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In the long run young investors will be rich.
Old 06-27-2011, 08:07 AM   #1
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In the long run young investors will be rich.

I am taking a break from doom and gloom.

To repost something from the Bogleheads board.

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Hi Bogleheads:

At age 87, I have the advantage of looking back to when I started investing at the age of 26 in 1950.

Listed below is the price of the S&P 500 Index at the end of the year when events occurred that caused many investors to abandon stocks:

YEAR..S&P........CRISIS..........
1950.....20....Korean War (1950-1953)
1953.....25....President Eisenhower's heart attack
1955.....45....Start of Vietnam War
1956.....47....Suez Crisis
1962.....63....Cuban Missile Crisis
1963.....75....John Kennedy Assassination
1967.....96....Detroit Race Riots
1970.....92....Kent State shootings
1971.....102...Wage-Price Freeze
1973.....97....Arab Oil Embargo
1974.....69....President Nixon Resigns
1975.....90....End of Vietnam War
1979.....108...Iran takes U.S. hostages.
1980.....136...Inflation hits 15%. Hunt Silver Crisis.
1982.....141...Falkland Islands War
1983.....165...U.S. Invades Grenada
1986.....242...U.S. Bombs Libia
1987.....247...Dow plunges -22.6% on one day (10-19)
1989.....353...U.S. invades Panama
1990.....330...Start of Persian Gulf War
1991.....417...End of Persian Gulf War
1992.....436...Los Angeles Riots
1993.....466...Bombing of World Trade Center
1994.....459...First of seven interest rate hikes
1995.....616...Oklahoma City Bombing
1998.....1229..Russian default & LTCM bailout.
2000.....1320..Y2K internet scare
2001.....1148..Start of Afghanistan War
2003.....1112..Start of Iraq War
2005.....1248..Hurricane Katrina devastates New Orleans
2010.....1258..Deepwater Horizon Oil Spill

Despite many events that discouraged stock market investors, I have seen the S&P 500 index increase from 20 to 1258 (not including dividends).

A Boglehead investor designs a suitable low-cost, diversified, asset-allocation plan--then STAYS THE COURSE.

Total Real Return on $10,000 Initial Investment
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Old 06-27-2011, 08:16 AM   #2
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Originally Posted by clifp View Post
I am taking a break from doom and gloom.
Oh, please.

How can you deny the irrefutable signs financial disaster is just around the corner? Why waste our time with a long-term perspective when we can't possibly survive the next few months? How dare you post FACTS!

Where's a moderator when you need one...
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Old 06-27-2011, 08:45 AM   #3
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Great stuff! Thanks Clif.
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Old 06-27-2011, 09:02 AM   #4
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Oh, please.

How can you deny the irrefutable signs financial disaster is just around the corner? Why waste our time with a long-term perspective when we can't possibly survive the next few months? How dare you post FACTS!

Where's a moderator when you need one...

yeah, one investor's experience over the last 61 years isn't that meaningful in the context of a X thousand years of human economic activity and a population which is counted in the millions - definitely a case of recency bias and small sample size
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Old 06-27-2011, 09:28 AM   #5
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Where's a moderator when you need one...
And when would that be?

Yeah!
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Old 06-27-2011, 09:55 AM   #6
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It would be interesting to see a spreadsheet showing what a 23 YO would have at 60 if they invested some % of salary each year. That would capture the DCA effects. Maybe even do some age-based AA adjustment near retirement.

I do believe that global competition is putting us in a stage that is different from the past 150 years. That doesn't necessarily mean doom and gloom, but regardless, someone investing is likely to do better than someone who doesn't.

-ERD50
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Old 06-27-2011, 10:03 AM   #7
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Doesn't Firecalc do that?
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Old 06-27-2011, 10:05 AM   #8
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Taylor continues to reference the past, and I understand since he's in his late 80's.

However, today is different (as it has always been) from what came before.

Do I know what the future holds (in returns)? Of course not - and I doubt anybody who is not making a dollar from a forecast newsletter/article would disagree with me.

As for me (as an investor, since 1982)? I don't live in the past, but invest for the current/future as I see fit.

Some years I'm up - some years I'm down. What really counts is that I have more up, than down years (and the total return over the long term is positive).

I don't count on the past to direct me toward my/DW's financial future.

Just my simple POV.
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Old 06-27-2011, 10:06 AM   #9
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...but regardless, someone investing is likely to do better than someone who doesn't.
I'm continually amazed at the pearls of wisdom found on this board...
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Old 06-27-2011, 10:42 AM   #10
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Quote:
Originally Posted by ERD50 View Post
It would be interesting to see a spreadsheet showing what a 23 YO would have at 60 if they invested some % of salary each year. That would capture the DCA effects. Maybe even do some age-based AA adjustment near retirement.

-ERD50
Doesn't Firecalc do that?
I never tried the "not retired yet" scenarios, I suppose that would do it...maybe? I don't think it would model increasing your savings, assuming your salary had some average 'real' increase over inflation. Offhand, I don't think FIRECALC offers that level of detail.

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Quote:
Originally Posted by ERD50
regardless, someone investing is likely to do better than someone who doesn't.
I'm continually amazed at the pearls of wisdom found on this board...
heh-heh-heh, pretty deep thinking, no? But yet, it does seem to evade so many!

But a bit more seriously, I wonder - if one of those scenarios showed you saved and scrimped and the market left you with almost zero gain, maybe fast cars, young women, and old whiskey would have been a better investment from the economic view also?

-ERD50
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Old 06-27-2011, 10:46 AM   #11
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I suppose it all depends on how you define the term "do better".
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Old 06-27-2011, 10:55 AM   #12
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And if you picked the 'wrong market' or were born at the 'wrong time'?

Nikkei 225 (Year opening price)
1984 - 9,927
1985 - 11,543
1986 - 13,054
1987 - 18,703
1988 - 21,551
1989 - 30,166
1990 - 38,922
1991 - 23,827
1992 - 23,031
1993 - 16,980
1994 - 17,422
1995 - 19,725
1996 - 19,946
1997 - 19,364
1998 - 15,269
1999 - 13,779
2000 - 18,937
2001 - 13,898
2002 - 10,631
2003 - 8,669
2004 - 10,787
2005 - 11,458
2006 - 16,294
2007 - 17,322
2008 - 15,155
2009 - 8,991
2010 - 10,609
2011 - 10,352


How did US returns 1880-1940 compare to 1950-2010?

A lot of this is luck and beyond our control. Maybe we'll get lucky in the stock market. Maybe we won't. So far the odds of broad index funds have been better than playing the lottery at least.
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Old 06-27-2011, 08:25 PM   #13
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You have not mentioned the federal intervention from 2008 to stabilize the financial markets. Without this intervention, the S&P and others would be much lower.
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Old 06-27-2011, 08:31 PM   #14
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someone investing is likely to do better than someone who doesn't.

-ERD50
Do better at what?
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Old 06-27-2011, 08:36 PM   #15
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maybe fast cars, young women, and old whiskey would have been a better investment from the economic view also?

-ERD50
It's very possible........ And I'm hedging my bets! Just yesterday I enjoyed a shot of Jameson's along with my Guinness at the Tilted Kilt in Roselle. That took care of the old whiskey and young women part. Sadly I drove there in a 1996 Sable that needs a bit of work...... hardly a "fast car." I need to do something about that in the interest of "diversification" I guess.



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Old 06-27-2011, 09:54 PM   #16
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And if you picked the 'wrong market' or were born at the 'wrong time'?
Exactly. Somebody who's 85 now had the incredibly good fortune to be investing during the biggest boom in US history. One could easily argue him giving investing advice is a bit like a lottery winner saying "it worked great for me, so I'm sure you'll win too if you just buy a ticket."

I know "it's different this time" gets laughed off the board, but ask the people in Japan how different it's been for them. Ask how it's likely to be different when (not if) the US$ loses its "world reserve currency" status. Ask how it might be different when the US deficit jumps by an order of magnitude in two years, with no end in sight. Consider how the US will pay off those debts when its credit rating gets downgraded and its interest costs mushroom. These are things that could have dramatic impact on market returns, and that for the most part have not happened before.

Just because the markets have acted consistently for our lifetimes doesn't mean it's a law of nature. It's not guaranteed to do that forever.
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Old 06-27-2011, 09:57 PM   #17
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Doom and gloom is always in fashion. And we're all doomed. Really.
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Old 06-27-2011, 09:58 PM   #18
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You have not mentioned the federal intervention from 2008 to stabilize the financial markets. Without this intervention, the S&P and others would be much lower.
And you have not mentioned the near miss by that asteroid last year. Had it hit, the S&P would have been totally wiped out.
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Old 06-27-2011, 10:01 PM   #19
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Just because the markets have acted consistently for our lifetimes doesn't mean it's a law of nature. It's not guaranteed to do that forever.
The issue is finding something you can do about it. I haven't thought of anything so I just try to live a prudent life while enjoying myself and understanding that diminishing supplies of natural resources coupled with population growth is going to mean reduced standards of living on earth in the decades ahead.
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Old 06-27-2011, 10:08 PM   #20
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Exactly. Somebody who's 85 now had the incredibly good fortune to be investing during the biggest boom in US history. One could easily argue him giving investing advice is a bit like a lottery winner saying "it worked great for me, so I'm sure you'll win too if you just buy a ticket."

I know "it's different this time" gets laughed off the board, but ask the people in Japan how different it's been for them. Ask how it's likely to be different when (not if) the US$ loses its "world reserve currency" status. Ask how it might be different when the US deficit jumps by an order of magnitude in two years, with no end in sight. Consider how the US will pay off those debts when its credit rating gets downgraded and its interest costs mushroom. These are things that could have dramatic impact on market returns, and that for the most part have not happened before.

Just because the markets have acted consistently for our lifetimes doesn't mean it's a law of nature. It's not guaranteed to do that forever.
Wow. Bummer. And this thread had such a great start...
If you want to feel gloomier go read Bernstein's "Retirement from Hell Series" (FAQ archive): Bernstein's "Retirement Calculator from Hell" articles

Any actionable advice to dodge these end-of-the-US as we know it predictions? If not I guess I'll stick to a diversified AA that includes 50% non-US equities...

DD
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