STOCK MARKET WATCH -- Wednesday, 18 January 2023

[progree]

8. Or an investment, given the huge positive returns over time

The market is, and always has been, a gamble . . . and some sit on the sidelines like me and just watch.

Simulation after simulation by countless authors and organizations show one is more likely to exhaust their nest egg if it is all in fixed income like bonds and CDs than if it is majority equity. Nothing holds up as well in the face of withdrawals and inflation than does equities, except perhaps real estate. In other words, it's an even bigger gamble to not have a sizable proportion in equities.



Over the past 20 years, it has grown 6.3710 fold, an average annual increase of 9.7%/year

Over the past 50 years, it has grown 131 fold, an average annual increase of 10.2%/year

and so on.

This is from the below link, which also has similar for bonds, Treasury bills, and gold. These don't come close to matching the increase in equities.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Sitting on the sidelines has been very very costly. I know because I mostly sat out most of the mid-late 80's and 90's. I don't wish that on my fellow progressives.

One can hedge one's bets and try to make rational investments

I'm old, so yes, I hedge by having about 40% of my easily re-investible assets in bonds and other fixed income. On top of that, I have an annuity, Social Security income, my house -- all non-equity investments or sources of income. So I'm far from being an "all equities" fanatic.

but the cycle of boom and bust keeps repeating itself

Yes it does. The S&P 500 has a down year an average of once every 3 years, for example. But note the returns shown above for the S&P 500 and the other assets shown at the link above include all periods -- boom and bust. I'm not just cherry-picking the boom parts.

On the part about "some get lucky" -- that's why all my equities are invested in broad-based mutual funds and ETFs (with one small exception) for diversity. And I buy-and-hold for the most part, because successfully market timing is very difficult. I just wait for the inevitable recovery and the inevitable string of new all-time highs. (TBH, sometimes I over-allocate to equities when the market is down a large amount).

Warren Buffett, considered by many to be the world's greatest investor, has recommended -- to those who don't want to learn about the markets and investing -- to invest in an S&P 500 index fund. The S&P 500 is, roughly speaking, the 500 largest U.S. companies (there are exceptions), with a total capitalization of 75%-80% of the entire U.S. stock makert.

I would add that a total U.S. stock market index fund has averaged out even better and is even more diversified.

For my own reference: Some more on all this previously posted https://www.democraticunderground.com/111694222#post5