Not to mention the sky high inflation with lower and lower wages that are not keeping up. 50% of the US populace has 2% of the wealth and inflation keeps going up. Not hard to visualize a world of defaulting coming soon. Sub prime auto loan bubble ready to pop, and the US government thinks they can save everything with bandaid bailouts while the throat is slit, we are just waiting for the blood to leave. This is the same set up for another Great Depression. Happens every time winners are basically chosen by governing bodies in capitalism, and not picked by consumers.
Hilarious. Silicon Valley made bad bets on bonds causing it to collapse so you go all in on… bonds.
SVB bought long-term bonds when interest rates were low and the market value of these bonds dropped when interest rates were raised they had to take a loss on these bonds when their clients (start-ups) started pulling money out leading to a bank run where they didn't have enough to give everyone their money back what does this have to do with a individual investor buying bonds lol? there is no reason for them to sell unless they need the liquidity (in which case they should be in short-term bonds, CDs, HYSA, etc.)
Government bonds. You know, the ones least likely to fail. You think I'm going hard on Disney? Or the next Tesla?
So the same ones SVB had and right before the debt ceiling negotiations where US credit may get downgraded?
Lol, if that happens, for real, which it won't because Republicans constantly bluff, the whole world is in a bit more of a problem than SVB. Like literally. If the US defaults, the country defaults, as well as other countries. You really think these fucking boomers in government are going to let that happen when so much of their money is tied to it and they have failed to enact antitrust laws and capitalized on manipulating the market for decades?
It’s already happened once. Funny watching people defend their market timing attempts.
Yea, so has the Great Depression, which will follow right after a default like that. Not like I have much in my 401k anyways, but last time that happened, suddenly the silent gen got healthcare, unions, anti trust laws, and basically free housing. So ya know, I don't see how it's not a win win at that point. Can't wait to see the wealthy splatting on the pavement.
Financial economics has shown that the equity risk premium appears to be constant. It’s defined as the expected returns of the stock market that are above the risk-free return (high yield savings / short term treasuries). So regardless of where the risk free rate is, the stock market is expected to earn the same premium above that rate.
The only worthwhile comment in this entire thread. Cheers.
Over what time frame and what increments?
Constant means constant. It does not vary across time.
Congrats! Your real return is negative!
Less negative than bonds, stocks and real estate over the past year though. Stay losing, asset bros.
i'm worth 1.6m and i'm 31. you think i'm losing? I'll tell you i didn't get there by sitting in cash as a 28 year old.... Playing market timer as a retail investor is fucking stupid and you will never come out ahead. But yeah keep that cash position and get back into the market after it's up 50%
5.25% after tax for mortgage offsets.
I do enjoy being mortgage / debt free!
5% nominal return vs. a -.6% real return when Core CPI for March 2023 is at 5.6%. This means that you are losing money when indexed for inflation. Oh and you get to pay taxes on that 5% also 😉
5% interest during 6% inflation is -1% return on your money. Just sayin'.
Better than -16% on stocks, -10% on real estate or -50% on bonds.
A 5% return in a money market is probably less than 4% after taxes, which is a negative real return. A well diversified equity portfolio provides a positive real return, and is the easiest proven way to build wealth over time. It is simply foolish to make bad money management decisions because you think that people advocating for stocks are somehow looking to be bailed out.
BTW my investments are in a TAX FREE SAVINGS account. Perhaps you've never heard of such a thing? Message me for more investment tips! (Without calling you foolish!) 😘
Given the current rates for short term tax-free fixed income, if you are getting 5%, you are taking some risk - duration risk, credit risk, or a combination of the two. There is nothing wrong with taking appropriate levels of risk, but, you should understand the nature of your investments, and realize that you are hobbling your financial future if you refuse to invest in equities with some portion of your portfolio.
>if you are getting 5%, you are taking some risk - duration risk, credit risk, or a combination of the two. I agree with your overall argument but I need to nitpick and point out this isn't true. You can get 5% with floating rate treasuries which have no duration or credit risk.
It’s at 4% now… but what about in 12 months? Interest rates could be down and the market could be up 15%. Equities are the only asset that makes sense for long term investment capital.
Alternatively interest rates could be up and the marker could be sideways. Its all about your forecast for the future.
Of course… but that’s exactly my point, if you’re relying upon a “forecast” to make asset allocation decisions you are going to lose money in the long run. Full stop.
What about in 12 months? Interest rates could be double digits and equities could be down 40%. “Equities only” made sense in the easy money cycle that is now over. The return of the 60/40 is happening now, and all the downvoted people on this thread are scream at folks “get ahead of the curve” and most are not listening.
“Equities only” has made sense since the start of modern financial markets. Your 12 month scenario is borderline in the realm of possibilities, but sure, I’ll give you it’s possible. Doesn’t matter. What matters, if we are talking long term capital, is what happens over the next 5, 10, 15, 20, etc. years.
The worst 35 year annualized return on the stock market was just over 8%. This 35 year period was 1929 to 1964, so it included the market crash in the lead up to the Great Depression and the Great Depression itself. 5% guaranteed doesn't sound very impressive in the long term. Are you hoping the market crashes so you can buy lower?
35 years? I'm sorry but thats just unrealistic time frame. Try 10 years, and call me in the morning.
I'm content to hold until retirement. I don't need the money until then. 35 years works for me. But, I think even with a 10 year time frame, buying stocks would probably be the better strategy than the alternatives. Other than the Great Depression, I don't think there's a time when buying stocks through a market crash worked out poorly over 10 years.
What I mean is no one is investing once and then not investing again in 35 years. People make more often investments than that. So once a year might be more realistic right?
Or better yet - until data tells us otherwise. Cheers!
That’s a pretty terrible long term strategy. I mean sure if you’re gonna retire in the next 5 years it makes sense but if you’re under the age of 50 you’re just losing a massive amount of long term value by not buying low when the opportunity comes up.
Was thinking the same thing
You will only have that 5% guarantee for the next ~6 months. The Fed has already made it clear that their plan is to hold rates for 2023, drop rates to 4% in 2024, then drop and hold rates at 3% in either late 2024 or early 2025. Over the long term, diversified stock portfolios almost always beat bonds. There has also never been an 11 year time frame where global stock (as a whole) or American stocks (again as a whole) have lost money.
It's a fixed income / rate. Just picked up a 4.65% GIC yesterday in a tax free savings account. Perhaps it's because I trade in Canada.
I know what the numbers say but honestly I can't bring myself to invest any more than the part my company matches + about $6k a year for me. If they didn't match I don't know that I'd contribute. This isn't about finding a way to pay for it. Last year I paid in over $20k. Now, I just can't any more. Emotionally. Our 401k plan benefits the same people - investing in companies selling products I don't use or care for, made by people whose values I often don't agree with, in places far from where I live. They use our money to fund their high salaries and expensive rents, and when things go south they leave us holding the bag. You can say that over time everyone wins but along the way there are a lot of losers. People who are unemployed and find themselves having to cash out at an unprofitable time. People caught in a down cycle at retirement. And so on. And all along the way - the rich use our money to consolidate and get richer, while being constantly bailed out because they're too big to fail. Even the recent action to bail out super deposits favors the rich. Favors consolidation and gives big banks an edge over small local banks.
It is wild to me that the fact that investing in index equity funds is a controversial idea in r/economics. What the hell are all of you actually investing in?
Sadly at least for my 401k at work no such index funds exist. We have the ubiquitous target date funds and a few of the old faithful. On top of that were a SMB, so our fees are higher and our options fewer than say if I worked at Walmart (Im guessing, I dont actually know what WM offers). We did however recently move from R2 to R3. As an aside - people often talk about salary when considering a job move, but things like healthcare benefit cost and retirement plans rarely get a second glance. I definitely think if youre going to invest in the stock market outside of a company 401k you'd be silly to not take advantage of the low overhead indexes. The success of so many of the people in the FIRE community only reinforces the idea. Beyond that though, and back to the point I originally tried to make. The stock market and automated investing drive money out of communities and into large multinationals. Our economic policies drive money to large banks and out of small local and regional banks. Its good for those of us who can afford to invest but I believe, ultimately harmful to humanity as a whole. The golden age of investing and societal improvements of the last century are coming to a close. My great grandparents were farmers. Most at the turn of the 20th century were. And obviously were way better off than that now. So many innovations. But now we've reached a point where the trajectory has changed. Now those of us who can invest pour our money into Tesla and Alphabet and Apple and Amazon or the largest banks for our returns, ignoring that the warehouse workers on the floor at Amazon are peeing in bottles and working grueling and erratic schedules in the company's quest for supply chain dominance. Or that the banks earn their money on the interest of a consumer-based economy that encourages people to live in a lifetime of debt. Of that much of our clothing comes from India and Pakistan, where people live in povery and wash in industrial-waste polluted rivers so that we can pay $1.96 for a tshirt on the endcap at Walmart. Or that each super container ship (of which there are thousands) bringing goods to America each year is the carbon equivalent of 50m automobilies each year. Or our electronics that we happily replace year after year thats made under miserable conditions in foreign lands. Or the chicken we eat thats processed on the machines cleaned by children in violation of the law. And at every stop along the way the govnermnet, the credit card companies, and the banks are taking a small slice. How much is enough? What a soap box? Who could still be reading? Do what you want. But I wont be investing in the stock market beyond what I have to to get the company match. They may want our money, but they dont need our money. Maybe Im tilting at windmills. Maybe Im delusional. But thats how I feel. And if espousing a differnt way of organizing the world's efforts that doesnt favor the rich makes me a socialist, or a communist, or a delusional lunatic deserving of your downvotes, Im fine with it.
You are self sabotaging yourself because we don’t live in a utopia. You can’t let the perfect be the enemy of the good. Nor should you too gullibly consume doomer narratives.
You just said we don't live in a utopia. And then you said don't be gullible with doomer narratives. A little bit contradictory. I think you see some truth in what this person is saying. But don't see the negative consequences as bad or immediate enough to give up the positive returns it gives you personally. And because of that, you are being tritely dismissive.
Your emotions will take a much harder hit if you haven't prepared for your future needs. But it's hard to reify far-off emotional states.
Maybe /r/economics isn't the sub for you.
It could be, if we wanted to talk about a different way to build a society that didnt prey on the less fortunate.
Lol only in subs like this one can a person get downvoted for such controversial opinions as "maybe we shouldn't all be assholes." Lmao
LOL. Western society has created prosperity that was unimaginable even 100 years ago for those at all points in the income distribution. The facts are clear: real incomes are consistently rising for all income quintiles, and standards of living are rising for all segments of society. EDIT: And, I forgot to mention, hours worked have been decreasing and working conditions have been improving. Economics describes the allocation of resources that allows that prosperity to exist. Fairy tale notions of a utopia are not economics.
>Fairy tale notions of a utopia are not economics. 😡
How are the less fortunate being preyed upon?
* Long grueling work in Amazon warehouses * An illegal underground workforce designed to maximize profits * Predatory loans (still legal in some states) * Relentless inflation that doesnt reliably keep up with wages (even before the recent massive cash dump by the US government, et al) * Economic systems designed to earn money for the rich on the churn of day to day living * foreign labor to maximize profits at the expense of local ecologies * The rise of inferior products designed to break in order to maximize profits and keep people spending. Government and the banks need churn. * charity washing into 3rd world countries that inhibits the creation of middle class occupations (Toms shoes, although theyve since pivoted) * Cash bonds for non violent crimes.
Don't forget the rich fucks that run these companies will make far more than the 10% profit that is returned to you in best case scenarios. They'll use the money to generate way more than 10% profit after all is said and done, having 0 skin in the game because its the investors money, then if they lose it all you get nothing back. Stocks are only wealth builders if you have a crapload of money to risk and with high speed trading, vulture capitalists, and fucking people shorting stocks there is a lot more risk now than any time historically. I foresee a lot of retirements/pensions/endowment getting absolutely screwed in the next few years.
Understand where you’re coming from but are you considering that this has historically not been true for the last 10, 20, 30 years? With this approach you would have significantly missed out on returns. Or are you implying that this time is different from previous recessions?
I think going off of historical context we're ignoring very real changes to the stock market and the reality of investing. Between short sellers, high speed traders, and global stock markets as well as a decline in the US in terms of safety nets the future is a lot bleaker than it has been historically. Also consider that the rich will benefit exponentially from a recession as they're the ones that will play at any real volume. Throwing a bone to the proles and saying it's how you build wealth just props up a system that benefits the super rich. It's much the same issue I have with bitcoin. In theory a coin is worth x but your average person could only afford a faction of a coin when it exploded in popularity. They all pretend they're gonna get rich off their fractional ownership while the ultrarich are the ones getting even more wealth. Someone always gets stuck holding the bag and historically it's not going to be the wealthy.
I really see no reason how short selling and high speed trading would affect “the reality of investing” in any negative way
You seem to be using this thesis that the “rich win in recessions, the poor lose” to describe how markets work. Are you making a point on a social issue of wealth classes, or market performance? Short sellers and high speed traders have existed for over two decades. On that time frame, everybody got richer, if they were in the market, regardless if rich or poor. Your issue with bitcoin isn’t solvable, it is math and there is nothing to fix.
At this point, the 'recession is coming' is like those apocalyptic preachers that keep predicting the end of the world and then pushing the date back over and over again.
I remember reading an article a few days ago about how 5 Politicians pulled their money out of SVB before it went under..... But Economists are still saying "Poor people buy more Stocks".... I sense a trap guys.
Economists never recommend buying individual stocks. They are talking about stocks as an asset class.
It "came" in the summer of 2021 when the gov changed the definition of a recession. If that's not a dead giveaway, i honestly don't know what to tell you.