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Comment by blevin | Hacker News Reader

Keep in mind that SPY yield today is 1.9% — below CPI — so you are losing value even before paying tax on that income. If you are hoping for capital gains / equity risk premium to provide extra return, you owe yourself to read a bit about where we are in the economic cycle, current corporate debt levels compared to history, and to look at what happened in 2000, 2008, and last December and visualize going through that. To get passive income beyond the dividend yield you’ll need to be selling shares, not buying them. Consider the scenario, hopefully unlikely but historically demonstrated, that it goes down 50% at some point, or spends an entire decade with zero total return. US equities have been a powerhouse but it’s worth some careful research if you are looking for passive income.

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> SPY yield today is 1.9%

That's dividend yield. If all companies stopped issuing dividends and instead spent the money on buybacks, you'd have a 0% dividend yield, but the same amount of money would be returned to shareholders without incurring a taxable event for remaining shareholders. Reinvesting dividends would allow for continued growth at whatever rate the ETF appreciated or depreciated, minus taxes.

> below CPI — so you are losing value even before paying tax on that income

All other things being equal, the value of your money is decreasing at the rate of CPI regardless of whether it's in cash or equities. Cash can be thought of as a bond yielding a return inverse to inflation, whereas equities are securities yielding a variable, unspecified return.

> where we are in the economic cycle

Determining this is difficult. Australia, for example, has not had a recession in 27 years.

> current corporate debt levels compared to history

Debt levels are at nearly all time highs relative to GDP (2000: 22%, 2008: 24%, 2019: 33%), but interest rates are also favorable for companies and close to historical lows (Investment grade OAS: 1.64%, High Yield OAS: 4.19%).

Trailing S&P PE is 20.72, which is at the top end of the regime from 1928 to 1990, but roughly average for the regime for 1990 to present.

In short, timing the market is difficult.

I'd like to add that SPY yield if you invested today is 1.9%, but if you dollar-cost average invested over the past 10 years, your yield-on-cost would be much higher ~5-6%.

Yup and the frustrating thing about equities is, there's no telling when those sky high PE ratios will revert to their mean.

There’s also no natural law that says it needs to be stationary. The historical mean can just gradually rise. It can be like climate change. This is what makes markets fascinating — many independent agents evaluating the present opportunity set, acting on their internalized narratives and beliefs as well as data, with gradual turnover of the population of participants.

In a thread asking for options for present passive income (ie money coming in every month that you can eat with while you learn Python) it seems important to distinguish that need vs a long term investment strategy where you have money passively going out every month instead of coming in. One thing the market provides is a trade between people who have needs on different time frames.

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