Author Topic: The stock market ALWAYS goes up  (Read 3881 times)

joenorm

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The stock market ALWAYS goes up
« on: January 05, 2019, 10:06:43 AM »
I have been reading a lot about various kinds of investing lately as well as everything on this forum and forums similar.

The information is inspiring to say the least. I am still young enough to take advantage of what the stock market has to offer but surely wish I would have accepted this information 10 years ago. I come from a family who got burned by the stock market and found their way more in real-estate. Up to this point I have always thought of real estate as the better overall bet, not trusting the stock market at all. I am beginning to see the light.

But................

It seems like you can boil down stock market advice here and from authors like JL Collins into one phrase, "the stock market will always go up."
And when you look at the data, it is obvious to see that it's absolutely true. So the logic would go that one should dump as much of their hard earned dollars into it as fast and regularly as possible.

The part that makes me a little nervous is that the whole system that we're basing our statement on are not that old. Sure, the stock market always goes up, but only in the last, what, 150 years? It is a baby as far as data is concerned.

I understand the basis for the mechanism, that the market is "self cleansing" and comprised of profit turning companies. But still, we seem to be basing a lot on a very small window of time.

Do others grapple with this? What about major game changers such as climate change?(please don't make this thread about beliefs in climate change, just consider something that could fundamentally change economics as we transition over time)

It also makes me wonder about other counties? What are there data like? What has the EU's return been like over the same period?

I have certainly started to adopt the method of investing all I can, mainly because I don't want to miss the boat. But I cannot help think about how it may be different over my lifetime than it has been for only the short time before.

thanks

I'm a red panda

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Re: The stock market ALWAYS goes up
« Reply #1 on: January 05, 2019, 10:18:53 AM »
If the market goes down, and stays down for the next 40 years- I don't think I'm going to be in a worse position than the people who just spent their money on junk and didn't save it either.  So I'm gambling, but I think it is way likely that I'm taking the better gamble than the guy with the new car ever 2 years.

This is one reason people diversify their types of investment- real estate, bonds, CDs, international and domestic markets, for instance.
« Last Edit: January 05, 2019, 10:26:27 AM by I'm a red panda »

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #2 on: January 05, 2019, 10:22:37 AM »
You are wise to be skeptical.  I think it will continue to do well but the markets aren't cheap right now.  When markets get expensive, it is quite common for stocks to go nowhere for 10 to 20 years.  You really need to have a 25 year time horizon when you invest in stocks to consistently get good results.

jacoavluha

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Re: The stock market ALWAYS goes up
« Reply #3 on: January 05, 2019, 11:06:18 AM »
Not all markets always go up. Have a look at Japan.
That's why you diversify, and control things that are controllable. Saving. Spending. Investment costs. Earnings and taxes to the degree you can.

nereo

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Re: The stock market ALWAYS goes up
« Reply #4 on: January 05, 2019, 01:27:57 PM »
You are wise to be skeptical.  I think it will continue to do well but the markets aren't cheap right now.  When markets get expensive, it is quite common for stocks to go nowhere for 10 to 20 years.  You really need to have a 25 year time horizon when you invest in stocks to consistently get good results.

Well I don't think the above is true at all.  While a 10 year stretch of sideways (no) growth has occasionally happened, it is the outlier, not the norm, and certainly not "common".  We haven't seen a 20 year period with negative returns going back over a century.  Bottom line, 88% of 10 year periods had positive real returns.


As for the stock market being 'a baby' in human civilization time, this is true, but that doesn't mean this trend of increasing growth is limited to the time frame from the late 19th century to the present.  This period is most often used because that's when we (and more aptly Shiller) can first track the SP500, so it gives an apple-to-apples comparison.  But in a much broader sense what we're reflecting on is the net global productivity, which has been increasing for a millennia or so.  From a macro-economic perspective most see it as extremely likely to continue to increase as literally several billion people can still be lifted out of poverty and as these individuals increase their productivity (on a whole, most of the planet's population has very low productivity - the exceptions are in the developed world, which continues to expand).

flipboard

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Re: The stock market ALWAYS goes up
« Reply #5 on: January 05, 2019, 01:36:14 PM »
Not all markets always go up. Have a look at Japan.
That's why you diversify, and control things that are controllable. Saving. Spending. Investment costs. Earnings and taxes to the degree you can.
This IMHO is the big thing that MMM and a lot of FIRE people completely ignore. Japan isn't the only good example. Someone FIRE'ing with a 4% withdrawal plan in 1929 would have run out of money much earlier than expected (as Bernstein likes to point out in some of his books).

The chances of such things happening is admittedly low, but it's dangerous if it does happen. And is made yet more dangerous by a lot of FIRE people in some countries being _extremely_ home-biased/home-tilted.

Of course, inevitably people will trot out the same argument that the last 80 years has been great and therefore that's what will happen for the next 80 years too. Or that things are so stable that such events won't happen in country X ever. (Of course, that's what the Japanese thought, and what Americans thought in 1928 too...)
« Last Edit: January 05, 2019, 01:38:01 PM by flipboard »

BicycleB

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Re: The stock market ALWAYS goes up
« Reply #6 on: January 05, 2019, 01:52:21 PM »
@joenorm, excellent questions IMHO.

Yes, I wonder about these. A sociologist by nature, I wonder about them a lot. I see markets as just a part of society; societies as pieces of the global network of human culture.

Opinions to date:

Climate change - good example of a major risk for the global system. Is the global system guaranteed to overcome all risks? Surely not. Are the odds good? Not sure about the long term. In our lifetimes, probably a problem but not one that will kill most of us, or even 1% (I think). So markets will probably prosper. (Probably.)

More generally, I think the broad economic future for humans is a battle between our growing power to damage natural systems vs our growing power to recycle resources, or use existing resources more efficiently than before. I suspect there will be times when the damage part makes stock markets fall, but times when the efficiency part makes them rise. My guess is the rise aspect will prevail, but that's not a guaranteeable thing.

In the short term, mere decades at a time, it seems to be obvious that there will be swings but less obvious that the swings will be larger or smaller than the last century. It could be either. I suspect the past century is a good guide. For perspective, I think the recent Federal Reserve study "The Rate of Return of Everything" is awesome.

https://www.frbsf.org/economic-research/files/wp2017-25.pdf

For more recent periods only (roughly 1970 to present), portfoliocharts.com has great data summaries for multiple asset classes, including investment results for numerous sample portfolios that mix different assets. Diversification is a great strategy to protect against uncertainty, and can work well for returns as well as safety. Best of all, it has detailed calculations and data for multiple countries, though far from all countries.

https://portfoliocharts.com/

Fwiw, one key result from portfoliocharts.com is that not all countries have seen as much stock advantage as the US. One idea that I consider is the possibility that in future, US results will be more like those of other countries. If so, less stock and more diversification might help.

This last idea may be wrong, of course. Maybe America's markets have idiosyncrasies that will last forever. Seems unlikely, but I have no way to know.

Final thought: To me it seems one possibility is that returns will be lower because of falling population growth. This could happen soon enough to affect most Mustachians, I think. But again, I don't know how to predict.
« Last Edit: January 05, 2019, 02:09:45 PM by BicycleB »

sol

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Re: The stock market ALWAYS goes up
« Reply #7 on: January 05, 2019, 02:13:57 PM »
This IMHO is the big thing that MMM and a lot of FIRE people completely ignore. Japan isn't the only good example.

Japan is not a good example.  Japan is a ridiculous example, for reasons that we have addressed here with some regularity.  I'm always shocked when someone brings it up, and then tries to suggest that the US is in any way comparable to 1989 Japan.

I won't bother with offering you facts in this case, because if you're the kind of person who cites the Japanese stock market crash as a reason to be bearish on the US stock market then you're probably not the type of person who cares about the facts.  Instead, I'll just suggest you go read up on the history of the Japanese stock market crash.  I'm confident that anyone who spends more than about ten minutes reading reputable sources (i.e. not stock market bear websites) will have their concerns completely alleviated.

I'm not saying the same thing couldn't happen in America some day.  I'm saying that America today looks nothing like Japan before their crash.  We're not anywhere close.


jacoavluha

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Re: The stock market ALWAYS goes up
« Reply #8 on: January 05, 2019, 02:38:34 PM »
Not a good example of what? I brought up Japan as an example of a stock market that doesn't always go up. Which seemed to be something the OP was interested in. Nothing more.

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #9 on: January 05, 2019, 02:43:55 PM »


Well I don't think the above is true at all.  While a 10 year stretch of sideways (no) growth has occasionally happened, it is the outlier, not the norm, and certainly not "common".  We haven't seen a 20 year period with negative returns going back over a century.  Bottom line, 88% of 10 year periods had positive real returns.

I think sept 1929 to sept 1949, real returns with dividends were 0.4%.  If you stop in 1948 it is 0% real returns.   So not negative but come on, if you were going for a 4% rule, or expecting 6% real you would be very bitterly disappointed.

Also look at 1965 to 1982.  17 years with negative real returns.

Look at the FTSE (UK index), it's currently below it's peak in 2000.   At best maybe you are up 1% with dividends after inflation.

Maybe 20 years with no returns if not common but 10 happens all the time.  The 30's, the 40's, the 70's, the 2000's, they all saw flat markets.  It's just how things go.

I am really not trying to suggest stocks are a poor investment.  I keep most of our money there.  It's just, people need to be aware of what they are dealing with.  I see people on this site talking as though the stock market is this 6% inflation protected bond.

Trevor Reznik

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Re: The stock market ALWAYS goes up
« Reply #10 on: January 05, 2019, 02:54:11 PM »
It does always go up, except for those times when it's going down or not going anywhere.

nereo

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Re: The stock market ALWAYS goes up
« Reply #11 on: January 05, 2019, 03:04:50 PM »
@frugal_c . You said "common".  Terminology matters.  It isn't at all 'common' for real returns to be negative after a decade.  It's an outlier, the exception, decidedly NOT common.  As it is, picking any year randomly you are twice as likely for your returns to be positive as negative.  At 5 years you are almost 5x as likely for them to be positive.

No, 10 year flat markets have not happened "all the time". They haven't even happened a 1/6th of the time.

If you are going to bring the 4% 'rule' i suggest you go over to that thread (stickie) and read up before you start saying things like you "would be bitterly disappointed".

The FTSE resembles the market about as poorly as Japan of the late 90s did to the US, which is not very well at all.

Radagast

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Re: The stock market ALWAYS goes up
« Reply #12 on: January 05, 2019, 03:54:47 PM »
Stocks in general are dynamic and resilient. The basic capitalistic structure goes all the way back to the 12th century. I am not sure if https://en.wikipedia.org/wiki/Bazacle_Milling_Company is the one I was thinking of, but I read a paper once that analyzed the real return of either that mill of one like it and found it had returned 5% annualized from the 12th century until the French government nationalized it in 1946. Investment author Bill Bernstein's books also cover the general long term histories of industrial and capitalist countries including tables of 100 year returns for a dozen or so, and you get the idea that it is hard to keep them down. Even after losing two world wars and being partially occupied by the USSR, German stocks ended up with a decent 100 year return. Japan recovered from World War 2 into an insane bull market, which eventually became a bubble, but anyhow anyone who came out alive and healthy eventually prospered.

They do not always go up. Austria-Hungary stocks are still negative since 1900 so far as I know. If your country is an absurd agglomeration that will lose a world war, split into multiple smaller entities, be involved with mostly losing a second world war, be split with and mostly occupied by the Soviet Union, then split into even more countries with sporadic conflicts, you might be in for some trouble. Similarly, Russian stockholders did pretty badly after the communist revolution (if losing everything you have and then being executed or at best sent to the gulag can be called doing pretty badly).

Then the question is what alternatives would have been better? Real estate is perfectly fine, with similar expected returns and largely different risks from stocks. Income generating property might have helped after the Japanese bubble, but real estate prices behaved similarly to the stock market, so appreciation is still negative there. It would not have helped at all in a communist revolution, at least not beyond a single owner-occupied peasant hut. It is a perfectly fine alternative to stocks as long as it generates cash.

In all of the worst cases, bonds did much worse than stocks. When nations get in trouble they devalue their currencies, and when they disappear so does the currency. Bonds are just a piece of paper (or a jumble of electrons) promising repayment in a nation's currency. They also have very little upside. I still recommend 10%-40% in bonds because the stock market can get pretty crazy, but that is an addition to stocks not a substitute (and maybe try to include I-bonds).

Gold is still valuable, but it grew at very approximately 0% in real terms. For the worst cases, the best case would have been you escaped with your gold and your life to another country.

My conclusion was that a global portfolio of stocks, combined with some real estate and bonds, is my best bet.

2Birds1Stone

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Re: The stock market ALWAYS goes up
« Reply #13 on: January 05, 2019, 04:44:56 PM »
It always goes up, until it doesn't.

I'm a skeptic myself, but cautiously optimistic. 

TheHardenedInvestor

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Re: The stock market ALWAYS goes up
« Reply #14 on: January 05, 2019, 07:11:41 PM »
So much noise in this thread.

AccidentalMiser

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Re: The stock market ALWAYS goes up
« Reply #15 on: January 05, 2019, 08:45:52 PM »
Make a plan to have multiple sources of income.  Diversify you equity investments.  Know what you will do if you retire in a year that turns out to be 1929 or 2008.

Make a plan, get feedback, implement well.  Equities are a great investment and should be one of the poles holding up your financial house.

joenorm

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Re: The stock market ALWAYS goes up
« Reply #16 on: January 05, 2019, 10:28:15 PM »
Make a plan to have multiple sources of income.  Diversify you equity investments.  Know what you will do if you retire in a year that turns out to be 1929 or 2008.

Make a plan, get feedback, implement well.  Equities are a great investment and should be one of the poles holding up your financial house.

Agreed. It just seems like the stock market is just as much about faith as it is about the raw numbers.

RWD

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Re: The stock market ALWAYS goes up
« Reply #17 on: January 05, 2019, 10:56:04 PM »
Make a plan to have multiple sources of income.  Diversify you equity investments.  Know what you will do if you retire in a year that turns out to be 1929 or 2008.

Make a plan, get feedback, implement well.  Equities are a great investment and should be one of the poles holding up your financial house.

Agreed. It just seems like the stock market is just as much about faith as it is about the raw numbers.

The stock market is not about faith or raw numbers. It's about owning pieces of companies. Companies tend to make money.

MustacheAndaHalf

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Re: The stock market ALWAYS goes up
« Reply #18 on: January 05, 2019, 10:59:39 PM »
I don't see how "the market" becomes "only investing in Japan".
Is anyone here investing 100% in Japan?  100% in Austria-Hungry?

flipboard

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Re: The stock market ALWAYS goes up
« Reply #19 on: January 06, 2019, 12:13:40 AM »
This IMHO is the big thing that MMM and a lot of FIRE people completely ignore. Japan isn't the only good example.

Japan is not a good example.  Japan is a ridiculous example, for reasons that we have addressed here with some regularity.  I'm always shocked when someone brings it up, and then tries to suggest that the US is in any way comparable to 1989 Japan.

I won't bother with offering you facts in this case, because if you're the kind of person who cites the Japanese stock market crash as a reason to be bearish on the US stock market then you're probably not the type of person who cares about the facts.  Instead, I'll just suggest you go read up on the history of the Japanese stock market crash.  I'm confident that anyone who spends more than about ten minutes reading reputable sources (i.e. not stock market bear websites) will have their concerns completely alleviated.

I'm not saying the same thing couldn't happen in America some day.  I'm saying that America today looks nothing like Japan before their crash.  We're not anywhere close.
Nice, you know enough about Japan to be certain that that _exact_ crash won't happen in "America" today.

But what about addressing the 1929 US stock market situation I mentioned? Note: the US market didn't re-reach peak levels until about 20 years later.

shuffler

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Re: The stock market ALWAYS goes up
« Reply #20 on: January 06, 2019, 12:48:46 AM »
This IMHO is the big thing that MMM and a lot of FIRE people completely ignore. Japan isn't the only good example. Someone FIRE'ing with a 4% withdrawal plan in 1929 would have run out of money much earlier than expected (as Bernstein likes to point out in some of his books).
Well, no.  If Mustachians were ignoring 1929 (or the 1960's) then the 4% rule would be more like the 5% or 6% rule.
So 1929 is not being ignored.  It's in the data set.
Perhaps you're over-weighting 1929 in your own mental calculus?  It's pretty natural to over-weight failure.

But what about addressing the 1929 US stock market situation I mentioned? Note: the US market didn't re-reach peak levels until about 20 years later.
25 Years to Bounce Back? Try 4

sol

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Re: The stock market ALWAYS goes up
« Reply #21 on: January 06, 2019, 01:07:26 AM »
But what about addressing the 1929 US stock market situation I mentioned? Note: the US market didn't re-reach peak levels until about 20 years later.

The great thing about historic stock market performance is that we don't have to speculate, guess, or estimate.  We don't need to say "about 20 years" when there is an exact numerical answer.

The "about 20 years" analysis you have provided is about what we see from the simplest of investors, people who will only look at the stock market index charts and eyeball a recovery timeline without any understanding of dividends or inflation rates, and without doing any of the required math.  The Great Depression was indeed a terrible time in the US economy, and working people went hungry, but stock investors made out pretty well in the medium to long run.  Let's not forget that capitalism always favor capital.  Even in the worst of situations, it's still better to be an investor than a worker.

Also of note, the 1929 crash and every other crash is full accounted for in the calculations that lead to the 4% SWR suggestion.  It's always possible that the USA gets nuked tomorrow and all of our historic stock market returns are meaningless, but if you can assume that the future looks sort of like the past, warts and all, then a 4% SWR will have a 95% chance of success over the coming 30 years.  There are probably a million words on this topic on this forum, if you care to go read them.
« Last Edit: January 06, 2019, 01:09:21 AM by sol »

harvestbook

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Re: The stock market ALWAYS goes up
« Reply #22 on: January 06, 2019, 06:27:09 AM »
A non-capitalistic human future is beyond my imagining, at least in my lifetime. Therefore, stocks look like the best bet for me. I'll take my chances with the worlds productivity, commerce, and debt.

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #23 on: January 06, 2019, 07:32:57 AM »
I have it being flat closer to 20% of the time over 10 years. You are also including periods with horrible prior holding periods which isn't today's situation.  Past returns do affect future returns.

I would definitely include the UK and Japan as comparables.  You can also throw in canada, emerging markets, most countries in europe.  They have all gone essentially nowhere since 2007.  Very relevant since so many are buying international markets.  Also very relevant because it just happened.

Sol, the 20 years from 1929 is legitimate, start sept 1929 to sept 1949 you get 0.4% real returns.

maizeman

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Re: The stock market ALWAYS goes up
« Reply #24 on: January 06, 2019, 08:13:22 AM »
There is a lot of unpack here.

Sol, the 20 years from 1929 is legitimate, start sept 1929 to sept 1949 you get 0.4% real returns.

From Jan 1st 1929 to Dec 31st 1935 one's return in the stock market is already (slightly) positive after factoring in dividends and correcting for inflation/deflation. Many sources only use year end data, which is quite reasonable for many retirees.

Between the end of 1928 and September of 1929, the stock market grew 33.6%, so by pegging to september 1929 you're able to push back the date at which the stock market first recovered (factoring in reinvested dividends and inflation/deflation) to February 1937. However, assuming you weren't unfortunate enough to invest your entire net worth in September of 1929* it seems an unfairly high bar to require that the stock market make up for a 33.6% spike in value in the course of a few months before you consider it a good investment again.

*I'm also one of the folks who advocates DCAing money into the stock market over a year or so if it's the majority of your net worth. Even though your average outcome is statistically significantly worse, your worst outcomes are statistically significantly better, as the difference between investing during 1929 and investing only in September of 1929 demonstrates.

I would definitely include the UK and Japan as comparables.  You can also throw in canada, emerging markets, most countries in europe.  They have all gone essentially nowhere since 2007.  Very relevant since so many are buying international markets. Also very relevant because it just happened.

Here you are arguing that because people are investing in diverse markets around the globe that therefore data from single countries (some with quite small and non-diversified economies) is predictive of how a globally diversified portfolio would perform in coming decades. Do you see how these two points contradict each other to some extent? If not I am happy to discuss this point further.

You are also including periods with horrible prior holding periods which isn't today's situation.  Past returns do affect future returns.

I would definitely include the UK and Japan as comparables.  You can also throw in canada, emerging markets, most countries in europe.  They have all gone essentially nowhere since 2007. 

Here you in one sentence imply that good returns in the past decrease the likelihood of the good returns in the future, then three sentences later suggest that because some countries haven't seen a lot of stock market growth since 2007 that makes them bad investments.

If you are able to hold both of these views simultaneously, then the natural conclusion you will reach is indeed that one should never invest in the stock market. Either stocks have gone up recently in which case you think it is unlikely they will continue to go up or stocks have been flat or decreasing in value in which case you think it is likely they will continue to stay flat or decline.

However I would argue it is not logically consistent to advocate that flat or declining stocks mean flat or declining stocks in the future AND increasing stocks mean flat and declining stocks in the future.

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #25 on: January 06, 2019, 08:34:14 AM »
You can talk about 29-37 or whatever, I am saying it again, sept 29 to sept 49 real returns with dividends were 0.4%.   You can have 20 years where it's flat.

I wouldn't say that japan, uk, france, germany, china,.. is me cherry picking a few countries internationally.

There is definitely a correlation between poor prior returns and good future returns.  It's just a fact. Not a perfect science, and I am not making predictions but it needs to be considered.

I am not implying international markets are bad investments going forward. I am just laying out the facts.  I am heavily invested internationally.

maizeman

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Re: The stock market ALWAYS goes up
« Reply #26 on: January 06, 2019, 08:45:06 AM »
You can talk about 29-37 or whatever, I am saying it again, sept 29 to sept 49 real returns with dividends were 0.4%.   You can have 20 years where it's flat.

If you invest your entire net worth in the stock market in a single month and never earn and invest any other money before or after then yes, you can run into trouble with the stock market over a 20 year time frame in at least one month out of the 1,700+ plus months in the stock market data we have from 1871-present.

Are you proposing to do this? (If so I would advise against it even though the odds of getting another specific month like that are low. You can cheaply purchase protection against another September '29 by DCAing into the market over the course of a single year.)

Are you worried other people in this thread are likely to this? (If so my observation has been that no one invests in only a single month ever in their lifetime but I may yet find an exception.)

Quote
I wouldn't say that japan, uk, france, germany, china,.. is me cherry picking a few countries internationally.

If you will refer to my original post I describe you cherry picking months, not countries so I'm not sure how to respond to this statement.

Quote
There is definitely a correlation between poor prior returns and good future returns.  It's just a fact. Not a perfect science, and I am not making predictions but it needs to be considered.

So you are arguing now is the time to be investing in the stock markets of countries like japan, germany, the uk, and china for increased odds of outsized returns? (Edit to add: my point here is expecting poor returns after good decades and good returns after poor decades are two sides of the same coin. You can ignore both the good and bad news -- because it is hard to quantify and the additional predictive power is minimal -- or accept both the good and bad news. But you cannot take only the bad news without the good.)
« Last Edit: January 06, 2019, 11:07:49 AM by maizeman »

PDXTabs

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Re: The stock market ALWAYS goes up
« Reply #27 on: January 06, 2019, 09:55:18 AM »
Do others grapple with this? What about major game changers such as climate change?(please don't make this thread about beliefs in climate change, just consider something that could fundamentally change economics as we transition over time)

There is a very real chance that global climate change will dramatically effect future economic growth which will in turn dramatically effect future stock market returns. With that said, where else would you put your money? I invest in a globally diverse portfolio of equities because I can't figure out a better/safer idea.

nereo

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Re: The stock market ALWAYS goes up
« Reply #28 on: January 06, 2019, 10:31:12 AM »
You can talk about 29-37 or whatever, I am saying it again, sept 29 to sept 49 real returns with dividends were 0.4%.   You can have 20 years where it's flat.
No... historically there's a very few periods (out of thousands) where real returns were slightly better than zero.  That's very different from suggesting such periods are common or frequent, and positive real returns (even small ones) are much different from 'flat'. . As others have pointed out you've given no context or alternative - had one stuffed money in a mattress during that time period he/she would have lost almost 40% of his/her purchasing power to inflation.

Further as both Sol and maizeman have already pointed out, your peak-to-trough measurements are so disconnected from actual investing as to be meaningless.  Virtually no one dumps all their money in at once and then does nothing - most are making contributions periodically in their accounts for the simple reason that people get period payments in the form of paychecks.  If you analyze returns over 5, 10 and 20 year periods with consistent contributions you'll see that (as maizeman already pointed out) those few bad periods drop out; the range is compressed while the median is largely unchanged.  If we take your cherry-picked period starting just before the biggest stock market crash and subsequent depression and add in monthly investments you'll notice annualized returns exceed 6%.  Quite a difference, eh?*

As for your arguments about Japan, France and other countries, you are conflating the GDP of individual countries with global markets.   They are not the same.



 *You might make some asinine argument that one might lose their job in the depression and therefor would not be able to make monthly contributions - fair enough - but this long-dead investor still would have been piling money into the market for years prceeding the crash ('the roaring 20s'), not dumping everything the month before the great crash. Hence why finding worst-case periods is not a good argument for investment timelines.



sol

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Re: The stock market ALWAYS goes up
« Reply #29 on: January 06, 2019, 11:01:15 AM »
You can talk about 29-37 or whatever, I am saying it again, sept 29 to sept 49 real returns with dividends were 0.4%. 

You've cherry picked what is quite possibly the worst possible 20 year period in US history, with the worst possible set of assumptions, with the worst possible starting and ending months.  Out of approximately 1700 unique 20 year rolling monthly periods, you have found what might be the worst possible combination of inflation and deflation cycles, dividends, and returns for a person who went all-in on 100% stocks at the worst possible moment.  He still made money after 20 years!  Much more than if he had chosen any alternative asset class available at the time!

All of these periods are figured into the 4% SWR.  Remember that at 4%, you have 25 years of today's expenses saved up assuming flat returns, so if you avoided sequence of return risk you'd get 25 years out of your stash in this worst case scenario.  Extending the period to 30 years improves the returns.  What's the lowest return monthly period you can find for a 30 year duration?

And let's not forget that all of these return calculations also apply to everyone else, and we tend to judge our happiness relative those around us.  If the economy crashes for decades and everyone around us is out of work, and you're merely withdrawing your safe 4% without working for 27 years before you go broke while everyone else goes broke immediately because they didn't own stocks and couldn't find jobs, then you're probably feeling pretty good about yourself.

Let's also not forget that all of this retrospective data mining isn't really predictive.  These numbers are meant to be guideposts.  It's entirely possible that the United States will be an uninhabited desert in 30 years with no stock market at all, after the asteroid impact, collapse of our climate and civilization, and the subsequent rise of the zombie plague.  In which case, what you invest in doesn't really matter very much and your cherry picked 20 year stock market returns of less than 1% are even less relevant.  Try not to get yourself too worked up about low probability outlier scenarios that you think you can see, when there are so many more that you can't.

Most of the people jumping up and down waving their arms about impending stock market doom are trying to sell you something.  If you can figure out how they might profit by swaying your decisions, you'll do a much better job of protecting your investments.

 
« Last Edit: January 06, 2019, 12:37:01 PM by sol »

RWD

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Re: The stock market ALWAYS goes up
« Reply #30 on: January 06, 2019, 12:21:56 PM »
I have it being flat closer to 20% of the time over 10 years.
This is wrong. It's closer to 10%. 20% of the time real annual returns are 2.46%+ for 10 year periods.

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #31 on: January 06, 2019, 01:07:23 PM »
Are you proposing to do this? (If so I would advise against it even though the odds of getting another specific month like that are low. You can cheaply purchase protection against another September '29 by DCAing into the market over the course of a single year.)

Honest to god, I have seen it.  I have a family member who received an inheritance and lump sum invested it at S&P 1400 in 2000.  At least it was off a touch from the peak which I think was 1500.   The results were horrible.  It wasn't until 2013 that they were ahead of inflation.  I have to admit they have had a substantial impact on my perspective of the market as I provided advice and watched it all happen.  After that, yes I do think it's very possible you can go 10 years and nowhere.  I am seeing it all over the place.  I can't stand that you people are trying to shut me up on this.  Just look at any emerging market or developed market excluding US from 2007 to today.  It's been terrible.

No, I don't have any better advice.  My only advice is to not expect much from the markets.  They are there to keep your money safe from inflation and over long period of time they will grow it.

Thank you Nereo and RWD for your input.   I was just basing on year end numbers.  I am sure your stats are correct.   However that 12% still includes periods with CAPE of less than 12, whereas we are at what 28 or 29 today?

sol

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Re: The stock market ALWAYS goes up
« Reply #32 on: January 06, 2019, 01:16:18 PM »
I can't stand that you people are trying to shut me up on this. 

No one is trying to shut you up.  Your input has been welcomed, and you've engaged a variety of people in lively debate.  They've tried to put your example scenario into perspective, which you are apparently refusing to accept.

In the end it is your money, and you get to do with it whatever you want.  So do I.  You are allowed (and even encouraged) to determine your own investment strategy and risk tolerance and asset allocation, and this forum is available to offer you advice and feedback on that process.  Instead, you seem intent on shouting down everyone else's advice with your own personal perspective, refusing to respond to specific rebuttals of your claims, and then whining about non-existent censorship.  You're totally making a fool of yourself.

But by all means, go do your own thing.  Maybe don't be surprised when the entire world doesn't immediately crown you King of Everything when you act a fool, though.  People are allowed to disagree.

maizeman

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Re: The stock market ALWAYS goes up
« Reply #33 on: January 06, 2019, 03:35:07 PM »
I can't stand that you people are trying to shut me up on this.  Just look at any emerging market or developed market excluding US from 2007 to today.  It's been terrible.

No, I don't have any better advice.  My only advice is to not expect much from the markets.  They are there to keep your money safe from inflation and over long period of time they will grow it.

I am sorry to hear about your relative. That must have been a very unpleasant ride for them, particularly if they lacked other investments and were depending on that money to live. Any you're right to point out that that strategy (putting a huge sum of money into the market in one fell swoop) increases the risk of substantially negative outcomes. However, there are strategies to dramatically mitigate the risk that you'll invest all your money right at the peak of a stock market bubble like dollar cost averaging over a period of a year or so. To me, these approaches are far superior to either not investing at all or having to devote a lot of my time and energy to worrying about how I cannot expect anything from the market.

There's a form of cognitive bias called loss aversion, where we as humans tend to place dramatically more weight on bad things than good things, and, as a result, come up with very inaccurate estimates of the probability of various types of events. We're all susceptible to it, myself as much as anyone.

Can you accept that in this case, with your focus on a single month of the stock market's history (out of 1700+), arranging your argument so that both an increasing stock market and a flat/decreasing stock market are BOTH signs of bad future outcomes, and significant over-estimation of the risk of 0% or worse returns over a 10 year period, it looks -- from the outside -- like you are indeed being mislead by this particular cognitive bias?

reeshau

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Re: The stock market ALWAYS goes up
« Reply #34 on: January 07, 2019, 02:18:32 AM »
This IMHO is the big thing that MMM and a lot of FIRE people completely ignore. Japan isn't the only good example. Someone FIRE'ing with a 4% withdrawal plan in 1929 would have run out of money much earlier than expected (as Bernstein likes to point out in some of his books).
Well, no.  If Mustachians were ignoring 1929 (or the 1960's) then the 4% rule would be more like the 5% or 6% rule.
So 1929 is not being ignored.  It's in the data set.
Perhaps you're over-weighting 1929 in your own mental calculus?  It's pretty natural to over-weight failure.

But what about addressing the 1929 US stock market situation I mentioned? Note: the US market didn't re-reach peak levels until about 20 years later.
25 Years to Bounce Back? Try 4

Actually, even with 1929, it would still be the 5% rule.  It was, indeed, the 1960's, specifically followed by the stagflation 1970's, that is the worst case in history.  To me, that's the lesson, and what to look out for in the future.

nereo

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Re: The stock market ALWAYS goes up
« Reply #35 on: January 07, 2019, 05:58:22 AM »
Are you proposing to do this? (If so I would advise against it even though the odds of getting another specific month like that are low. You can cheaply purchase protection against another September '29 by DCAing into the market over the course of a single year.)

Honest to god, I have seen it.  I have a family member who received an inheritance and lump sum invested it at S&P 1400 in 2000.  At least it was off a touch from the peak which I think was 1500.   The results were horrible.  It wasn't until 2013 that they were ahead of inflation.  I have to admit they have had a substantial impact on my perspective of the market as I provided advice and watched it all happen.  After that, yes I do think it's very possible you can go 10 years and nowhere.  I am seeing it all over the place.  I can't stand that you people are trying to shut me up on this.  Just look at any emerging market or developed market excluding US from 2007 to today.  It's been terrible.


maizeman had a good response about loss aversion, which I think is certainly coming into play here, and something that we fight on these boards.  There is a disturbingly large chunk of the population that believes investing in equities (and specifically broad-market index funds) is far riskier than it is, that it's akin to gambling, that market investing is 'an act of faith' etc.  Some of these sentiments were brought up earlier in the thread, including comments from you about decadal losses being 'common.'

It is those erroneous perceptions that we are fighting, not you specifically @frugal_c


No, I don't have any better advice.  My only advice is to not expect much from the markets.  They are there to keep your money safe from inflation and over long period of time they will grow it.
I don't like the bolded statement above.  It suggests that the primary function of the equities is protection from inflationary risk.  If an investor's primary concern was inflationary risk (and particularly if he/she had a timeframe under a couple of years) the market is not the place to put that capitol.  You see this in questions like "where do I put $60k I'm saving for a downpayment for 2020?"  That's where bonds, CDs and even 'high' interest savings accounts come in.
Equities are about increasing shareholder value. Ironically individual companies aren't particularly focused on long-term growth, but maximizing quarterly profits, but that's getting a bit into the weeds here.

I'm sorry to hear about your relative who invested his or her inheritance just before the peak of the 'great recession'.  But for additional perspective, consider this - if that money came from an heir's estate and investment account, those funds almost certainly were invested over a period of years and had already appreciated considerably.  Put another way, if the inheritance was $100k, most of that was probably already market gains.  Regardless of the source, while the paper value may have been down at year 7, but by year 10 the value had increased over 60% over inflation. That's a huge increase through one of the worst financial disasters we have had, and it becomes even more impressive when you consider that during this time bonds and savings accounts were paying near-zero rates.
Regardless, its a far cry from '25 years' that you suggested in your first post in this thread.

SnackDog

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Re: The stock market ALWAYS goes up
« Reply #36 on: January 07, 2019, 06:58:55 AM »
Investing is a very personal thing and there is no one-size-fits-all for this aspect of financial planning (despite what many will tell you).  Some people simply are not interested in learning about it and are not comfortable with the risk involved.  There absolutely is risk that you will lose some or most of your investment depending on where and when you put your money and when you need it back.  Investment options completely cover the spectrum of risk and reward from billionaire potential to utter bankruptcy to 100% guaranteed returns.  Everyone knows someone who has had a painful experience or has had one themselves by either buying the wrong thing or transacting at the wrong time.  You have to figure out what works for you.  If you prefer to stay with the lowest risk investments (e.g. CDs), then you will have to accept the low returns they offer and plan accordingly (e.g. save a bit more and spend a bit less).  The good news is, it will all work out.  Nobody on this board is going to be living under a bridge at any point due to poor financial decisions.  We all have the wits and flexibility to adapt to whatever happens and work it out.
« Last Edit: January 07, 2019, 08:25:57 AM by SnackDog »

radram

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Re: The stock market ALWAYS goes up
« Reply #37 on: January 07, 2019, 07:15:15 AM »

Honest to god, I have seen it.  I have a family member who received an inheritance and lump sum invested it at S&P 1400 in 2000.  At least it was off a touch from the peak which I think was 1500.   The results were horrible.  It wasn't until 2013 that they were ahead of inflation. 

I could really relate to this comment, since by and large that is when I started to invest, and my daughters 529 was started in December of 1999.

So your family member lump summed and did NOTHING for 13 years? NOTHING? AND they BEAT inflation over 13 years? INCLUDING the 2 worst times in my investing lifetime? Your doomsday scenario you mentioned was so much better than "horrible", I have no idea what I can say to you.

Let me guess; They sold in 2013. Any idea how they would have done if they were still in the market today? Or if they continued to add to their nest egg?

How did I do through the same period into today? My daughter has 4 years of college paid for, and I retired 3 years ago, due to regular additions to my stashe( and $3,000 per year added to my daughters 529. That was our ENTIRE college contribution). If we have a decade or 2 of catastrophic losses, I will cut some expenses, take a few less trips, move to a country better prepared for the future, or maybe work a few hours a week until the storm is ridden out(or ALL of them). If my daughter wants to go to grad school, she is on her own to pay for it.

If you really feel that investing since 2000 is "horrible", I can see why you are in such fear of it. When planning for your future retirement, what future growth rate do you use?


Malkynn

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Re: The stock market ALWAYS goes up
« Reply #38 on: January 07, 2019, 07:30:22 AM »
Honest question: what the hell else are you going to do with your money that would actually be safer??

I mean, seriously.
You can worry about a devastating and long term crash in our economy, but how will that actually affect your investment decisions?
Are you trying to say that you think that there is a way to protect your money in the event of the black swan of all black swans that tanks the entire US economy for years on end??? I'm pretty sure that if that happens that you are just fucked along with the rest of us, and will probably be far more concerned about surviving the raging violence that might accompany it.

Yeah, the sky might fall. It might.
Should that change the way you invest today? Do you think there is some clever asset class that won't be affected by the total devastation of our economy?

If it won't change your plans today. Then don't worry about it.
It's literally not even worth thinking about if there is nothing you can do rationally to hedge against it.

In fact, I would think the best hedge against global economic devastation would be to learn some really valuable skills. If The Walking Dead has taught me anything, then the knowledge of making bullets seems to be a good place to start. How are you with a sword???

Okay, enough of me being an asshole.

In all seriousness, you are at much much higher risk of getting cancer, getting into a serious car crash, or getting divorced, all of which can financially devastate you, than you are of losing money permanently in a lasting economic downfall of the entire developed world and it's markets.

However, if you want to understand black swans from a non-optimistic perspective, then read some Nassim Taleb, the man who made a fortune off of betting against the market. He really helped me wrap my mind around the mechanics of risk in the markets.

It's rational and reasonable to worry about risk, and makes sense to choose an asset allocation that is compatible with  your risk tolerance.
However, you are not talking about the kind of risk that a conservative allocation would protect. You are talking about the kind of risk that involves sweeping economic devastation. The kind of risk you are worrying about isn't useful in terms of making investment decisions. It's as useful as worrying about what will happen to your investments if nuclear war were to occur.

Just because something is a very scary risk doesn't make it an important or informative risk.

So I ask again: where else do you propose to put your money that you think would make it safer than in something like a conservative index portfolio?

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #39 on: January 07, 2019, 10:23:27 AM »
I don't know what to say Sol.  I guess I was a little overwhelmed with other things going on yesterday that I lumped people's arguments together and tried to make a blanket post.  I wasn't intentionally trying to sidestep arguments.  I agree I went too far by saying I am being censored, I mean nobody is deleting my posts, but it does feel like there are taboos against pessimism on this board.

Radram,  this is a great question.   When I look at others responses this does cut through a lot of it.  I am in a situation where we have done much of the saving.  I think with a 4% real return, we are retired in a decade.   With say a 1% real return it is more like 16 years.  I also can't guarantee my income past about 5 years so that 16 years would be more like 20 if my savings rate gets cut down.   When I talk about the market going nowhere, I would include any return below 2% in that category. 

Maizeman, no doubt about it I am influenced by my past experience.  For me though, it is real, I have seen it.  I am seeing it right now in just about everything outside of the US.  If you see my response to radram I am kind of in a lump sum investing spot right now.  Not that I am really lump summing but my current investmentsare substantially more than what I save in a given year and they are almost all invested.  I see I need a 4% return or at least 3% to have any chance of retiring in my desired time frame and when I look at the past the market will not consistently deliver that kind of return.   Also, in regards to my bias, overall our own investments have done well, I am not that biased against the markets, I was fortunate enough to be mostly in the US investments over the past decade and that is where my savings occurred.  The crash really helped us out in the end.

Right now I see the market in 2 categories.  There is the US which is quite expensive and nearly everything else which is reasonably priced.  I expect international to at least do ok over the next decade but then doing ok might only be 2 or 3%.  I am cautiously optimistic on the US but it is expensive so who knows.  Ideally I just go 100% international but nearly every country other than the US has so many issues, either political or demographic or else too small for diversification.  So I hedge and put some into the US and some international and hope it works out.
« Last Edit: January 07, 2019, 10:25:56 AM by frugal_c »

maizeman

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Re: The stock market ALWAYS goes up
« Reply #40 on: January 07, 2019, 10:55:41 AM »
I also can't guarantee my income past about 5 years so that 16 years would be more like 20 if my savings rate gets cut down.   When I talk about the market going nowhere, I would include any return below 2% in that category. 

So this is a kind of risk aversion I recognize from myself as well. Without going into too much detail, I had a job that was guaranteed for five years and I was bound and determined to hit my minimum FIRE number before that happened. ... well, after the correction, it looks pretty certain I'm not gonna make it.

If you had to make an honest assessment, what are the odds that you actually lose your job/income stream after five years? If you did, what are the odds you could find another job/income stream making about the same amount of money? At least for me, forcing myself to put numbers on those two probabilities helped a lot, because I discovered that my intellectual assessment of the odds of a bad out was radically inconsistent with how much worry and uncertainty I was feeling when I was letting my subconscious make its own decisions about how likely it thought bad things where (because, as discussed, the human brain tends to dramatically overweight bad things and potential bad outcomes on an emotional level).

Quote
I agree I went too far by saying I am being censored, I mean nobody is deleting my posts, but it does feel like there are taboos against pessimism on this board.

I wouldn't describe it as a taboo. One of the services this message board/community provides is that is acts as a counter-voice to illogical or irrational pessimism that we all feel.

There is a much more common way to lose money in the stock market than to buy in Sept. of '29 and that is to listen to fear and pessimism and panic sell when prices are falling. It's common precisely because the natural response of a human brain is to run around screaming inside your you head "This time it's different! I'm gonna end up starving on the streets! run away run away!" But we know from empirical study that listening to that irrationally pessimistic voice leads to bad investing outcomes because people end up selling low, and then waiting until the stock market as run up substantially to buy back in. This stress and pessimism induced tendency to sell low and buy high is probably the single biggest reason most individual investors do substantially worse than putting money in an index fund and forgetting about it.

So the reason people here are so diligent in arguing against pessimistic opinions about the future of the stock market is because buying into that worldview can rapidly become a self fulfilling prophecy. I didn't see much emotional reaction to the 20% drop in the stock market, but I suspect the stress response to market declines is non-linear* and if we hit 35-40% down I do expect to see a number of people posting about how everything is doomed and they need to sell out. If being here to restate the logical reasons for long term optimism can convince even one person not to panic sell at the bottom of a crash, that's a pretty good thing to do, don't you agree?

*Model of personal stress as stock markets declines (where stress is related to the inverse of the ratio proportion of ones initial net worth remaining).


John Galt incarnate!

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Re: The stock market ALWAYS goes up
« Reply #41 on: January 07, 2019, 01:21:28 PM »




There's a form of cognitive bias called loss aversion, where we as humans tend to place dramatically more weight on bad things than good things, and, as a result, come up with very inaccurate estimates of the probability of various types of events.


Researchers in the field of behavioral finance discovered that when the stock market plunges   investors' unhappy feelings of loss   are 2.3X as intense as their happy  feelings of gain when the market rises.

A 2.3X variance in intensity is a LOT.

maizeman

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Re: The stock market ALWAYS goes up
« Reply #42 on: January 07, 2019, 01:25:27 PM »
I didn't know someone had actually quantified the ratio for the stock market, that's really cool, thanks @John Galt incarnate!

nereo

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Re: The stock market ALWAYS goes up
« Reply #43 on: January 07, 2019, 01:26:15 PM »
Who is John Galt?

John Galt incarnate!

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Re: The stock market ALWAYS goes up
« Reply #44 on: January 07, 2019, 01:29:42 PM »
I didn't know someone had actually quantified the ratio for the stock market, that's really cool, thanks @John Galt incarnate!

HAPPY NEW YEAR!

BicycleB

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Re: The stock market ALWAYS goes up
« Reply #45 on: January 07, 2019, 01:34:44 PM »
I think with a 4% real return, we are retired in a decade.   With say a 1% real return it is more like 16 years. 

This seems very reasonable. It sounds as if it reflects a fairly steady savings rate, perhaps 35% to 40%.

I suspect your analysis to be correct. Also, I understand how, with other factors stable, the uncertainty of the market leaves you with a large uncertainty about the length of time until FIRE. In that respect, variability of specific stock markets (eg, the S&P 500) is real. You can increase your odds of stable results by having a diversified portfolio (many examples on portfoliocharts.com, btw) but cannot bring the odds of a 1% outcome down to zero. If that's your point, it's correct. The market isn't guaranteed, and historically has some decades with returns near 1%. Most diversified portfolios do better than that in most decades, though. In any case, the odds of reaching your goal are much higher with a portfolio that includes some stock than one with none. Also the international vs US diversification helps put the odds in your favor. So your actions are wise!

I also can't guarantee my income past about 5 years so that 16 years would be more like 20 if my savings rate gets cut down.   

Nerve-wracking, but realistic. You might be 10 years from FIR, or 20. I admire that you implicitly have backup plans to earn the rest of the money even if you have to do it more slowly. You are unstoppable, at least if your expectations are accurate and you implement your plans. Well done!

That said, it sounds like you're a lot more likely to get there in 10 years than 20. As mentioned above, you can moderately increase your odds through diversification (portfoliocharts.com isn't the only resource, just a convenient one). You have control of most factors besides the market itself. So while it's true the market doesn't ALWAYS go up in the timeframe you desire, you are nearly certain to be successful if what you have described about yourself is true.

To me it seems the thing to do is calmly accept the odds and plan for success. Maybe plan for the 10 year and 20 year contingencies from the viewpoint of "How to live my best, calmest life in the 20 year case, starting now" and "How to live my best, calmest life in the 10 year case". Anything common to both cases, do it. You can have a nice life starting now. Best wishes.
« Last Edit: January 07, 2019, 01:36:42 PM by BicycleB »

John Galt incarnate!

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Re: The stock market ALWAYS goes up
« Reply #46 on: January 07, 2019, 01:36:51 PM »
Who is John Galt?

Long ago I read a novel in which your post is its opening line.

But I just can't remember its title.

Ha-ha!

Bird In Hand

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Re: The stock market ALWAYS goes up
« Reply #47 on: January 07, 2019, 01:59:36 PM »
Who is John Galt?

Long ago I read a novel in which your post is its opening line.

But I just can't remember its title.

Don't worry, we all have memory lapses.  You just have to...shrug it off.  :P

Nicholas Carter

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Re: The stock market ALWAYS goes up
« Reply #48 on: January 07, 2019, 02:05:02 PM »
The maximally cynical take on stock market events of the last 50 years is that no administration of the American government would allow the American stock market to experience more than five years of 'unacceptably low' growth, without initiating a bailout or subsidy of some kind. If the government can't prop up market prices, then you probably no longer have an investment problem.

frugal_c

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Re: The stock market ALWAYS goes up
« Reply #49 on: January 07, 2019, 07:53:11 PM »
I don't like the bolded statement above.  It suggests that the primary function of the equities is protection from inflationary risk.  If an investor's primary concern was inflationary risk (and particularly if he/she had a timeframe under a couple of years) the market is not the place to put that capitol.  You see this in questions like "where do I put $60k I'm saving for a downpayment for 2020?"  That's where bonds, CDs and even 'high' interest savings accounts come in.
Equities are about increasing shareholder value. Ironically individual companies aren't particularly focused on long-term growth, but maximizing quarterly profits, but that's getting a bit into the weeds here.

I'm sorry to hear about your relative who invested his or her inheritance just before the peak of the 'great recession'.  But for additional perspective, consider this - if that money came from an heir's estate and investment account, those funds almost certainly were invested over a period of years and had already appreciated considerably.  Put another way, if the inheritance was $100k, most of that was probably already market gains.  Regardless of the source, while the paper value may have been down at year 7, but by year 10 the value had increased over 60% over inflation. That's a huge increase through one of the worst financial disasters we have had, and it becomes even more impressive when you consider that during this time bonds and savings accounts were paying near-zero rates.
Regardless, its a far cry from '25 years' that you suggested in your first post in this thread.

No, it was worse than that.  At year 12, it was still down once you account for inflation.  Bonds beat equities in that period.

There are other cases where markets have been flat for 20 years.   From 60-63, future 20 year returns were generally below 2%.  1960 to 1982 it was below 2%, that's a 22 year stretch.  Even from that peak in 2000 until today I think it's only up 2.5% over inflation.   It happens.