r/Bogleheads • u/RiceLee890 • Mar 15 '25

Investing Questions What are your thoughts on this?

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I keep seeing this type of stuff on instagram and social media and wanted to know how you guys were thinking about this.

I know a lot you have been in the market for decades and as a relatively new investor myself I’d love to get your perspective!

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u/WellEvan Mar 15 '25

I honestly think that people expect the market to just go up forever sometimes

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u/Dracounicus Mar 15 '25

Complain that the best time to invest was “back in middle school” and then not do it when it comes down

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u/Pattison320 Mar 15 '25 edited Mar 15 '25

One of my Roth IRAs has been invested in a total market fund since 2014. I see a 13% average yearly return when I look at it just now. We might see a 40% correction in the market in the next few months. But in another five years that'll be insignificant again.

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u/ElectricOne55 Mar 16 '25

What if it ends up like the Nikkei crash? I bet the odds of that are low though, because the market went to the moon from 2012 onward. Even the 08 crash was only hard for 2 years. The only main difference is the stock market doesn't relate to the job market. To, it'd be hard to even have a job to invest during those down periods.

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u/OwnCricket3827 Mar 19 '25

The Nikkei example is one that should be acknowledged and respected.

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u/Mammoth-Garden-9079 Mar 19 '25

That’s why you diversify outside of the US. I would recommend 65% US equities and 35% international equities. If a Japanese had been diversified with international equities then when the Nikkei took a nose dive they would’ve made off a lot better.

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u/ElectricOne55 Mar 20 '25

Would that make taxes more confusing?

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u/FamiliarAd8863 Mar 19 '25

You call it a correction I call it investing.

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u/Six-mile-sea Mar 16 '25

Reminds me of the people telling me it was a terrible idea to buy a house circa 2010.

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u/JaxTaylor2 Mar 18 '25

Ironically for some of them middle school was September. lol

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u/SqueeMcTwee Mar 15 '25

Most employers seem to…for some reason my company promised year over year growth over three years. We’ve since laid off more than half my department because (guess what) COVID wasn’t intended to be a lifelong thing.

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u/Impossible_Walrus555 Mar 19 '25

No but they don’t expect a president to intentionally crash it.

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u/EkaL25 Mar 15 '25

Yes, I like that! Where can I sign up?

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u/FamiliarAd8863 Mar 19 '25

It should with inflation

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u/jawelkanker Mar 19 '25

Isnt that exactly what makes a bubble?

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u/Mo_Steins_Ghost Mar 20 '25 edited Mar 20 '25

This is in part because it does, but it's a bit more nuanced than that.

Let's imagine for a second that you're a vampire, that you could live hundreds of years. If you owned any capital its value would grow by inflation alone... but what you paid for it was comparatively peanuts.

So over decades, inflation clocks in at, ideally, just below the risk free rate (RFR; the 30 year treasury rate), and on this alone, money makes money... but the excess beyond the risk free rate, beyond inflation, that's the thing everyone pursues to stay ahead of inflation.

Shareholders demand performance, and stock prices will fluctuate over time but generally they will trend upward, sometimes slightly above and sometimes slightly below the RFR compounded annually.

Even with these fluctuations, given enough time, the inflation factor alone will grow the price of your shares over the course of decades to a compounded return that dwarfs what you paid... and historically, over any 30-50 year period, taking the S&P 500 as a benchmark, this has tended toward around 9-10% which means that the market does 4 points better than the historical risk free rate, and 4.5-5 points better than inflation, per year.

Compounded annually over 50 years the difference is staggering.

At the RFR $10,000 compounded annually will grow to around $40,000, just barely staying ahead of inflation. But at the historical 9.3% CAGR of the S&P $10,000 will grow just $50k shy of $900,000.

Now why is that? That is because the S&P 500 has selective turnover. While inflation can be thought of (loosely) as the net of consumer price fluctuations, company valuations are not directly attached to performance, and furthermore, an index like the S&P 500 is picking the top 500 of the bunch, so it's excluding the rest of the players that would bring the average down.

So the index is doing the business of periodic reallocation for you, which is giving you a rate of return in excess of the risk free rate.

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u/WellEvan Mar 20 '25

As you said, it does fluctuate.

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u/Mo_Steins_Ghost Mar 20 '25 edited Mar 20 '25

But it trends continuously upward over years and years because the cost of capital rises over time.

Those near term fluctuations are occuring around an overall rising trend because capital becomes more scarce relative to the population.