The younger you are, the less it all matters, as the trend over a decade or more will always be "up". (If not we have bigger problems.)
So if you don't plan on retiring off your investments in the next 10 years, just enjoy the ride. If you do want your money in the next few years, it shouldn't be in stocks.
A DJIA index bought on September 3, 1929 was underwater until November 23, 1954. That's over 25 years to get back the exact amount you invested. Of course factoring in inflation, that investment had actually shrank.
The attitude that the market had nowhere to go but up, and $1 invested this year was assured to be $1 + $X ten years from now, is the exact attitude that investors in 1929 had (or 1999 for that matter).
Well, yes, but no one is suggesting that making a single large buy on one particular day - any day - and no other investments at all after that, is a sound strategy.
Considering that the time period you're talking about saw: the Dust Bowl, the rise of Fascism, a global conflict on a scale never before seen, industrial genocide, and the start of the Atomic Age and with it the threat of nuclear war and the annihilation of our species... the fact that a 20 year-old could have made the insane investment choice you've presented, and still managed to break even by the age of 45, is actually quite remarkable.
(And I'll just ignore that you've not accounted for dividends.)
How many times in 100 years was this true, besides the 2 times you mentioned? There is risk everywhere. We can only hope to take on risk for a goal after doing our due diligence to understand and mitigate the risk.
Adjusted for inflation, the SP500 had a peak in 1968, then dipped and did not return to this real level until 1992. 22 years.
The S&P 500 entered 2000 at 1425. Not until 2013 would it open the year at or above that. Adjusted for inflation, it did not hit its 2000 level until the turn of this year. It has been tanking the past few days.
as the trend over a decade or more will always be "up"
This is a growth based analysis (in effect a form of pyramid scheme), and it increasingly simply isn't true, as many in Japan are discovering. As populations flatten and eventually decline, most of the established dogma will fall.
I'm pretty sure the phrase was just used in terms of the nature of a free market.
Are you suggesting that because the U.S. stock market has risen during the tiny blip in history that the U.S. has been an uncontested world superpower, we can expect it to rise forever?
What else would you have us expect? That when the US is no longer relevant, and the stock market is permanently declining, that somehow a stash of dollars will be meaningful?
No, for all practical purposes, go ahead and expect it to rise forever. Anything that would make that untrue would make your investment balance unimportant.
I wouldn't expect unsubstantiated claims that have no basis in reality to be stated as plain fact, as in:
> the trend over a decade or more will always be "up".
This statement is demonstrably falsifiable since we've had several decades where the inflation-adjusted returns of the stock market are negative.
> Anything that would make that untrue would make your investment balance unimportant.
I'm sorry, but reframing your false statement in terms of a false dichotomy (the either the U.S. stock market is going up, or your investments are worthless) does not make things right. The double-negative rule doesn't apply here.
In that case you would invest in assets, not cash or stocks. A chunk of land with a garden and a couple of goats would be very handy when a loaf of bread costs $10 billion at the store.
Yes, exactly, I have 3 acres, 8 goats, 30 chickens, bees, 14 fruit trees, and lots of gardens boxes. I would love it if my investments grow, but I'm covered in extreme cases either way.
(And I have my own well and produce my own solar power to boot.)
The $10 billion in that scenario isn't worth any more than ~$3 is today, so it's not actually as lucrative as it sounds. :) Plus because there's hyperinflation happening, the $10 billion you sold your bread for may not be enough to even buy a cup of flour tomorrow, so it's actually worse than owning a bread factory now. It would be better to keep the bread, which will be worth $25 billion tomorrow, except that bread goes bad eventually. So instead of holding bread, you hold assets that don't lose value over time. You don't want to get caught holding this hyperinflating cash because it devalues so quickly. So either you trade your assets directly for other things that you need, or use a different currency that isn't going crazy.
Yup it certainly could be, although it loses value in the form of maintenance costs and can only earn value in the form of bread. So if you can find good bread-trading partners or can sell your bread for non-devaluing currency then that can work out.
The stock market is less than 200 years old. Let's not make any bold predictions about unbreakable trends when we're talking about time periods up to 25% of the age of the market itself. After all, at one time the conventional wisdom was "No football team who plays their home games in a domed stadium will ever win the superbowl." And there were decades of evidence to support that statistical fact!
Yes but that fact doesn't have any scientific basis, it's just pure coincidence. There's no reason why it didn't happen other than the fact that it didn't. The stock market on the other hand, indicates the overall health of the country. It's not a coincidence that it keeps going up as the wealth of the nation goes up.
Recently in baseball, all 30 teams played on the same day, and all 15 home teams won on the same day. That hasn't ever happened before. Why hasn't it happened before? Not because of how unlikely it is. It hadn't happened before because it hadn't happened before. Because it happened now doesn't mean it's more or less likely to happen in the future. It doesn't mean baseball is changing. It doesn't mean anything. But a long term downward trend in the stock market? Means death for a nation's economy. Even a short term downward trend does significant damage.
Football and the stock market are not as closely related as you may think.
The stock market on the other hand, indicates the overall health of the country.
I think the parent's ultimate point is that no country (by which I mean under the same constitution, monetary system, or de facto political arrangement) has lasted longer than a few hundred years.
Even if everything seems economically fine right now and for the foreseeable future, at some point all countries and their associated economies go away and are replaced by something else entirely, at which point the stock market index within said structure goes to at or near zero.
You just need to take a longer time horizon than "when I retire".
Not my area of expertise but I'd imagine it's a function of population and interconnectedness of economies. I do see that some nation economies will be hurt and others helped as everything will probably revert to a mean to some degree.
I do imagine this growth will be asymptotic though on a longer timespan as we need to slow down population growth due to the environmental impact. But who knows? At some point maybe we will be mining asteroids and finding wealth (and places to spend it) outside of Earth.
> Not my area of expertise but I'd imagine it's a function of population and interconnectedness of economies.
So the population growth rate of the U.S. is declining, and many developed nations now have negative population growth rate.
> I do see that some nation economies will be hurt and others helped as everything will probably revert to a mean to some degree.
Right, so would you expect the U.S. economy to be helped or hurt by the decline of its economic dominance and a reversion to the mean?
> What evidence is contrary?
No nation, empire, or civilization in history has managed to sustain global economic dominance indefinitely.
There are probably many events that could cause the U.S. economy to contract. But even if the U.S. economy continues to grow, though at a much slower pace than competitors or the global economy, I just don't expect the U.S. markets to continue rising in a meaningful way. People in this thread are claiming that local markets always rise as though they're stating a law of physics, and it's absurd.
> The US stock market is ... a financial center for earth
This is true currently. But again, there's no reason to assume this will continue forever.
> If we talk about civilization at this point in time then its the global civilization of earth we are talking about.
Nice idea, but I'm unconvinced. What does "the global civilization of earth" even mean? The world always seems more connected than the day before. Of course, in 1914 it seemed more connected than ever before. In 1939 too. Yet our global civilization split apart at the seams and we were thrown into two of the most devastating wars ever. And both hugely impacted the economies of the nations involved. The U.S. has been at war almost continuously for the last 25 years. With whom? The global civilization of Earth?
Even if you restrict your perspective to purely economic matters, to a "global economy," this seems dubious. If we truly have a global economy, it's one disproportionately controlled by a single nation -- a situation many nations are probably unsatisfied with, but currently unable to change.
So you've reached the conclusion that other nations are now content to sit back and let the U.S. run the global economy forever. Where's the evidence? Just because no other country has been able to challenge the U.S.'s dominance over the world economy in the past 50 years, doesn't mean they've accepted this as the natural state of affairs.
But even talking about down-trends, I think "death" is a bit strong. It could also indicate a gradual transition to a lower stable position. Plenty of economies survive at small sizes.
There are real forces that propel the stock market upwards: productivity and an ever increasing population (so more overall revenue and therefore profits over time).
This is why its a pretty safe bet that over 15 year+ time periods that the stock market will go up.
Except that, in many nations around the world, the population growth rate is negative. There is no shortage of space, or food, or energy, but the populations are aging and couples are having fewer children. This is the situation in Japan, Germany, Russia, South Korea, and almost all of Eastern Europe.
The U.S. population growth rate has also been in decline for the past 50 years, dropping from 1.7 percent to 0.7 percent, heading towards negative growth if this trend continues.
So much for "an ever increasing population" to bolster a market that always goes up.
But our population can't increase steadily forever. That trend HAS to end or even reverse at some point.
I understand increases in productivity enable support for a larger population- but that's not a bottomless well. There are insurmountable practical limitations.
Well, the US population can continue to grow until overcrowding becomes a problem, or food becomes a problem, or energy becomes a problem, or nobody wants to live here anymore. The first three seem a long way out; the fourth might arrive sooner...
How long of a time period? Is 20 years sufficient? 200 years? Historically, most empires rose to greatness and then imploded in fewer than 200 years. So I guess we shouldn't look over too long a time period.
We've enjoyed the repercussions of the United States' rapid ascent from a fledgling colony to a world superpower. If we look at the stock market during this period of remarkable growth, it's very easy to conclude that markets will always go up. Of course, this would be a very foolish conclusion.
So if you don't plan on retiring off your investments in the next 10 years, just enjoy the ride. If you do want your money in the next few years, it shouldn't be in stocks.