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Comment by nathanvanfleet | Hacker News Reader

Sad to think that investing in the stock market, which I have only been able to financially over the last 5 years might have been much riskier than I might have previously thought. What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years.

It's kind of funny because I was getting shaky about having money in the stock market back in December, and I held onto investing some of my money there. But I ultimately relented 4 months later to lose 10% within about two weeks (and after just index funds). Now it's much worse, and I guess I'll just leave it all there.

And in 15 years I'll be back to where I was when I originally invested it.

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Are you ignoring dividend reinvestment creating compounding growth?

Even god couldn't beat dollar cost averaging, https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...

Buy all the time. Only reliable way to win.

Past performance is not indicative of future results. Japan stock market JP225 didn't recover yet from 1990 crash.

Yea so buy land if you’re so paranoid about becoming Japan. It’s an island nation with a very unique history. Not a great counterpoint to current US and global economics.

The UK is at more or less the same price as it was in 2000. France same as 2008. Meanwhile SPY is up 2.75x in that period. The US seems to be the anomaly. Value doesn’t always go higher. Maybe the USA is special, maybe not.

SPY is differently weighted than for example FTSE. Most indexes do not factor in dividends, if you look at the total return data where dividends are reinvested you will see there are gains in Europe, but less than the US.

Thanks, I hadn’t realised the “obvious” indexes were measuring different things

Is that with dividends? Watch out because the German DAX actually does have reinvestment in it iirc. Most of the others don't.

An index never includes dividends. An index fond might (accumulating) or might not (distributing).

https://personal-financial.com/2020/11/27/the-dax-and-its-di...

Thanks. Learned something today.

The UK FTSE all share total return index, which accounts for reinvested dividends, is at 8430 today and was at 2870 in May 2000. That's an annualized return of exactly 5%/year

I'd wager most of that difference is due to the USA's tech industry growth.

Thanks for pointing out dividend adjustments work differently on some indexes

Adjusted for dividends since 2012

VUKE - Vanguard UK 100 up 100% VUSA - Vanguard S&P500 up 350%

As the saying goes, there are four types of economies: developed, undeveloped, Argentina, and Japan.

Why Argentina?

Argentina's economy is a series of endless crises from the government choosing the worst possible ways to intervene in it at every opportunity. Like a reverse South Korea.

Buying land in Japan isn't a great idea (except to live on it). You have to pay a hefty annual tax on it. Land even with property on it is so often abandoned they have a word for it and many marketplaces where you can buy abandoned land from the tax office.

Do Japanese people have to buy Japanese stocks just because it's the same country?

No, Japanese can invest in other markets using international brokers. I don't know details on the fees and currency conversions. Investing in a foreign exchange is always at a slight disadvantage because of currency conversions and fees.

For a US centric view: https://www.investopedia.com/articles/investing/032615/how-t...

US stocks are traded on foreign exchanges. Even if you insist on buying on a US exchange, the currency conversion is not very expensive. If you're a buy and hold investor, it won't matter at all.

And yet you often see US people recommending to buy US stocks. There are risks and benefits to buying both domestic and international stocks.

If you invested only in the Nikkei on the way up and on the way down, you still came out fine. The only person who didn’t is the person who put all of their savings in at the very top and never bought again.

Damn thanks for the great read. This is just what I was looking for.

There is an inverse question: If you have a cash windfall you want to invest, all-at-once or split it up?

I have seen a similar analysis (but can’t find it right now). Even if you invest at the all time highs, so the market drops right after you buy, you still win with the all-at-once strategy.

The general lesson: Get your money into the market as soon as possible. Maybe more memorable: Time in the market beats timing the market.

Investing in the stock market has the general assumption that, a priori, stocks are more likely to rise than to fall at any given point in time. Under that assumption, the all-at-once strategy has the better expected outcome. Of course, you can be unlucky and end up buying the all-time-high just before a crash. You can avoid that risk by splitting up the investment, at the cost of lowering the overall expected value. So it’s more about how you feel about that risk, and whether you feel avoiding it is worth having a somewhat lower expected return.

Peter Lynch had a pretty interesting talk where he said that on average the stock market has a sizable dip every few 2-3 years, meaning it's lower at the end of that year than it was at the beginning. Generally though, it goes up over time.

Right, up to now the maximum interval where the market didn’t go up to a new all-time-high is about 15 years, but so far it always ended up reaching a new all-time-high in the end.

> What I previously thought as "okay I just leave it in the stock market for a bit of time to recoup" is something I am now realizing would likely have to be 10+ years.

I am wondering where you previously got your information?

At one point ten years was considered about the minimum time window for investing in stocks.

To give an example, an old rule of thumb was to have 100 minus your age percent of your retirement savings in stocks and the rest in less volatile investments such as bonds (so a 50 year old would be half and half between stocks and bonds).

It's been easy to promote bonds when we've been in 40 year bond bull run

My grandfather had $3M invested in the market in 2007. Lost $1M at the bottom in 2008, but didn't do anything other than rebalance. Now worth $8M.

Either you fret over every price move and likely buy/sell at the worst times, or you invest with a long-term vision and stop tracking the price moves everyday.

Unfortunately for every one of these folks, there are a handful of folks who panic sold and still haven't made it back...

yes but in that case the Fed rode to the rescue and delivered the greatest bull market in US history. There's absolutely no way the next decade looks like the last so this is a poor comparison.

As far as rebalancing --- you may have noticed stocks and bonds falling in unison this year, so rebalancing is not much help.

Why not l? If the market returns don’t keep up at 6-7% annualized government pensions will run out of cash.

If rates go up drastically, government debt payments go up.

The game must go on! *until the us empire collapses, taking down with it the western world

Yes, pensions and Illinois are cooked.

But EU has had negative interest rates for years, and will collapse (break up the eu monetary union) before USA goes under. Dollar strength confirms capital is moving into USA.

Take a gander at the PE ratio for the S&P500 over time. A substantial amount of those gains are backed by increased profitability.

https://www.multpl.com/s-p-500-pe-ratio/table/by-year

And not sure what your comment on rebalancing not being much "help" is. Rebalancing is not about "help" it's about sticking to an investing approach.

And I can recall back in the early 2000's when people said "Equity growth will never be like it was the 90's".

Glad I never listened to them.

>>> Now worth $8M.

That is the price. Worth and value are different than price.

If that $8M now buys about the same amount of blueberries or house as $3M in 2007, then it kept pace. Except for paying the capital gains on $5M.

Are you suggesting in 15 years, the $ devalued by more than 250%?

Something can't devalue by over 100% of itself.

If you're asking about inflation, it is usually measured as an increase in prices.

Problem with "long term investing" as I see it is that to realize the gains you must get out of the market at approximately the correct time. That is difficult psychologically because if you have been able to increase your worth by doing what you have been doing so far you are likely to keep on doing it. Then one day the next crash comes. All of a sudden having been a long term investor does not help so much any more.

You need to be a long-term investor for a limited term. But hard to know when that term is over.

So I think when markets go up you should seriously consider taking some money out and using it for leisure and travel and education investing in yourself. But taking money out and spending it is not usually considered prudent investing. Especially because taking money out means you must pay taxes on it. So you stay in the market and soon most of your long-term gains are wiped out, and you have to be a "long term investor" all over again.

if you have a large enough sum of money (i.e., $50m USD ) you can stay invested all the time and withdraw a small sum of money each year like $300k

With $50m if your portfolio averages 4% a year you would be clearing $2m then pulling out $300k for 1.7 gain. You only pay tax on the income withdrawn

The real baller move for someone worth 50M+ with rates as low as they have been, is take out loans against the 50M to live off of. Pay back the loans with rates less than the annualized market returns. Also limits/pushes out cap gain taxes.

Right, take out a mortgage. That is tax deductible

You should clearly have a purpose for your investing goals and adjust your investing style based on risk.

So if your goal is retirement and you're 30, you can tolerate higher risk because if the market crashes, you've got 30 years to wait for it to recover. If you're 60 and retiring in a few years, your risk tolerance is low. And you can slowly adjust your portfolio in between.

This a very popular idea but I don't fully accept it. Goals and desires are not static. They are path dependent and adaptive. I want a funding scheme that's able to fund that.

So you want high returns with little to no risk?

Doesn’t exist. Sorry bud.

You think you are entitled to returns just because you took a risk ? Sorry bud, sad to break it to you but it does not work that way.

That's the idea that I am criticizing. Risk might be necessary, but never sufficient.

BTW I don't think, you think that way, but neither should you. Gratuitous condescension poisons the well.

I never said I "think [I am] entitled to returns just because [I] took a risk". There is no entitled, it's simply a trade-off.

It's a basic precept of investing. In a very simplified way - higher returns require higher risk of invested capital - why else would you invest in something higher risk unless the return justifies it? And likewise, people will accept lower returns if they know the risk is low.

Nobody is doing payday loans at prime because the risk isn't justified by the return.

When you start looking at portfolio allocation across multiple investments, it gets more complicated because you can actually achieve the same return at lower risk through diversification across classes of assets.

But to answer your original question - the only way to guarantee short-term and long-term positive returns (as you put it "if my goals change, I don't want to lose money") is to invest in low risk investments. Low risk investments mean low returns.

> I never said I "think [I am] entitled to returns just because

Exactly! Why did you think I said anything about not taking risks. I didn't say that either. I was misinterpreting on purpose to show yours.

> "if my goals change, I don't want to lose money"

I did not say that either. I vehemently agree with everything else that you said.

Ok, then I misunderstood and am very confused.

You said "This a very popular idea but I don't fully accept it. Goals and desires are not static. They are path dependent and adaptive. I want a funding scheme that's able to fund that."

Which I interpret as "I reject the idea of setting some financial goal decades into the future. I want a scheme that is flexible and can accommodate changes to how I want to use my money."

How is that different than "If my goals change, I don't want to lose money."?

The best sort of discussions are those where each is happy with the other's rewording of their position. I certainly do not reject setting financial goals decades into the future. I do not like ('like' and 'reject' aren't synonyms) investment discipline that are strictly fixated on some goal I had in the past. I would rather have an adaptive trade off of risk to return depending on where I am right now financially. Some goal I had ten years ago may not be as relevant in my current state. I wouldn't want to let go of a favorable opportunity by pulling out the money, just because a goal that I had set in the past has been met.

> How is that different than "If my goals change, I don't want to lose money."?

… and I don't see at all how they are equivalent. I might be willing accept the possibility of losing some money if there is a notable increase in the possibility of meeting my updated goal.

I doubt that we have any fundamental disagreement. You have a good day.

I'm still confused as hell.

The core problem here is that nobody understood your original comment or the follow ups. It isn't clear what you are criticizing or what alternative you want.

Don’t worry friend, it’s about the savings rate, not the savings return.

Just keep putting a little in here and there. Don’t put in anything you can’t afford to lose and it’ll turn out alright

If person A invests monthly and achieves a 7%/yr return, how much more does person B have to invest every month to get the same pot after 30 years?

50% more

> Don’t worry friend, it’s about the savings rate, not the savings return.

Yikes, please reconsider your advocacy of this.

As Einstein said: "Compound interest is the eighth wonder of the world."

you have to take risk to earn returns. Sometimes that risk actually eventuates, and you have to either keep going, or take the loss.

That's why you must know the time horizon for your investments - if you know you need the money "soon", you cannot actually invest in the stock market.

You have to take calculated risks to earn returns. FOMO at your own risk.

If you are 30 and don’t need the money you put in SPY until 70, don’t sweat it. You’ll be fine.

But let’s not pretend blindly taking risk is OK because some return is expected. Time horizon and some relative valuation context is important.

Buying into the stock or housing market at extreme historic levels of valuations like those in late 2021 and now GREATLY reduces your expected return over 5/10 years.

If you don’t have the (extremely) long view, expect to lose some sleep watching your net worth over the next couple years.

> But let’s not pretend blindly taking risk is OK because some return is expected.

Exactly. I have seen this idea float around that just because they have taken a risky position they will be able get better rewards. Risk may be necessary for above market rate returns, but it is not sufficient. A proportionate amount of those taking the risk will be cleaned off the amount that was risked. Why do you think its not going to be you ! Of course when you use time effectively or use other hedges one can reduce the exposure.

This is a large part of why I’m feeling so negative about this draw down. In the last 5ish years I paid off my student loans and started banking real cash. I put it in the market and now am down tremendously. Crap timing.

I was pissed because I didn't invest in my portfolio to buy a house during the pandemic and missed out on pandemic gains - but checking how much money my portfolio lost, I made more money to keep those in cash.

It was hard to predict that real estate would see pandemic gains. It's an asset that people need to leave their homes to inspect, and comes with face-to-face time with multiple parties. In a locked down society, there were plausible reasons to assume that the real estate market would be dampened.

Predictions are always hard. I bought my house during the last housing 'crash'. It was my first house so I didn't have one to sell, so it was easier. But, I was being told by friends and online that things could drop more, wait, etc... At the end of the day, I needed a place to live, I could afford it, and my job was reasonably secure.

Now people ask how I timed it perfectly and the fact is I didn't. I simply made personal financial decisions based on my situation at the time.

What are you buying that you've lost "much worse" than 10%? There's no guarantee each individual stock will go up over time.

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