Show HN: Inflation-adjusted stock charts – Total Real Returns | Hacker News Reader

Show HN: Inflation-adjusted stock charts – Total Real Returns

totalrealreturns.com

507 pointscompumike272 comments

Here's a little side project I’ve been working on: https://totalrealreturns.com/ The Total Real Returns chart demonstrates the preservation or growth of real wealth more clearly than conventional (nominal-dollar, price-only) stock charts, because: (1) we include the effects of inflation-diminished purchasing power, and (2) we include the effects of reinvesting dividends from the initial investment.

I found it harder to explain the y-axis in words than it was to do the math, so please let me know if you think the "baguettes" explanation on the homepage helps.

I was up until 4am ET finishing some features on this, and then at 8:30am ET the BLS released the new CPI numbers through their API: https://download.bls.gov/pub/time.series/cu/ and I was able to manually re-run my daily cronjob with the new numbers, so it's up to date! If you catch any bugs, please let me know via the “Report a bug” link in the footer of every page.

Some FAANG examples: https://totalrealreturns.com/s/META

https://totalrealreturns.com/s/GOOGL

https://totalrealreturns.com/s/AMZN

https://totalrealreturns.com/s/AAPL

https://totalrealreturns.com/s/NFLX

Comparing three Vanguard treasury funds, showing vividly the impact of bond duration (short-term, intermediate-term, long-term) on both risk and reward: https://totalrealreturns.com/s/VFISX,VFITX,VUSTX

Open articleView on HN

This period has been very special because of the 401k, which is itself part of the growth story of the corporate legal structure. I think this is coming to an end. Corporate boards and officers no longer represent the best long-term interests of the companies and shareholders they represent. It’s also a very precarious legal status as an arbitrary judicial ruling can make or break a company. Finally, and perhaps most importantly, the corporate bubble is based on arbitrary tax codes that both advantage corporations and push worker savings into the stock market.

Even if these conditions continue unabated, the cash flows from working class into the stock market will eventually hit equilibrium with capital extraction from the owner class. If the extractions return to the same markets, then things stay in equilibrium. They won’t, however, because the tax advantaged assets are different for them. They may seek hyper-volatility, or government bond shelters, but will generally avoid the assets on the working class tax treadmill.

There are fundamentals to financial assets that have nothing to do with “number go up”, and these will ultimately dictate reality, with the caveat that “the markets will remain irrational longer than you will remain solvent”. Rationals get wrecked too, except every once in a while when one gets lucky on their timing and makes so much money that they become a hero and we make movies about them. We cheer because it gives us hope that our intuition will serve us too. Unlikely.

This is all to say that such charts are using an inductive hypothesis to predict an inherently anti-inductive phenomenon. People tithe and sacrifice to their church for a promise of rewards in the afterlife. The stonk religion is the same; well worth the price for your peace of mind. True or not, you’d be a mess without it.

> People tithe and sacrifice to their church for a promise of rewards in the afterlife.

could you strengthen your argument by omitting casual broad-brush explanations of religion, please?

Well, I can't anymore, but, I might have instead said something about how religion is commonly maligned for such practices. This is only to show that modern investment practices bear strong elements of ritualistic faith. Your response is most welcome. Thank you.

> This is only to show that modern investment practices bear strong elements of ritualistic faith.

Conversely, ritualistic faith has a long history of financial investing, evidenced by its tendency to procure very high value real estate for itself with the funds of it's adherents.

Also, the cathedrals of Europe are glistening with the golden dividends that accrued from religious investment in the conquest of the Americas.

Further, it seems religion may have developed as a part of the need to keep track of resources in ancient Sumeria. My impression is that the studies said something along the lines of by establishing a priest class wich survives on tithes but also function as clerks/scribes that society enters a new new level of economic development.

further casual broad-brush explanations of religion then, gotcha

I strongly disagree with your summary. In studying the evolutionary origins of religion the development of language, in particular writing, which moves religion away from oral tradition, is a key component. Did I articulate this well? No. The science remains well reviewed on this topic though, (that writing was first used for business transaction accounting, and later for ritual purposes).

I liked your explanation but you undermine your write up by discussing something you clearly have no business discussing:

>> People tithe and sacrifice to their church for a promise of rewards in the afterlife.

This is a fundamental misunderstanding of tithing and I’m not going to get into that at the moment, but it makes me consider if you are discussing other things in your write up that you don’t have experience with as well.

Actually I'm heartened to see people defending religion on HN. Tithing to a church you truly belong to is probably a better use of your money, even purely by personal benefit, than tithing Wall Street. I hope that I've introduced some of those ideas in the text by making a negative comparison to the church. But yes; it was sloppy and possibly interpreted as disparaging of religious practice itself, so for that I apologize.

Meta: this is what I like about Hacker News. I get challenged to maintain disciplined thinking, often at the boundaries of the argument where I casually drift.

I didn’t see it as a defense of religion (it did not express an opinion) - more as a correction of your post.

Agreed, the reply makes me more sure that the comment suffers from non-expertise and that we should remember the Gell-Mann Amnesia Effect.

You might be even more heartened to know that one of the top most and highly respected computer scientist, Donald Knuth, is ardently religious. The contrast between his works that is extraordinarily precisely well reasoned after decades of thinking and his complete submission to ancient religion where logical reasoning is not all that welcome, is absolutely a thing to behold. It makes me marvel at complexity and perhaps still evolving nature of our brains that can even do this. I used to be very interested in personalities who you would absolutely consider highly intellectual and utterly rational but at the same time extremely religious. My observation was that these people had developed some sort of switch in their brain which suddenly turns on and off depending on subject matter. One very common trait was also that all of these high IQ people were exposed into religious practices since very early age with a lot of non-negotiable enforcement from otherwise very loving parents. It seemed to me that part of their growing brain had just carved out area which was basically off limits to questioning ancient religious practices. Human brain is fascinating thing.

> ancient religion where logical reasoning is not all that welcome

If something gives you purpose and makes you happy isn't the most rational thing to do to follow that thing, even if the thing itself isn't logical?

Yes, I myself have done a lot of things that have no logical reasoning but gave life a purpose, or at least it seemed to. That was my “religion”. I really cannot say I am opposed anyone else’s religion. The big issue is that many religious people want everyone else to follow their religion and any refusal or reluctance means target on your back. This is why religions get bad name and produce negative impact on society, for example attempts to squash scientific progress in medieval dark times or formulating laws based on one religion to a force on to everyone else or forcing religious education on all children and actively preventing them from learning scientific concepts like evolution etc. Not everyone does this and in fact most religious people I know are very private about that aspect of their lives.

The simpler explanation would be that spirituality is not as mutually exclusive with logic and reason as one might have been led to believe.

Is it really all that surprising? I’m a fairly spiritual person, and work with logic and reasoning every day.

I like to think about this kind of stuff for fun and one of my answers to this is that if you like fiction, you are able to suspend disbelief at will (whether aware of it or not). I think faith requires disbelief and trust to work. Without disbelief, you will question, and without trust, you’ll undermine.

Spirituality is not same as ardently following very specific religious practices. I believe everyone is spiritual in some way. I also don’t think we suspend disbelief when reading/watching work of fiction. We accept that to be fake but we are curious about what-if scenarios and it’s merely learning and/or entertain. This is not same as reading religious texts were you do not accept it to be fake and questioning is feared for.

I don't see any conflict between reason and religion. Knowing how an atomic bomb works doesn't conflict with the rationale for why it's immoral to use one.

> This is a fundamental misunderstanding of tithing and I’m not going to get into that at the moment,

To the extent that tithing (or a non Christian equivalent) supports a religious institution's facilities and payroll and programs to be help less well off members of the religious group, it's a bit socialistic, with the huge caveat that - by definition - it is not universal, since to receive such benefits you must usually be an adherent or serious prospect of conversion to the religion.

I'm sure most people realize that their tithing money isn't getting them anything in a presumed afterlife, and that the purpose is to support the institution's basic functions and it's outreach and expansion efforts.

Do you have a citation for "you must usually be an adherent or serious prospect of conversion to the religion"? I've never worked with a church that required proof of membership or belief to receive services.

If you are not going to get into it then consider commenting when you are ready. I find it bullying behavior when you put down a person, establish yourself as expert but refuse to provide why is it that way. This is not to say OP was correct but he is likely lousy or just informal in all academic meanings of the word that you probably understand deeply that general public likely don’t care because they focus on practical meaning or the meaning as applicable to usual encounters ignoring outliers. For instance, one can make statement that “terrorist are evil” but you can write 10,000 words academic essay on why it is not that way citing hundred outliers and perspectives from other side. This doesn’t give you power to put down a person calling him non-expert and questioning everything else they said because in general public encounter that statement has meaning that is well understood without academic idiosyncrasies.

> This is a fundamental misunderstanding of tithing

Depends on the church, really. There are plenty that do hold a lack of tithing against you.

>> People tithe and sacrifice to their church for a promise of rewards in the afterlife.

> This is a fundamental misunderstanding of tithing and I’m not going to get into that at the moment...

I'll explain some from a fairly classic Protestant perspective. This was literally what started the Protestant Reformation. Martin Luther was horrified that the Church was essentially attempting to sell salvation via indulgences. He pointed out that the Bible teaches that salvation is completely free because Christ already paid for all our sins with his blood.

I agree with Luther and I tithe out of pure gratitude. I think the Church belongs to Jesus and so do I because he's kind and gracious.

All the money in the world can't buy my salvation, or even the smallest part of it. It's worthless to God, who made heaven and earth and all that is in them.

When you selected Martin Luther as your mental leader, have you been aware of his antisemitism?

https://en.wikipedia.org/wiki/Martin_Luther_and_antisemitism

> When you selected Martin Luther as your mental leader

That's not what I got from the post at all. Historically Martin Luther is extremely significant, and as that's as far as I can see why OP referenced him. And frankly, it's not very useful to apply modern norms to historical figures. I get the same vibe from your post as "Did you know Thomas Jefferson owned slaves? And raped Sally Heming? Clearly it was non-consensual because of their master-slave relationship."

It is very important to apply modern norms to historical figures - to better understand the past and how misaligned ideas / movements / behaviors from the past can be in the present.

The ELCA has condemned his antisemitism while still lauding the brilliance of his theology. One is entirely separable from the other.

Very well said. I think a lot of atheists would be interested in some of Luther's critiques of the church.

This probably is a reference to Max Weber's "Protestant work ethic" - a classic and interesting read.

> People tithe and sacrifice to their church for a promise of rewards in the afterlife.

You… you may want to post some receipts on this, or perhaps edit your comment

It’s commonly taught this way in the historical context of religious conquest and reformation, which may or may not be accurate for some population in some period of time, but is probably a lazy approximation that historical populations were ignorant and simplistic. My understanding is limited, but specifically that the term is not commonly used today outside of certain traditional churches (I have been to some). I used it to invoke the historical imagination where one may consider their actions in the perspective of a larger timeline where someone else may be studying them. But it’s certainly touched a nerve and distracted from some of the points I was trying to make. Or perhaps it was so vapid that there’s nothing else to discuss. Either way, I’d like to know.

You may notice this response as less apologetic than the first few times this accusation was levied. That doesn’t mean I regard it as any less accurate, but as I see it again, I try to address different aspects as there must have been something lacking to warrant repetition. One thing I’ve noticed is that none of the accusations have bothered to provide a specific correction. Perhaps you should consider starting with the assumption that people want to do well by you and improve their understanding of the things that are important to you, but cannot do that without your participation.

> cash flows from working class into the stock market will eventually hit equilibrium with capital extraction from the owner class

What? The working class becomes owners when they buy shares.

I don’t think this is the case in any meaningful way, especially through the 401k mechanism, as participants are forced to delegate their ownership rights to the fund manager, which is yet another layer of dysfunctional fiduciary abstraction. The latest set of developments here are the fiduciary duties to ESG, which was intended to align long-term interests of fund participants and fund managers, but has been warped into a tool for fund managers to control investment flows arbitrarily by ESG ratings rather than by passive market indicators. It’s easy to see how this could be abused in a scenario like the listing and then de-listing Tesla in the ESG index. Smaller private equity funds can nimbly adapt to front-run the bigger funds even without prior knowledge of the rating change. This does not rule out the possibility of either prior knowledge or purposeful manipulation; easy to do and hard to prove.

> I don’t think this is the case in any meaningful way, especially through the 401k mechanism, as participants are forced to delegate their ownership rights to the fund manager

Administration rights, not ownership. And 401k's, with all their issues, are still one of the best investments a worker can make.

The working class become owners when they buy enough shares that the dividends or expected growth from those shares are equal to their expenses.

"And according to data from the 2019 Survey of Consumer Finances by the US Federal Reserve, the most recent year for which they polled participants, Americans have a weighted average savings account balance of $41,600 which includes checking, savings, money market and prepaid debit cards, while the median was only $5,300. "

>> They may seek hyper-volatility, or government bond shelters, but will generally avoid the assets on the working class tax treadmill.

0. https://finance.yahoo.com/news/inverse-tesla-bet-among-first...

1. https://www.nasdaq.com/articles/the-sec-approves-single-stoc...

2. https://www.sec.gov/news/statement/crenshaw-single-stock-etf...

Can you be precise about "this period"?

I don't disagree with you that 401k puts an implicit bid into the market. However, they've been around since the early 80s and the market goes up and down regardless.

Having all lines normalized so they start from a common point at x = 0 would be helpful. That would allow reading the total returns as percentage of the initial (1987) investment and compare them.

Similarly in the drawdown chart, if it starts at 1987, it makes no sense to start the dollar at -81%. If I am looking at a chart from 1987 to 2022, I want to see how the dollar did compared to other assets in that time period.

Is that even possible? Wouldn't that suggest something that is not true?

How is it not true? All these numbers are relative, and you can make the choice of comparing them to whatever reference point you want.

The y-axis has actual meaning: it tells you the purchasing power of a public stock, which will never be 0.

What you could do is normalize it by the value of the stock at the start of the chart, which would make the charts start at 1. On a log plot this is the equivalent of dividing all the values by the starting value, which moves the lines up/down but does not change their shape. This could make it easier to compare the lines, but in doing so, you throw out information (the real value of the y axis).

> The y-axis has actual meaning: it tells you the purchasing power of a public stock, which will never be 0.

If we are trying to visualize the total return of a given asset since 1987, how is the price of a single stock (an arbitrary unit) in 1987 or any time since, relevant data?

The ROI expressed as a percentage on the y axis (with 0% at the beginning of the period) would be a much better visualization of the relative returns among asset classes throughout the period.

Currently I get USD < VBMXFX < VFINX at the beginning of the chart, for reasons that have nothing to do with the total return since 1987.

The drawdown chart is even more confusing with the USD starting at -81%. If we were plotting a chart of drawdown of multiple currencies, the older ones would start lower (since they've had more time to be affected by inflation) which only makes it hard to visualize the answer to the question "how did they do since 1987".

As another commenter points out, it completely depends on what feature of the data you're trying to highlight, or what question you're trying to answer.

I don't think anyone looking at this chart really cares about the inflation-adjusted value of one share in a specific year, I think the main point of this chart is the real returns of stocks, bonds and cash (or an approximation of such represented by the selected indices), over time.

I had the same thought. Having each assets start from the same value (eg. 100k USD) would really help.

You don't really need that on a logarithmic plot since the ratio of stock prices is always a constant vertical separation. It is very necessary on linear pricing plots.

Can you tell at a glance which asset had a better return since the start date until March of 2009? A plot of total ROI (with all assets starting at y = 0) would make that obvious (for any given end date).

As far as I can tell, the different intercepts just add noise (price of a single stock) that is not helpful to visualize what the plot is supposed to be showing (total returns).

To within a fraction of a percent? Probably not, but to within a reasonable fraction of total performance over 13 years... yes. Look at the initial separation and the final separation and see if the are larger or smaller or look the same. If you can't see it, use a larger monitor. I'd see the point of scaling them when looking at VFISX vs GOOG since there would be a huge range on the scale, but even there you can see the current draw downs are very similar (38% vs 28%). So you can see a 10% (<1% per year) difference in performance between things with a 250x range.

Look at the link for VFISX,VFITX,VUSTX where they start with a ~100% separation (4,5.5,8) and end with very low separation (<+/-3%). In June of 2020 there's a blip where VUSTX goes up 20-25% over VFISX (about a quarter of the original separation) and VFITX is about a third of that or 7-8% over VFISX. So you can see ~3% difference in performance over 12 years or (0.25% annualized).

> To within a fraction of a percent? Probably not, but to within a reasonable fraction of total performance over 13 years... yes.

You didn't answer my question. Could you tell which one had larger returns from the beginning of the period until March of 2009? I couldn't easily tell, and yet VMBFX has a total return of 127% and VFINX 89%

If the goal is to demonstrate relative performance over time, wouldn't it be useful to use a normalization such that all lines either start at the same point (e.g. simulating investing X amount) or ending at the same point (showing requirement to get to X final amount)?

I think that's a reasonable idea and I may try including that option in the future. Right now, the start point is quite arbitrary: it's the first date where we have data for all the symbols requested. And date ranges dramatically affect any sort of relative performance comparison. So in the current code I decided to just normalize to today's nominal-dollar value so that the end values are relatable.

What would the ideal UX be on this?

If you want to have ragged starting information displaying pricing information for the various symbols in the range they're defined, I'd assume it's much more common that there's different start dates, but they're all defined for today. So, you could have a single checkbox to normalize based upon equal value at today's value and I'd default to having that on. As your baguette argument about the absolute values not having huge significance still applies it seems like it would work with no other modifications (i.e. it doesn't matter that it could require fractional shares and the like).

Just index it all to the same starting value, which will have the same effect. I don't think this works for the drawdown chart but works for the total return chart.

Usually in economic and financial reporting you show multiple return series by saying, for example, 1989 = 100 and then showing the total return from there for multiple series in the same chart.

Start every asset at 100k? I might be oversimplifying something, but it would really help to see how each asset performed over time.

Growth of $10K (growth of a hypothetical $10,000 investment) is a chart that is commonly-used to illustrate this. Your chart would then have VFINX, VBMFX, and USDOLLAR start with $10,000 on 1987-08-03 and go from there.

Showing $10k way back in the day would be a bit misleading since every graph starts in a different day and the whole idea is that inflation makes $10k translate to different real world value (baguettes) across time.

It could instead show how much back at the start date one would need for it to be todays $10k? Not sure. Maybe absulute dolar values should just be ommited and work only off percentages.

Isn't the comparison of relative performance in the trend line? That's a year over year % change for every asset, so it doesn't matter what value you start with.

Yeah it's the trendline's slope, but it might be a bit hard to compare them since the angles are not that dissimilar.

Wish it had the 70s, or ideally, the whole 20th century. The 80s-2010s has been a period of unusually low inflation and consistent market returns, buoyed by the end of the Cold War and entry of the developing world into the world economy. There's a good chance that we revert to the mean going forwards and see much more geopolitical instability and resource constraints.

So, what does a young person do these days?

First few years out of college were just "max out 401k contributions into some target fund" + build emergency fund, but now that I've amassed more cash than what an emergency fund requires, what does one do?

Originally, my plan was to use it for a house down-payment, but with the mortgage rates having nearly doubled in the last 6 months, that's kind of out of the question at this point (especially having moved to a higher property value area to be closer to friends and family).

Everything I've seen in the news for last few months just seems to say "sorry, the last 50 years was a gravy train, it'll never work that way again, you're screwed".

Both my parents' and grandparents' entire careers existed (or to this point existed) during the "good times", so I'm honestly feeling like I can't just take their advice directly.

Part of me wants to leave my present (tech) job and move to a FAANG type company (for the pay increase), but with all the uncertainty on the horizon, are the big tech companies going to maintain their current headcount or salaries if another '08 style recession (or worse) hits? How stable are their revenues if people start spending way less money on things?

Go for the house down payment and refinance once the rates go down. A few percentage points aren’t going to make much difference near term.

To me, <~6% APR is still a buy signal.

You do the same thing that was recommended for the past 100 years, invest in VTI and chill.

House prices are at a peak and stocks are in a trough. Try to make clear economic decisions and don't be enamored with home ownership. A house is a huge illiquid asset that you can live in. There's calculators out there to use but know that buying a house usually only makes sense if you're definitely staying for at least 10 years. And don't be swayed by headlines. Big tech is doing extremely well and isn't slowing down.

The only time stocks have been this expensive was just before the great depression and just before 2008. They are practically the most overvalued they've ever been, ignoring the last year or two of QE, which were intuitively overpriced. Thinking they are cheap now is how you get burned.

By what metric? The P/E ration for the S&P 500 is not historically very high right now.

By just about every metric. Only bested by 2000 and 1929 for some metrics.

https://www.advisorperspectives.com/dshort/updates/2022/07/0...

> So, what does a young person do these days?

Barbell investing from Taleb makes the most sense to me. Cap your downside, go balls out with the rest.

And prioritize long-term assets over cashflow. Revenue generating assets are best.

> Cap your downside, go balls out with the rest.

This doesn’t mean anything to me. Can you elaborate? Also, why are revenue generating assets better, and doesn’t pursuing revenue generating assets imply prioritizing cash flow? Sorry for the noob questions.

> This doesn’t mean anything to me. Can you elaborate?

Taleb elaborates better in his very accessible book(s). The basic idea is to invest/use most of your net worth in “safe” investments, those primarily keeping up with inflation or just barely beating it. If shit hits the fan, you have a cushion to fall back on.

Anything beyond keeping you safe and comfortable enough should go chasing the highest returns possible. So you can partake in as much upside as possible.

Startup comp follows this logic. Enough salary to fund your life and basic savings, equity to chase high upside.

Revenue generating assets are nice because you don’t just need to sell for a higher price to make a return. They have intrinsic value. For example owning a profitable business or a rental property.

Thanks for the explanation. That was very concise and accessible!

Can you recommend a specific book that discusses this in the context of private investors? I have read a couple of books from Taleb and he only talks about similar strategies for investment firms.

Don't buy a house until the real estate market crashes. Then buy.

I bought a fixer-upper in 2008 for 200k; sold it for 425k 5 years later. Recently it sold for 650k (we still get redfin notifications.) In the meantime I bought a house for 625k (nice house with some rough edges) and sold it 18 months ago in covid real estate madness for 950k. We certainly put money into both houses over time, but we'd never have been able to do what we did had we not started at the bottom of the market.

Wait a year or two.

What if the house market crashes in 10 years? Live in a car for 10 years?

Are "buy" and "live in a car" the only two options?

You can rent, but that's money wasted. The longer you rent, the longer you didn't invest. Also rents are higher than mortgage payments, making it worse.

But are rents higher than the mortgage + insurance + maintenance + lack of liquidity + the potential home value changes. If the expectations is that the home value are dropping, the math seems pretty simple.

But in a different financial environment, maybe a few years from now, your expectations might be different and the math works out differently

Yes, in Netherlands, rents are higher than mortgage + insurance + maintenance + taxes - tax breaks. That's why everyone wants a house.

A bit odd that you talk about liquidity. The house itself isn't liquid, but you finance it so you don't need a huge liquidity up front. Also, rents paid are no longer liquid to you either.

A mortgage ends one day. Rents do not.

House prices increase 20% year on year in Amsterdam. Even during the 2008 financial crisis did they barely drop in value.

If rent really is lower than the mortgage payment (assuming the alternative return on the downpayment is taken into account, etc) for an equivalent property, then buying is pretty reasonable in most circumstances.

I'm observing rents way, way below mortgages, but it's very location dependent.

When making decisions about where to put my money, I stopped worrying about what other people are going to do and are doing, what the market might do, etc, and instead think what makes _sense_ for me to do. If some expense makes sense for me, offers good value, etc, independent of attempting to prognosticate the future, it probably does for others as well and the investment will probably work out fine. If it doesn't, it doesn't matter, it still made sense for me to do it.

For me, this has meant buying a house when lots of my peers were running scared at what turned out to be the bottom of the housing market, selling one recently, and renting for the moment. In each case, this was just the cheaper and 'sensible' approach. I think people overcomplicated this stuff.

In the Netherlands, there are no places where rents are below mortgages. Unless you apply for social housing, but that requires you to be below a certain income threshold, which means that you couldn't have bought a house anyway. Social housing also have 20 years waiting list.

That sounds really weird. In Germany an apartment that rents for about €1000 would sell for €400,000 or so, which means a mortgage would cost 2 to 3 times more (with a 20% down-payment). This is with a 2% interest rate.

How does the math work in the Netherlands?

An apartment that's worth about €400,000 rents for about €1,550. The equivalent mortgage with 3.85% interest is €1875, but becomes about €1426 after tax breaks. The 10% down payment can and often is financed too. This leaves about €10,000 of notary fees and taxes that you have to pay yourself.

Interest rates used to be lower so the mortgage used to be much cheaper.

If the real estate market is near a local maximum, then rent is still a better deal, for now, with your numbers. Upkeep, hoa fees, insurance on an apartment very likely sum to more than €124/mo. That said, of course, if the real estate market is still going to grow by a significant percent, and you time selling correctly, then you could make money by owning.

> that's money wasted

Just wait until you see how much is wasted in a 30 year loan. These decisions often comes down to life style.

Yes you pay interest. But how is that any worse than the mortgage?

I really hate this mindset. I rented for about a decade. Renting allowed me to bounce around from job to job in various cities and grow my career. Had I owned houses during that time I would have lost money due to the transaction cost overhead. I was also not responsible for any upkeep, which I'm not well suited for anyway. Oh and I absolutely did invest. My money was simply invested in the stock market which had a far higher rate of return than the housing market.

I own today, but I'm well ahead of most of my peers that bought houses right out of college.

Yes people who move often shouldn't buy. No disagreement there. But that's like saying that you shouldn't invest in stocks because if you sell in a year then it's probably at a loss. Investments are to be held for a long period.

As for investing: you invested what you had left after rent, but you didn't invest what you paid in rent. With a mortgage, you are investing the mortage payment minus interest, and you can still invest what you have left.

Buy small. Get a mobile home.

> Wait a year or two.

The real estate market won't crash, and it especially won't crash in high-demand areas (Southern California, the Bay Area, Atlanta, SoFlo, Colorado, etc.). We'll likely see a steep-ish correction in "second-tier" markets, like the ones in Texas, Tennessee, and the Rust Belt (Pittsburgh comes to mind).

If history repeats itself you are dead wrong. During 2008 the Texas market barely flinched while California and Florida was tanking. I think Texas won’t budge much again considering the consistent flow of people and jobs to Texas in pretty much every major city.

I hope so, it makes no sense how much houses appreciated in 1 year during COVID without lifting a finger to improve the property.

> Wait a year or two.

The Great Financial Crisis will be the only event of this nature in our lifetimes. The country would need to overbuild like crazy to cause housing to crash like that again.

Everyone is expecting housing prices to fall in "a year or two." I've been hearing this for two years now. The market has a habit of doing the opposite of what people expect it to.

Housing prices are correcting now, at least in some areas. It's definitely happening in AZ. I've seen drops of almost 15%.

OpenDoor has been taking a loss on a lot of properties it bought over the past few months too.

Considering inventory is up over 2X YOY as well, I expect prices to fall even further here. I'm not sure if it'll get as bad as 08 though, but a 30-40% drop isn't out of the question the way things are headed imo.

The thing is though with rates as high as they are, housing prices dropping this much actually doesn't make affordability any better unless you can pay in cash.

> OpenDoor has been taking a loss on a lot of properties it bought over the past few months too.

I don't understand how they are able to stay solvent. It's gotta be VC money keeping them alive, right?

Not sure where you are, but California at least has clear up/down cycles, but they take many years unlike a stock bubble.

E.g. I the last housing bubble started popping in 2005-2006, but didn't bottom until about 2010-11

Yep, it'll take a long time to bottom. That said, I'm surprised how much things have already fallen in AZ. Some of the properties with 10% price cuts, have been sitting on the market for over 2 months. Demand has fallen off a cliff here. I can't see how it gets any better with the Fed continuing to rate rates.

As cheap debt dries up there are less people that are able to pay the high price for a house. If the Fed keeps raising the federal funds rate it is a near certainty that home prices are going to fall, on average, due to lack of buyers.

There's too much demand for housing for this to happen. Worst case, they go down 5-10% in the hardest hit areas, but most places are going to see low or no growth even if rates hit 7%.

Wow congrats on pulling this off, I wish I can do this too but the homes are still $8-900k like your example and it just makes no sense to buy unless it cools down to 600’s, which seems like it may never happen. I sure as hell am not paying 900-1 mill for these homes that need a ton of work and are 50+ years old sigh

> Everything I've seen in the news for last few months just seems to say "sorry, the last 50 years was a gravy train, it'll never work that way again, you're screwed".

I first came to Palo Alto in 1984. All the houses were underwater (worth less than their mortgages). The tech boom was over and consensus was that it wasn’t coming back. Too bad you missed that!

Just keep investing (dollar cost averaging). Pick your poison: “barbell” as some other comments have suggested or just a couple of very broad index funds. Since you have a long time ahead of you, I’d recommend the latter. You can spend some of it on a down payment when that makes sense to you.

People tend to not appreciate the struggles that the people before us had. We are looking at their situation with the absolute knowledge that things got better.

We distort the lives of those in the past much in the same way do the people we follow on social media.

Also survivorship bias. We tend to forget the people that died penniless and alone.

> Originally, my plan was to use it for a house down-payment, but with the mortgage rates having nearly doubled in the last 6 months, that's kind of out of the question at this point (especially having moved to a higher property value area to be closer to friends and family).

Higher interest rates lead to lower home prices, which should make it easier to make a down payment. Interest rates may double, but mortgage payment amounts typically end up staying the same. You are in a prime position to buy a house. In the next 30 years, mortgage rates will likely decrease and you can refinance to a better rate, and end up paying a lower price for your house than what you would have had mortgage rates stayed low.

That's what my plan is. Just waiting/hoping housing prices drop within the next year or two. Been waiting a while now though so who knows if they'll actually come down

It will be tough finding where the sweet spot is of lowest prices vs still acceptable interest rates.

Home prices are coming down in my area of Portland, OR, which was already an overpriced market. Homes have been on the market much longer, and several homes have had price reductions in my neighborhood. Ultimately though, I wouldn't try timing the market, if you can afford the down payment, and the monthly, and like the house, I'd go for it. Always time to refinance later.

Portland got some pretty negative press in the last few years.

I barely knew Portland existed before that and now I just know I wouldn't want to settle there.

Real estate seems still up in general, I assume because of a mix of inflation and BlackRock / investors overpaying for it to escape all the other failing assets

Aren’t they building multi-tenant buildings like crazy that are sitting vacant cause of the huge rent prices?

> now that I've amassed more cash than what an emergency fund requires, what does one do?

Pick a few things you can put your money into, which you have confidence won't lose value given a long enough time horizon. For me, this is SPY (highest alpha but needs 10 years to recover). The traditional 60/40 SPY/TLT mix is great. Currency funds also good. VTI & chill is good. Right now the Euro has Dollar parity (ECB isn't fighting inflation aggressively and won't start reducing its balance sheet for a while), maybe throw some of that into the mix.

Sell covered calls to reduce your cost basis.

Don't spend cash. Invest cash, borrow against it at favorable interest rates, and make purchases with the borrowed money. SBLOC, portfolio margin (>100k) can unlock some cheap (75bp above prime) cash.

If I could send a message to myself 20 years ago it would be the above.

All of my words are nonsense, nothing in this comment shall be construed as professional or financial advice. I've been excessively stupid with money far longer than I should.

This sounds like hard fought knowledge, where can I start to build a good foundation for understanding the financial terminology you posted? Thanks for sharing.

I like Bogleheads: https://www.bogleheads.org/wiki/Getting_started

The wiki and forums are great resources.

Born too late to buy 20k House. Born just in time for 20k Bitcoin.

IIRC the book ‘Common Sense on Mutual Funds’ has data going that far back with charts. I believe the period from the start of the 20th century until the 70s had similar inflation adjusted returns. However, for the early data I think it was really just measuring the largest companies in the country that made up the original Dow. Although, the author argues that’s a fine comparison because the 30 largest companies in the country represent the large majority of the top 500 index in terms of cap today— he further argues that over the long term small cap and large cap stocks give similar returns regardless.

The problem with these kind of charts is the implicit message that history is the future. America have been on the dominant financial and militaristic force in the world for the last century and its equities have reflected that strength.

Would it continue to be the same for the next century? Who knows! Ray Dalio and the Maxis think otherwise. Good work OP though!

Thank you. :)

I agree with the "Who knows!" and that we've benefited from a lot of favorable tailwinds, which are quite uncertain for the future.

The implicit positivity partially comes from looking at indexes, rather than individual companies. If you look at any specific companies that may have been unstoppable corporate giants in decades past (maybe try https://totalrealreturns.com/s/GE https://totalrealreturns.com/s/X https://totalrealreturns.com/s/F for example?) the idea of limitless growth becomes much more uncertain.

> Portfolio emphasizing U.S. and foreign large- and mid-capitalization value stocks.

VFINX is not composed exclusively of US stocks.

It’s an S&P500 fund; that is composed (exclusively) of large cap US stocks.

That's not true. It's MOSTLY large cap US stocks, but it has some mid-caps, pretty much regardless of how you define mid-caps.

S&P publish a mid-cap index: the S&P400. It doesn't overlap the S&P500[1]. You have to have a generous definition of mid-cap to describe even the smallest S&P500 component as mid-cap. The 500th component has a market cap of ~$6B.

Regardless, they're all US stocks; the comment I was responding to claimed they were not.

[1]: https://www.spglobal.com/spdji/en/images/campaign/707133-us-...

LOL.

First the S&P 500 captures 80% of the entire US market, 80%! [0]

Second, 6B is well within the middle of the Mid-cap range for at least one common definition: "Mid-cap (or mid-capitalization) is the term that is used to designate companies with a market cap (capitalization)—or market value—between $2 and $10 billion. " [1]

Now some people might define mid-cap differently(and S&P tries to), but that doesn't change the math. If 80% of the US market is the S&P 500, then by definition some mid-cap has to be in there, or one has a very distorted view of what the middle means.

US public companies are giant these days. Of course there are mid-cap only indexes(and funds), that has nothing to do with the S&P 500 though.

As for all US stocks, it definitely depends on how one defines a US stock. S&P obviously has their definition, and it may or may not agree with your personal definition, but I generally agree that the S&P 500 is basically US companies.

0: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#ove... 1: https://www.investopedia.com/terms/m/midcapstock.asp

Not according to Vanguard[0] (the link is for VFIAX but that's just the admiral fund), the quote I gave was from Vanguard's own description of the fund's composition.

You can take it up with Vanguard why they describe the fund as I've quoted[1].

[0] https://investor.vanguard.com/investment-products/mutual-fun...

[1] https://support.vanguard.com/

Vanguard notoriously calls mid-caps "small," e.g., VB. Anyway, they're not the ones who select S&P500 index components. I love Vanguard, but this is one case where they're kind of off-base.

So Vanguard (venerated investment institution for 50 years) is wrong and you (random HN commenter) are right?

Sure, okay.

This is a really weak way to think or see the the world. Regardless of who is correct in this specific situation.

No, it very much is not. It's literally how all education works, for example.

You’re sticking to the same logic of blind trust to tradition and authority

Who said anything about blind or tradition? That seems like stuff you injected into this convo, not me.

I trust institutions who have a strong track record of predictiveness and desirable outcomes. Vanguard has both in spades, and has earned their authority. If they stop accurately predicting future behavior and/or stop producing desirable outcomes, that will change their authority on matters of investing.

Not trusting predictiveness and desirable outcomes seems prone to bias. If your alternative is that you only trust yourself, that seems like both a paranoid and privileged outlook, given how much time and how many resources you'd need to expend to gain even half of the knowledge Vanguard as an institution has about operating as an investment advisor.

Your previous comment was about both. Saying that’s how all education works.

No, "education" as a concept does not mean either of those things.

Vanguard tracks the index. The index are US large caps. In this case OP is right and vanguard is wrong. You should do a little research before you display such ignorance.

Do my research, you say?

Like, find a company in the S&P 500[0] that is not an American company? A company named, oh I dunno, Linde plc, which trades as $LIN and was founded in Germany[1] and currently has its headquarters in the UK?

So on the technical merits, what I said was correct, the S&P 500 does indeed have non-US stocks. Further, on the general thrust of my point, that the S&P 500 has exposure to international markets, that also holds true, something like 71% US and 29% international based on some cursory research [2].

But please, continue to lecture me on my ignorance. :)

[0] https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

[1] https://en.wikipedia.org/wiki/Linde_plc

[2] https://www.spglobal.com/en/research-insights/articles/daily...

Perhaps Gold should be on the front page, as it is always mentioned as a supposed inflation hedge.

also https://www.portfoliovisualizer.com/backtest-asset-class-all... has stock data back to 1971, it would be nice to go back that far.

While it's not a security and summarizing its returns is more complex, it would also be interesting to see "home ownership."

Wondering whether the Case-Shiller index would be good for this. The problem with RE is broad heterogeneity.

Here's an example link: https://www.portfoliovisualizer.com/backtest-asset-class-all...

If you scroll down, under the "Portfolio Growth" chart, you can check "inflation adjusted" to get a common start, something TFA doesn't have.

As of today, you need about 12% returns to break even after inflation and the IRS eat your return. Anything less than that and you are effectively losing. Especially annoying that capital gains taxes will be paid on any profits, even those less than inflation. Time for a new rule.

Wouldn't you lose more just by sitting on cash? Even now?

Yeah, unless you have it earmarked for something today it isn’t worth having cash lying around except for buffer funds. It’s a bad time all around right now. Best off sitting on investments for the foreseeable future.

You can get ROIs better than the stock market.

Some examples are education, and if you own a home, an energy audit.

Inflation is a good reason why long term capital gains rates are lower than income tax rates.

You can argue about the timeframe and getting the whole break after 1 year versus maybe giving larger breaks the longer you hold, but that’s the weeds.

Principal should be adjusted for inflation. If I invest $10k and the investment is worth $11k today but we’ve experienced 10% inflation in that time then my actual profit is 0 and I should pay no tax on the $1k of proceeds.

Why should investors get an inflation shield that wage-workers don't?

Because wage-workers can also be investors and receive capital gains on their investments.

You pay capital gains on your investments. You can make an investment even if you're not wealthy.

I support minimum wages adjusting for inflation. Keep in mind most wage workers don’t pay taxes. And in fact actually receive credits which give them more back than they paid in. I’m not against that but it should be considered. If anything, include an inflation credit.

Most individuals have the majority of their stocks in tax advantaged accounts.

The trick is the to get those inflation-adjusted returns you need 100% time exposure. No selling because circumstances force you to. No selling because you get spooked at a 50% drawdown. Not many people can tolerate even a 20% hit, which explains a lot about the situation the world economy finds itself in.

This is why I don't follow how my portfolio is doing, knowing doesn't give me much actual information and can often encourage bad behavior (admittedly I don't have many investments compared to many).

I'm with you.

I consider this an area where the burden of knowledge will hit you pretty hard. Time suck along with stress, and performing at best case a few percent over an automated "MODERATE RISK" button.

I don't have any more time in my life to track anything with the degree that it would take to "be good" at it.

My philosophy is essentially buy low, hold forever.

I don't put money that I might realistically need in the market

I mean… that defeats the point, no? Surely you must plan to use the money at some point, even if that is just enjoying the end of your days. That's still a time horizon.

> I don't put money that I might realistically need in the market

While it's great that you might have a time horizon far, far into the future, not everyone has that luxury. In theory, I'm supposed to purchase a home & start a family around this point in my life, so that's a rather quick time horizon for at least some portion of my wealth.

I think you have a point. I should have been more clear. What I'm saying is I don't account for anticipated withdraw when investing. That's not to say I don't or won't do it, just that it's not a consideration when putting the money in.

I treat the question of if I can afford to take money out or if it is a good time to take money out as an entirely separate topic.

I found that trying to optimize investing and weigh risks for a short-term Horizon will drive you crazy.

My strategy is to ignore it until about my late 40s early 50s and then start slowly cycling it over into more reasonable investments and bonds.

You're right, and the conventional advice has been to have a mix of stocks and bonds, with bonds to reduce volatility and preserve some of the wealth that you might need to access in the shorter term. However, what's unusual about the past few months is that bonds have been getting whacked too!

Here's a comparison of four Vanguard funds, with stock:bond ratios of 80:20, 60:40, 40:60, 20:80 respectively: https://totalrealreturns.com/s/VASGX,VSMGX,VSCGX,VASIX What I find interesting is that they are all experiencing significant and comparable drawdowns right now.

Here are treasury bonds with a comparison between duration: https://totalrealreturns.com/s/VFISX,VFITX,VUSTX

And here are corporate bonds with a comparison between duration: https://totalrealreturns.com/s/VFSTX,VFICX,VWESX

Even inflation-protected bonds (TIPS) are in trouble: https://totalrealreturns.com/s/VIPSX

So right now, bonds are not doing much to provide the short-term real wealth preservation that lets people take the 100% time exposure risk.

Bond funds are different than bonds. With bonds, you can hold them to maturity and not get whacked.

You can hold bond funds to the maturity date of the underlying bonds and get the same result (minus fees).

But in either case, you still get whacked with inflation, which would show up on this chart as a drop.

At an individual bonds maturity I get the full principal back. How do I do that principal back from a bond fund if the value has dropped due to the macro environment?

The value will have dropped, but the distributions/dividends you got in the meantime will have made up the difference. The fund and its underlying holdings must end up even in the end (minus fees).

I'm of the old school bogleheads mentality. I've typically been ageInBonds since I started investing after the great recession. While I expect poor stock performance, I am pretty shook by the poor returns on bonds. I accepted years of poor performance with the expectation that they would cushion the blow during the next recession, and they have done nothing.

I don't know how long, or how bad this recession will be, but I will likely be much less willing to hold bonds going forward.

Sorry for your investment woes.

I think part of the problem is established dogma (and regulatory regime) that believes bonds offer diversification from stocks. However this seems to have broken down post 2008, as they have become increasingly correlated.

Imho it's healthy to expect that market regimes change, especially since we do not operate in free market, but a semi-intervined market (where the Fed sets the price of money which is an incredibly important input to the global economy).

I also think it's important to not think of diversification in terms of asset classes anymore, but in terms of alpha source.

I know this is much harder to do because, as far as I know, only by actively trading can you isolate and quantify alpha sources like this.

Bonds have been the only thing backstopping my 401k from taking the bigger hit that equities have taken, the Vanguard 500 portion itself is down 21% or something and total I'm still down 16% or something like that YTD.

I'm guessing it's the "real returns with investment" that is painful here... bonds may not be losing (as) much but they're also not keeping pace with 10-15% annualized inflation either.

Due to the way energy prices (which are a massive component of everything else too) are factored out of CPI, even TIPS probably has negative real returns at this point compared to reality. Is there a non-CPI TIPS equivalent, lol?

> No selling because you get spooked at a 50% drawdown.

This is common-sense trading advice anyway. If short-term losses spook you into selling, you're probably doing too much stock-picking and are not long enough.

In fact, this is the often-cited reason that active investors can't beat index funds consistently.

I tried to look at QQQ to see the performance of the Nasdaq 100 with dividends reinvested:

https://www.tradingview.com/chart/?symbol=NASDAQ%3AQQQ

But the difference is so small. Nasdaq 100 even performing better. Does QQQ pay out dividends or does the management fee eat up so much that the dividends get cancelled out?

Since the development is so similar to the index, I guess they pay dividends.

How can one see the Nasdaq 100 performance with dividends reinvested?

QQQ does pay quarterly dividends.

Needs a way to specify the time range. As you mention on the page, the trend lines are very dependent on the time range.

I also just requested this via the feature request form in the footer of the site

How can everything go down at once, doesn't the money have to go somewhere?

Best hypotheses so far along with how to test them:

1. Perhaps the parts of the CPI that companies in the stock market can produce are being outpaced by the components that are not produced, like real estate, and so can't contribute to an increase in share prices. (How to check: Look up changes in the CPI components, which are detailed in the reports.) (Edit: This does not hold up, almost all the increases are in energy, which is produced and held in reserve by public companies.)

2. Perhaps the consumer goods in the CPI are increasing in price far more rapidly than prices of goods and services overall, leading to an underestimate of the value of the dollar to anyone except a consumer. (How to check: Since capital goods are eventually used to make consumer goods, this should eventually correct itself. Also, is there a broader version of the CPI?) (Edit: This might be it, although energy is 8% of the CPI and GDP, it is only 4% of the S&P 500.)

3. Perhaps money is leaving the USD, US bonds, and US stocks and going somewhere else. (How to check: Make these same charts but with broader indices.)

Money (cash) is not wealth. Wealth can be created, or destroyed. The clearest explanation I've read for this was a PG essay: http://www.paulgraham.com/wealth.html specifically the "Money Is Not Wealth", "The Pie Fallacy", and "Craftsmen" sections. Of course this essay has a positive/optimistic take on it, but certainly wealth can be destroyed as well.

That's true, but I am not aware of any wealth indices, only price indices, and price indices can only increase and decrease relative to each other.

> I am not aware of any wealth indices

Term you’re looking for is “benchmark.”

Short unambiguous answer is yes. However, the destination doesn’t have to be limited to stock/bond markets. Think property, gold or toilet paper rolls. Last one is a joke.

It’s hard to accurately measure investments flowing into property (what part of the world?). There are many variables to consider and I don’t think there’s a single trend that will end up as a winner. My hypothesis is that we will see many (eg. very wealthy doing X in Y country/city, middle class doing A in B country/city, etc).

>Think property, gold or toilet paper rolls. Last one is a joke.

Since corporations produce commodities, wouldn't gold and toilet paper be on the stock market?

I guess gold reserves (as opposed to production) and property would have a lot of ownership outside the S&P 500. I wonder if there are any super-broad indices that include them in a cap-weighted form.

The stock prices capture sentiment. The price people are willing to pay given all the other places their money could go.

People are selling in anticipation of the market going lower, to cover debts, to take advantage of lower asset prices, opportunity costs, margin calls, etc.

When they sell they're wanting money, an equal amount of money to the stock they're selling. That should make the dollar go up by the amount the stock went down.

(I don't really believe this, because it clearly does not describe the chart, but it makes sense and I want to understand why it doesn't work like that.)

Because money is a notational bookkeeping exercise at this point in time and has been since the dollar went off the gold standard. It can't be affected by demand for things as small as stocks, but only its relative demand to other notational currencies.

The total US stock market cap is $45T[1] and M2 is $20T[2]. Are you sure currency prices can't be influenced by the stock market?

[1] https://www.statista.com/statistics/1277195/nyse-nasdaq-comp... [2] https://www.federalreserve.gov/releases/h6/current/default.h...

I think that just furthers the point- there isn't enough 'money' in M2 to 'pay' for all the stocks in the stock market. Yet there that value sits and real estate is another 20+ trillion in land value.

In other words the actual 'money' is a transactional grease for the wheels of commerce- notational/bookkeeping mechanism.

The sale of Apple (the largest value stock in America) as a whole probably couldn't be accomplished in cash only, but even if it was, it'd be mostly notational numbers in an account somewhere and wouldn't 'flood the market' with dollars and crash the value of the currency.

A change in preferences from holding dollar reserves to holding stocks could change the value of the USD, that's what I am saying.

Change in preferring the Yen or the Euro, maybe, but I've never read/seen anything that would reinforce the idea that the dollar would be weakened by preference for holding other assets whose values are ultimately figured by their worth _in dollars_.

Except that you've got a Federal Reserve actively ensuring that there aren't too many (or too few) dollars in circulation for the level of interest rate they want to maintain. They do it by buying and selling bonds rather than stocks, but the principle is the same. So we don't have to worry about shifts in portfolio preferences leading to an unexpected oversupply or undersupply of dollars

But more people wanting to hold AAPL instead of hold cash absolutely will reduce the amount of AAPL stock your $1k is able to buy, of course

Maintaining an interest rate isn't the same as maintaining a fixed rate of CPI growth, especially not in the short run.

Sure, but we're not talking about fixing the rate of CPI growth (stock prices aren't a constituent part of that and don't have a fixed relationship with it).

We're talking about the effect of wealth holders wanting more of their investments in stocks or more of them in cash on the USD. An increase in demand for the liquidity of currency holdings, or an increase in demand for stocks due to perceived improved returns could affect the dollar through knockon effects on availability of credit, but the interest rate for that credit is the price of the bit the Fed fixes.

Andrew and Barney are shipwrecked on an island with nothing but their clothes, the cash in their wallets, and a book Andrew has. Barney pays Andrew $100 for the book since he hasn't read it but Andrew already had. Later, after finishing it Andrew is able to buy it back for $80 because it's old to both of them but has a bit of sentimental value for Andrew. The dollar denominated wealth on the island has gone down by $20 but the same stuff and same number of dollars are there.

The consumer price index on the island has gone from $100 for the basket of one book, to $80 for the same basket, causing an increase in the measured value of currency equal and opposite to the decline in the price of the good. If you made the CPI more realistic by including other goods on the island, this website would show the dollar go up as the stock market (of booksellers with an interest in book prices) went down.

The book is an asset in this example. CPI isn't relevant, because trading the book does not affect it.

The book doesn't represent any invested capital, so let's not say that it is an asset. Instead, let's say that there are shares in a book making company, tracked in the index, and also books, which will be in the CPI.

The value of being able to make one book per day is linked to the price of a book, which means that on the island, the CPI and the stock market have to rise and fall together. That causes the stock market and currency to move inversely.

Do you want an answer to your original question or do you want to try and argue that the stock market and currency move inversely?

Because if you want an answer, you aren't making changes to the example that will help you understand. You're introducing confusing factors that are not needed. The original example gave a neat little illustration of how wealth-as-measured can drop without money disappearing. Don't bring CPI in to it (and stock prices don't drive the CPI so that is a reasonable assumption).

If you want to argue that the two move inversely then go ahead and don't mind me, but you might like to add in some evidence or case studies. And you'll need to be precise about real vs nominal, and probably start modelling other effects.

My original question was how wealth-as-measured could disappear when dollars were included, not how demand for stocks could shift to demand for dollars. In a market with one good, the value of a dollar must move inversely with the value of the good (no examples needed, it's mathematically tautological) - and that is not what we see happening on the linked page. That's what my question is.

> In a market with one good, the value of a dollar must move inversely with the value of the good (no examples needed, it's mathematically tautological)

this is incorrect

I mean the value of the dollar as measured by the CPI.

You do mean that, but it doesn't have a lot of bearing on the correctness of your argument. I suspect you've assumed that wealth is neither created or destroyed somewhere in your logic, because what you are saying would make sense if that was an assumption. But that would be a poor assumption if you've made it.

CPI is a tool for adjusting the value of a dollar, but it doesn't have any bearing on the value of the total economy vs the value of all the dollars in existence. All the dollars in existence might buy the entire economy many times over or they might buy a tiny fraction of it. And that ratio changes continuously (both from money creation and economic activity). There is no inverse relationship mediated by the CPI.

There are three charts on the linked website - bonds, dollars and stocks. None of them are exactly measures of wealth. My question is about how their properties as mutual numeraires could allow them to all fall at the same time.

People are willing to pay fewer dollars for each asset class.

People can't be willing to pay fewer dollars for the third asset class, which is dollars.

tautologically the price of one dollar will always be one dollar but they can be less willing to spend those dollars on anything, and simultaneously less willing to sell assets they already own for dollars.

you absolutely can pay fewer dollars for dollars delivered at some point in the future

I liked this explanation. Although to attach to it - in this example the price of the book is set by magic/intuition to illustrate the effect. In the real world, the prices are set by less flexible forces of supply, demand and people estimating valuation - usually in a way that means the price has to fall in some relatively narrow band. But after the dust settles on those inflexible forces, it ends up looking the same as this example.

I would expect the demand for the book to go down since the entire population has read it.

Of course, you could use the pages to help start a fire for warmth or cooking fish you will be catching.

Recent noahpinion episode about this very topic:

https://noahpinion.substack.com/p/where-does-the-wealth-go-w...

According to that explanation, the index value of a dollar should still go up when the price of all assets goes down.

Money doesn't go into the stock market. If you buy a stock from me today, I can use the exact same money to buy bread tomorrow. That money keeps circulating in the economy, it doesn't go into or out of the stock market.

Exactly. The current stock price is just the last price it traded at, or some measure of supposed liquidity or depth in the market at some price. That liquidity just exists as unfilled orders or quotes on the order book on an exchange and can vanish in an instant.

The other thing is that buying stock for a company A isn't the same as "investing in" company A, since company A doesn't get your money...it's a secondary market!

As buffet says, the stock market is a voting machine in the short term and a weighing machine in the long-term.

It circulates in theory. In practice people keep saving ever greater amounts of money.

> How can everything go down at once, doesn't the money have to go somewhere?

How can everything go up at once, doesn't the money have to come from somewhere?

Certainly we can have everything go up whenever we find more resources than we consume. Natural resources, when exploited create value for all. A more energy and resource rich world causes everything to go up.

Why is it so hard to understand that increasing energy and resource constraints causes everything to go down?

And, more specific to our situation, much of the perceived value is credit. If I owe you $100,000, as long as you know I'll pay, you can consider that part of your value. But if I don't make enough to pay you, suddenly you aren't going to get that money.

Our entire global economy is massively over-leveraged and the only way to maintain that is perpetual growth, in a real sense of having access to ever more energy and resources. When the future delivers less than expected we start seeing that value disappear from the books.

No, the money doesn't have to go anywhere. Nor does it have to come from anywhere when everything goes up at once. Because there is no money involved. It's sort of like asking "where do the pounds go when I lose weight?"

You are conflating using "dollars" when used as a unit to measure the value something, with "dollars" as an asset in the economy when used to conduct trade. This confusion is easy to make (and widespread) because we use the same word for both things.

The vast majority of wealth in an economy is not in monetary form. It's in hard and soft assets: land, buildings, cars/trucks, factories, raw materials, home appliances, copyrights, patents, film libraries, etc. The economic value of all those things is just measured in dollars.

Unrealized gains can simply evaporate. If a crap company has a 1 B valuation and it fails, that money is gone. The value in stockholders portfolio just goes down, not to anywhere in particular.

Total inflation-adjusted returns are what everyone should be looking at when considering investments.

Yet it seems so awfully hard to find that data on stockbrokers sites/apps.

Why?

I agree and that's why I decided to build it :)

I think part of the answer is that: (1) it's very hard to explain what that means to most people ("WTF, why are the historical prices on this chart changing?") beyond simple 2:1 splits, and (2) it's hard to get everyone to agree on what inflation metric to trust/use.

Short answer is some combination of (1) That requires work and then they would have to explain to people and (2) People aren't asking for it.

If you want to roll your own, you can use free data from Yahoo and FRED and get there pretty quick.

You should also consider tax implications. For example, trading equities short-term is awful and PL taxed at income rate. Compare that to buying real estate which has a 101 ways to avoid paying taxes.

Visually it's a really nice looking site. If I may offer one suggestion, it would be to use a minus sign (unicode U+2212) for the negative numbers - by default, for historical pre-unicode reasons, computers tend to use a hyphen instead and it just doesn't look as good, at least to my eye!

Thank you, TIL!

Most stock time series are corporate action adjusted when displayed on a chart. So even if they are in dollars they will reflect total return.

I don't understand the details on how inflation is measured here, but I expected the US Dollar curve to be a constant 1, after the normalization. However, it seems to go down. What does that mean? That the dollar loses value faster than "money is printed"?

You're thinking of the inflation adjustment the wrong way around. A dollar earned in 1980, if, saved until today, buys less than it would have then.

Yes, your second sentence makes sense to me.

I guess I imagined the inflation-adjusted value of X to be defined at time t to be something like: value(X, t) / value(USD, t). So, when I substitute USD for X, I get constant 1.

That was almost right; the correct denominator is value(USD, SOME_FIXED_TIME). Nominal (i.e. non-inflation-adjusted) use value(USD,t) as the denominator implicitly when priced in dollars (hence the term "dollar denominated")

Here's what the site does behind the scenes:

    real_price($ASSET, t) = nominal_price($ASSET, t) * (price_level($NOW) / price_level(t))

Where price_level(t) is the CPI-U series (with interpolation).

If t = $NOW, at the right side of the chart, then the fraction goes to 1, so that

    real_price($ASSET, $NOW) = nominal_price($ASSET, $NOW)

(Though many comments are requesting alternative normalization schemes!)

For cash (USDOLLAR), nominal_price(USDOLLAR, t) = 1 for all t -- the nominal price of a dollar bill is always 1. So https://totalrealreturns.com/s/USDOLLAR is plotting a curve that looks like 1/price_level(t). (Actually it's 1*price_level(now)/price_level(t), because of the normalization above.) And you can download price_level(t) from https://download.bls.gov/pub/time.series/cu/.

What is the Total Real Drawdown chart supposed to show? Does it just reset where 0% is every time the fund reaches a new market high?

Yes, that’s correct.

Seems like a kind of useless visualization?

What I like most about this is the logarithmic plot of prices. That makes multiplicative % return a constant size and allows for easy representation of exponential growth.

Which inflation? If I am earning a thousand bucks a month and all my money goes on fixed costs, and those double, my inflation is 100%.

Clearly they are talking about CPI-U, the common US definition of inflation.

Everyone has their own personal inflation rate, mine in 2021 was 1%. We will see how 2022 turns out, but I'm betting it will go up for me.

Thanks for sharing compumike! Very cool!!

If you don’t mind me asking, why did you choose the Crystal programming language for this project?

Crystal https://crystal-lang.org/ is beautiful, highly performant, concise, powerful, well documented. It has a solid standard library and plenty of "shards" (packages) too. It's really the elegance of writing it that I appreciate the most -- perhaps even more than I get that elegant feeling from Ruby. The code for the standard library is highly readable and well documented, which is awesome.

In working on this project, I discovered two "superpowers" of Crystal:

The first was macros https://crystal-lang.org/reference/1.5/syntax_and_semantics/... which I used sparingly, but to great effect, when an ordinary method call wouldn't do.

The second was monkeypatching: specifically, it's super easy to reopen existing standard library classes and add a field I need, for example:

    # BEGIN MONKEYPATCH
    class HTTP::Server::Context
      property response_body_cache_key : String? = nil
    end
    # END MONKEYPATCH

This adds a new field the standard library HTTP::Server::Context https://github.com/crystal-lang/crystal/blob/1.5.0/src/http/... / https://crystal-lang.org/api/1.5.0/HTTP/Server/Context.html so I can specify a cache key near the beginning of a request handler, and later my response middleware picks it up to store the response body.

Why not use Fed’s preferred measure PCEPI for longer term aggregate inflation adjustments? CPI is not adequate for long term adjustments for a variety of reasons.

The common capital market comparison for these equity returns is against real risk-free returns. That benchmark is largely missing here.

So you used CPI as your inflation measure? I personally don't think CPI or RPI is a good inflation yardstick, because the calculations change over time. For consistency I would suggest you try Shadow Stats or the year on year growth of the M2 money supply.

Shadowstats doesn't know how exponential growth works. The people who believe in shadowstats don't understand it either.

I'm not sure I see the link between understanding exponential growth and Shadow Stats? Shadow Stats holds the CPI definition constant over the time period, whereas Uncle Sam jukes the CPI however way he's feeling for "reasons". The reason why I suggested Shadow Stats was that it seems like compumike is trying to show the change in purchasing power over time with https://totalrealreturns.com/.

It's a fantastic idea trying to make the concept of the time value of money, and purchasing power more accessable to the masses. It probably took a lot of work and I appreciate the effort. Imho the correct way to do this is to hold as many variables constant over the timeseries.

My point is that since official CPI isn't constant, and imho a bad measure of inflation anyway, using M2 or Shadow Stats woudl be the better way to go.

“Rendered by the Crystal programming language in 739 µs.”

Very nice!

One suggestion I would have - it's great that you can drag on the graph to choose a different time period. But the data at the top isn't changed by that change of time period, e.g. https://totalrealreturns.com/s/AAPL stays 1980 to current. Obviously Apple wasn't doing well before the return of Steve Jobs, so it'd be nice to see the data for a shorter time period e.g. in my case I'd love to look at e.g. APPL for 2000 onwards.

Very neat! It's easy to be discouraged seeing how much my investments have fallen in recent months. But this graph makes it seem like the stock market could still be on track, producing slow and steady gains in the long term, when we consider that the crazy bull market of the last couple of years was an aberration. (No guarantees about where the stock market goes from here, of course.)

Now, if only I had a crystal ball, or at least was more in tune with the world of finance so I could have ridden the ups and downs more effectively. ;)

The baguette bit is what made it "click" for me. Thank you!

Aren't dividends taxed? If so, you should have a way to set the tax rate for them so folks can evaluate performance in a taxable account vs tax free.

Huh, so portfoliovisualizer but with slightly more convenient shortcuts built in. Looks neat, but way less powerful than just using portfolio visualiser. I’ve always wondered where the data is sourced; so the exchanges publish this data for all to use, or does everybody have to scrape them together? Obviously if you pay them you’ll get real-time data, but all these free tools do leave me wondering.

I'm paying for https://eodhistoricaldata.com/ API access.

At a glance this seems to show that bonds are in a historic drawdown. Can anyone ELI5 the implications of that?

As with any unprecedented economic phenomena, the full implications are unknown.

For one thing, people retiring right now, who followed the best practice of shifting their portfolio towards bonds, are seeing millions wiped out from their individual retirement accounts.

For a huge amount of would-be retirees, this is the difference between being able to afford retirement and being forced to remain in the workforce in the last years of their lives.

For retirees, it depends. If they are in a target date fund, which most retirees are, the funds adjust their bond holding’s duration to minimize interest rate risk. The target date funds should have lowered the duration of the fixed income portfolio (ie from long dated to short dated) once they approach the target date.

The impact to short duration bond portfolios is not as drastic. A 2-year bond issued at .5% yield will lose maybe 5% in price when interest rate moves up to 3%. This is roughly what happened: https://fred.stlouisfed.org/series/DGS2

This is offtopic but I am tired of pretentious people.

The money supply must grow exponentially because liquidity premiums aka interest payments. You can now either choose to eliminate liquidity premiums and hence abolish inflation and exponential growth in the money supply or you can choose to have inflation and an exponentially growing money supply with endless increases in public debt.

The fact that if the money supply is $100 and 2% interest must be paid which is then subsequently reinvested for compounding obviously requires the economy to keep track of $102. Hence compound interest which is caused by liquidity premiums results in a perpetual increase in the money supply. The fact that governments must borrow money is purely how we decided to run the system right now. You could in theory do helicopter money as well and it would amount to the same.

Now, since positive interest rates result in an increase in the money supply, reducing the money supply requires the opposite, i.e. negative interest rates.

Negative interest rates don't exist because of cash. That is the only reason. People don't want negative interest rates because they actually love the illusion of earning compound interest and subsequent inflation which cancels out the interest. People criticise inflation while simultaneously criticizing negative interest rates, the height of hypocrisy. After all, if you implement negative interest rates a while lot of people will have to work instead of living off the work of others. They say that it is unfair to not turn other people into debt slaves, while simultaneously criticizing how unjust it is, that their dreams of turning other nations and future generations into debt slaves is disrupted by so called defaults and debt restructuring. They yell out debt is bad while secretly desiring to have debt slaves of their own.

The money supply must grow because of population increase. Population was almost exponential growth in the last century, but now it has essentially stopped so we are entering a new paradigm.

The stock market under a declining population will be fascinating to watch.

Automation will allow us to produce more with less people resources leading to increased consumption per capita of goods and services letting the game continue.

Population decline will not be kind to society without AI/Robotics to take care of us.

Do you capture the effects of a ticker symbol delisting from the index? Trivial for a single stock of course, but looking across a portfolio, then the effects from delisting from an index, new listings into the index, stock splits, and M&A inevitably becomes a thing.

I used to calculate this manually whenever I thought about the reality, and whenever wondering if I can retire. This is really cool. One comment though is the mass of company names at the bottom is illegible so I would think a search box + top 20 list would be better

> One comment though is the mass of company names at the bottom is illegible so I would think a search box + top 20 list would be better

Probably for SEO. :)

I'd been planning to add an autocomplete symbol search box. I ran out of time because I knew the new CPI data was being released this morning. I wanted to launch the site today, so last night at 3am ET I just added a big list of symbols. But yeah might be good for SEO too :)

I wish the display of "Trendline' and "worst Drawdown" at the top would be calculated based on the selected time interval at the bottom.

For index that have existed for a long time it make comparing with other index hard if we always include the full history.

What a dope tool, thanks for building it! I love clean, simple dataviz websites like this.

Suggestion: it would be nice to have a chart like the first one but where relative changes (%) in value are plotted... That would make it easier to use a linear Y axis instead of a logarithmic one (which can be hard to interpret).

Thank you for creating this. I appreciate its value and encourage you to keep going.

I've often read Stocks average +10%/year, is this true when factoring in taxes + inflation?

Wondering if other investments that appear less attractive on paper are actually better than traditional equities.

aren't they all subject to inflation?

From what I understand, SPY returns adjusted for inflation over long term average to 7%.

6%: "The average annual total return and compound annual growth rate of the index, including dividends, since inception in 1926 has been approximately 9.8% (6% after inflation), and the annual standard deviation of the return over the same time period is 20.81%" [0].

[0]: https://en.wikipedia.org/wiki/S%26P_500#Performance

amy "only issue" is now what? sure chart looks to good to look; there is good info but what actions do i take now that inflation eats everything, like salt to metal.

What tech stack are you using? The speed is impressive.

BACKEND:

It's about 3000 lines of Crystal code https://crystal-lang.org/ -- it's been an absolute dream to program in. Ruby-like syntax, statically compiled performance. Nice standard library. Would recommend :)

Performance == caching

Local ephemeral filesystem for shortest-term caching.

Redis for shared medium-term caching and locking.

S3-compatible object storage for longest-term caching (for raw data feeds pulled every evening by a cronjob).

FRONTEND:

Bootstrap

uPlot https://github.com/leeoniya/uPlot

Just a sprinkle of inline JS+CSS on the page.

uPlot spotted in the wild! <3

uPlot is great! Thank you for building it! :)

This is neat you can see the s&p having gained approximately 6 percent on average and inflation targeted almost to be 2 percent.

Would be interesting to insert the classic 60/40 stock/bond portfolio. Maybe also potentially a commodity index as well.

This is really cool, but it would be more useful (IMO) with the following changes:

- Have all comparisons start at 0 - Ditch the log scale

Does this account for dilutive secondary offerings?

Edit: I thought about it some more and now I realize this is a dumb question.

Only implicitly. (In that, via market behavior, the nominal price-per-share might drop when companies increase the number of shares outstanding.) But I believe that's all that's needed?

Where can I see the percent return inflation adjusted not just the trend line?

I'm not currently showing this directly because it's so sensitive to the specific start and end dates. :-/ (Is there a good UX for that?)

For now you could calculate it by mousing-over the dates your interested in and reading the values off the chart legend.

A tip: define what "drawdown" means on the page itself.

Over 30 years, you did OK. But there were 10 year down periods.

Really illustrates how well dollar holds to inflation.

No cryptos?

You can use ETFs that hold those assets, for example: https://totalrealreturns.com/s/GBTC,ETHE

No, you really can not: https://habr-com.translate.goog/ru/post/675802/?_x_tr_sl=ru&...

Well, you're both right and wrong. He's right You CAN, but your linked article is also 100% correct, GBTC / trusts are absolutely NOT etf's.

There are however etfs for crypto in other districts (I hold for example ethx.b, a canadian ETF that tracks ETH within my RRSP).

Well, the funds you mentioned are not on the website.

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