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Old 09-06-2016, 08:45 PM   #37
damn onions
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Join Date: Mar 2006

Originally Posted by heep223 View Post
This is a very interesting topic and discussion.

I hear what you're saying re: the stock market not being guaranteed, but I think that's a far too simplistic approach. You're completely ignoring opportunity cost of your capital and most importantly, you are taking a short term view.

Global stock markets have returned 9.6% annualized over the past 115 years (1900-2016). This is through 18 business cycles (as detailed by the NBER Business Cycle Dating Committee), two world wars, the great depression, the great recession, the cold war, 17 US Presidents, terrorism, interest rates at 20%, interest rates at 2%....

Here's what $1M growing into $42B looks like by simply being invested in global equities. That is, the US, Canada, Europe, Japan, Australia and a composite of Emerging Markets (Russia, China, Brazil, India, South Africa, Eastern Europe, other Asia, etc etc):

Yes, it's not guaranteed as you say, and there are certainly drawdowns. But to me the biggest true risk with investing in global markets is a) your own behavioural and cognitive biases, and b) the way the system is designed that completely misaligns owners of capital (you) with managers of your capital (topic for another time).

More to the point, especially given that you can invest in this type of strategy for 0.25% or so these days, simply participating in global markets and adding when they drop will put you way ahead of paying off your 3% mortgage.
You say I have a short-term view and then show me a 115 year chart. How long are you planning on living? The great depression lasted almost a decade of stagnated or negative growth.

Anyway I don't claim to know the answers, and certainly it is likely that buying an index and letting savings grow is likely the best plan, but I was just trying to point out that it doesn't mean it can't come with risk. And just because you show me a chart of 115 years, what did the past 400 years look like? Are you telling me that global economies are just forever up and to the right?
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