{ "media_type": "text", "post_content": "Your yearly reminder that if you’d bought the DJIA in 1929 you didn’t become profitable in real terms until 1955.\n\nIt wasn’t just WW2. If you’d bought the DJIA at the beginning of 1966 you lost almost 75% to inflation over two decades and didn’t recover in real terms until 1995. You’d have made nothing between JFK’s death and Clinton’s second term.\n\nWe are in a particularly weird period of “stonks only go up” but remember those 8% returns over the long run mask generation-defining risks.", "post_id": "5ff1d2b6b7cd4700244a30fb", "reply_count": 30, "vote_count": 18, "bowl_id": "552d1d24dc1c586b09d2d051", "bowl_name": "Consulting" }

Your yearly reminder that if you’d bought the DJIA in 1929 you didn’t become profitable in real terms until 1955. It wasn’t just WW2. If you’d bought the DJIA at the beginning of 1966 you lost almost 75% to inflation over two decades and didn’t recover in real terms until 1995. You’d have made nothing between JFK’s death and Clinton’s second term. We are in a particularly weird period of “stonks only go up” but remember those 8% returns over the long run mask generation-defining risks.

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Hard truth here! But we didn’t have quantitative easing then. It’s rigged game now.

likesmarthelpful

Okay Silent Generationer

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Not the point of your post, but I hardcore judge anyone who uses the term "stonks"

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Relax. It was just a joke!

What you're missing is the concept of investing consistently over time. You'd likely always make money if you keep putting a percentage of your wealth into the market every single year.

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Don’t forget that the alternative is holding cash, which generally loses value to inflation every incremental time period

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Actually, none of those account for dividends and dividend reinvestment. It also assumes a 1 time investment and not regular investments. So a disciplined investor still made money even back then. Plus, the dowjones isn't really an accurate metric of the stocks market's performance.

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Remember that fee-free brokerage and even index funds didn’t exist then so retail investors were very unlikely compounding their dividends with reinvestment, or at least weren’t doing so optimally. Of course, those things do exist now, but again I’d point out that a decade straight of real declines is possible, and even investors fitting your definition of discipline would lose in such environments. Plus, these declines often associate with recessions, during which dividends and interest rates and diminished. Lastly, while I agree the DJIA alone is not “the” stock market, the same pattern is found in the S&P and is, I would assert, close to what a retail investor would have experienced in their personal portfolio unless they were less diversified - and therefore exposed to more risk. Anyway, I don’t mean to argue that your counterpoint isn’t fair - I am abstracting the argument to make it more digestible. My larger point is that if you lived through periods of constant real decline or stagnation like the ones I describe, I don’t think you’d conclude “actually everything is fine because of dividend reinvestment.” It would be painful.

Well when savings accounts were paying out 10%, likely would have dumped cash there too

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At 10% in bank accounts you would have lost even more than the stock market. Inflation was much higher for many years. Banks also paid minimal interest which why the money market funds grew so rapidly. CDs were also very popular, often laddered so there was a mix of liquidity and improved returns.

Yes, but we live in an age of economic engineering. I’m trying to find a better illustration, but there’s one out there showing if you invested at the peak before every contraction, you’re still ahead over the long run.

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There are roughly 60 30 year periods from 1929. A new one starts every year. Using real returns is good, now compare to the alternatives. Bonds and Real Estate are realistically the only alternatives. You are cherry picking a core bad years. Since 1929, bull years return 21% and years return -31% in nominal rates. You can't control inflation, only your target amounts and allocations.

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“This time is different“

smart

So what’s the take away here?

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Does that account for the tax incentives for retirement plan contributions as well?

Good info, thanks

In high inflation times you need stocks since their earnings are inflation adjusted as companies raise prices. When inflation is a surprise companies eat the costs for a period, but when there are inflation expectations companies build inflation adjustments into contracts and employees get COLA and raises. When inflation us falling you want to move to bonds. Using cherry picked numbers doesn't help in the discussion.

We can prove anything with singularly selected facts. People don't make all their investments in a single year. Of course there are single years that are bad years. Do the same calculation with investments in only a 3 year period or anything longer and your numbers change. This kind of fact sharing implies first that there is a better alternative and that people should do nothing because that one year's investments may not grow faster than inflation. There are people that saw how bad the market was in 2007 and 2008 and then never invested after that. Can you imagine how horrible their life will be at retirement? Go do your math again with dividends reinvested and your numbers are wrong and therefore your premise is false. This is why we don't allow junior staff to data mine without reviewing the hypothesis and results.

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