When Stocks Didn’t Perform

When Stocks Didn’t Perform

Remember that time bonds beat stocks over a 50-year period?

Of course not. Nobody who remembers that time is alive today.

But remember it or not, it happened. And as George Santayana famously observed, “Those who cannot remember the past are condemned to repeat it.”

Way back then, the long-term performance of stocks was absolutely dreadful. Over this 50-year stretch, stocks compounded at less than 1% per year!

Clearly, I must be cherry-picking! I must have selected an especially bad period that ends during the Great Depression, right?

Wrong.

Photo credit: Pixabay, artist Geralt

Links for July 2021

 Links for July 2021

Wealthy Accountant for President! His tax plan does make a lot of sense: https://wealthyaccountant.com/2018/09/17/my-tax-plan-if-i-were-president/

Why be frugal? Here's a cogent answer: https://theescapeartist.me/2021/06/09/the-purpose-of-frugality-is-to-get-your-stake-money-together/

I recently ran across a very interesting idea: adjusting your 'net worth' to account for whether the market is overvalued or undervalued: https://www.themoneycommando.com/introducing-the-money-commando-true-wealth-index/ 

• Counterpoint: Many knowledgeable folks argue that historical P/E ratios are not necessarily going to hold in the future (see https://thereformedbroker.com/2014/01/12/leaving-cape-town/ or, if you prefer a lot of statistics and number-crunching in a podcast format, check out this link: https://rationalreminder.ca/podcast/146)

A priceless lesson from a savvy veteran investor: https://www.marketwatch.com/story/is-bitcoin-the-best-place-for-your-money-11622683768?mod=paul-a-merriman

Worried about the future of Social Security? It's not as bad as you think: https://www.cbpp.org/research/social-security/what-the-2020-trustees-report-shows-about-social-security

Why do so many people feel like they aren't well-off? Morgan Housel tackles that question: https://www.collaborativefund.com/blog/goalpost/

Are you saving too aggressively? In this interview, Gwen of fireymillennials.com concluded that she should ease off the figurative gas pedal a bit: https://apnews.com/article/lifestyle-business-d96513c8c01a24cb80d935335333ce30?fbclid=IwAR1vnGyRHrdPjMIJ28Aj-TtOCBkxVUlavd34cx6TJDO1n4_NfsJWJOBCKdE

Learn more about Herbert Wertheim, billionaire optometrist, inventor, and investor, who had dyslexia and did poorly in school: https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/
      Hat tip to David at filledwithmoney.com for letting me know about this man's inspiring tale!

There's a janitor who became a millionaire! https://filledwithmoney.com/millionaire-janitor/

Investors, prepare to be disappointed: https://theirrelevantinvestor.com/2021/06/26/investors-prepare-to-be-disappointed/

What kind of returns should we expect in the future? Mindfully Investing just saved me a lot of research on this topic: https://www.mindfullyinvesting.com/articles/6-what-to-invest-in/6-2-expected-future-returns-and-risks/

Larry Swedroe advises that we think about investing as probabilities, not certainties: https://www.evidenceinvestor.com/is-it-really-stocks-for-the-long-run/

Blinded By Greed

Blinded By Greed?

Lately, I’ve been doing some research on the astounding returns of various investment classes over the decades.

• The S&P 500: How does a 9.92% annual return since 1928 sound?

• REITs: 9.77% per year since 1972.

• Large-cap value: Even better, at 11.13% annually since 1928!

• Small-cap value: An astonishing 13.15% annual return since 1928!!!

An extra 3% per year results in twice as much money at the end of 25 years! So keep that in mind when you compare the long-term returns of the various asset classes.

But these are long-term averages across some very different market and regulatory conditions. The fly in the ointment is that these conditions may very well be changed in the future, and returns might be lower than they have been in the past.