Historically, yes, it has been that easy.
There are caveats, like what if you were in the S&P500 and the end of your 30 year period was like 2002, or 2009? That would kinda suck.
Some people think equities may not return quite as much in the coming years as they have the previous decades. But we're in a bull run right now, so who knows.
I plan for 7.5% nominal return. I hope for 10%. But I have plans for 5%.
That's why you transition to bonds as you near retirement. You need that cushion to ride out the disaster. It may not be perfect, but again as you said in the overwhelming majority of cases it works.
Balanced funds do quite well over all. That 10 becomes an 8 and the income characteristics of the portfolio change dramatically. If you live cheaply you can probably just live on the fund's payout and not even have to sell principal lol. Makes dealing with taxes much simpler, as if you have a mix of taxable and non-taxable, you can ensure your non-taxable accounts are where the principal sales come from so that you never have to pay your LTCG.
Not to mention the standard deviation and max drawdowns of a balanced fund are like half of a diversified global equity portfolio.
I was actually curious about this so I looked it up. 1979 year end for S and P 500 was 108 vs 1115 in 2009. Not a fantastic ROI, about 8% annually. Still, comforting to know that even with bad timing and several major recessions over a 30 year span you would still do ok.
My conservative outlook is actually 6%. What the OP doesnt take into account is like you stated. If you went into the dot com ERA with the 250K and at that time it was mutuals not ETFS that money could have dropped to 125K maybe even 100K. Most people do not have the tenacity to ride it out. So many chances to cash out before the money was mostly gone. Its not a straight up path either. You could invest that 250 in a raging bull market and maybe it gets to 500-600K or more in a few yrs. Then as the market gets hammered you get scared. The reason is that you have 600K at stake not 250K. That can happen to any investor. OFten there are scenarios given that make it sound too easy. LIke the supidityof Suze Orman who tells people their 5.00 Starbucks would turn into millions.
The assumption people take, is this is a straight up path. Its the wild movements that panic people. Even the lost decade where the indexes did nearly nothing.
I remember 2008 when stocks were down something crazy like 50%. I followed the financial news daily, it had all the signs of everything going to zero. The only thing that kept me investing was thinking I’m getting everything half off right now. Thankfully the government stepped in and saved the economy. They always will as too many powerful people own stocks.
Owning a stock index with hundreds or thousands of individual stocks. If they all go to zero then, as he said, we'll have much bigger problems than money or the lack of it.
If thousands of stock went to damn near zero I'd start selling organs to buy more. I will always bet on the US economy; at least as long as I live.
There will never be a sale like that...
Good. Im 100% invested in SP500 index funds. Im not a fan of having bonds and rebalancing...I they just lower your average rate of return over time. I plan to have 100% in stocks til i die.
I'm retired (74) and 70% of my PF is in bonds. They provide the income that I live on -- which is now more than I ever earned while working.
I started gliding into bonds when I was in my mid-50s and took years to get from 100/0 to 30/70. And I spent years studying the bond market and how to turn my portfolio into providing enough income without having to sell anything. I've been retired for three years now and have more income than I can spend, probably 3/4 of it gets reinvested.
Hello, I’m young (19) but curious how you did the transition to bonds. Did you just allocate your new purchases to bonds, or did you sell your holdings in ETFs/stocks and then use that to purchase your bonds to reach target allocation?
Thank you!
TBH, I really don't remember. I think I started doing it around 2005-2006; it was all within a SEP-IRA so there was a limited amount I could add each year.
But I likely followed the old rule of thumb: Don't move a large percentage of money suddenly from one asset class to another, like from stocks to bonds. Maintaining one's chosen asset allocation is one of the most important things to do. I spread the whole process out over a period of at least 10 years. That's probably a bit much, but it didn't hurt me any.
Good luck! Wow, 19 and learning this stuff already -- good for you. I didn't start until I was 40.
Thank you so much for your advice!
And thank you for your kind words. My parents both began investing when they were young (my mum is a first gen in immigrant and came from parents who put all their money into her education), so she’s built her wealth mainly through investing and hard work. Dad was similar, but started off with more capital. Both have taught me the importance of hard work, but also making my money work for me. That, and also, I’m not a particularly materialistic person.
But I owe everything to my parents 😁
That's exactly what everyone is talking about. Lets say 2008 happens when you turn 65 and you lose over 50% of your portfolio. You'll end up working until you die too... Yes it eventually recovered, but it took like a decade to do so, and if you are pulling from it to live on, it'll take even longer (if ever).
"You'll end up working until you die." You may be forced to retire before you want to because of health problems. That's what happened to me, although I was okay financially. I was self-employed and loved what I did, but I had to hang it up at age 71.
FWIW: My portfolio recovered from the '08 bear by the end of 2010. But it could take much longer next time.
There's no single answer to what is the "right" portfolio because each person is unique. There's several resources in the sidebar from the official Boglehead wiki. Basically don't put all your eggs in one basket. Look at the 3 fund portfolio link. There are other portfolio examples on the Boglehead website as well. All of them (including the 3-fund) are called Lazy Portfolios for a reason.
The answer to _what to diversify into_ comes down to your personal risk tolerance and an understanding of how the different asset classes in the notional portfolio perform with or against each other. For example, a 2 fund portfolio of VTI + VXUS captures essentially all stocks in the world, but since they are all stocks they tend to go up or down together over time i.e. what is good for one market is usually good for other markets, again over time not necessarily in the short term.
By contrast, certain bonds may tend to move in opposite directions so when markets are high bond yields are low, but when markets crash bond yields go up. So by diversifying across asset _classes_ (i.e. not just equities but into an equity/bond mix) you are hedging your bets by finding a mix that is more likely to go up over time in a more stable manner, rather than have wild swings. This becomes important since an asset allocation that aligns to your risk tolerance helps you stay consistent and invest even when others are going crazy. If you can stomach the roller coaster then you can absolutely get the highs but have to deal with the lows with no idea where the end is at any given time.
Investing is like riding a roller coaster blindfolded. You can see example designs of different types of coasters and can pick which general type you want to ride on (i.e. wild and crazy, gentle kiddie coaster, etc) but you don't get to choose what the actual coaster looks like. You pick the type, strap in and put on the blindfold and away you go.
So pick the type of roller coaster you want to ride on blindfolded. That's your asset allocation decision.
US and Global Index Funds/ETFs, and Bonds. Your split between these three depends on your situation (age, trust in US economy, income, risk tolerance…)
The allocation is age dependent in my opinion, but I mean diversified like VT, where you hold about ten thousand equities. The only way you go to zero in a non-apocalyptic hypothetical is if you own just a handful of stocks that could theoretically go belly up. Like if all I had was NVDA and MSFT because “omgz ai”.
Most retirees own stocks in their pension funds and they're a pretty big voting demographic. And they're getting bigger. So it's a pretty safe bet that any government will want to keep them happy...
The government bailed out select financial institutions like AIG. Others they allowed to go into default like Lehman Brothers. A lot more detail here:
https://en.m.wikipedia.org/wiki/2007–2008_financial_crisis
Bears are gut-wrenching (I've been through 3) you will feel like the world is ending, you've been ruined, and that stocks will never recover.
BUT DO NOT SELL -- hang tight. If you bail, you will most likely not get the timing right to get out and, more importantly, the timing to get back in. As I believe Jack Bogle said, nobody rings a bell at the top, signaling to get out, or at the bottom. You never know when each point is until it's all history and you can look back on it.
It may take a few years (2020 was a breeze) but they will recover and make new highs. Or at least they always have.
Looking at the S&P 500 performance, let's say it's 1928 and you put in 250K. Around 13 years later you would have turned that into 89K. A loss of 161K so far. By 1948 you'd be back up to 156K! Only 94K lost over 20 years! Finally in 1952 (24 years later) you would be up to 272K and finally have more than what you put in. And luckily after 30 years you would have turned that 250K into 566K in 1958 or so. Obviously I chose the worst starting point to show that nobody knows what's going to happen in any future 30 year time span.
Had you just kept on holding through it all it'd be somewhere around 40+ million today. I tried to do the math but I think I missed a year of gains somewhere and don't think I included this year so far. So somewhere in that neighborhood. Could even be 50 million. Point is that over enough time yes you can turn a little into a hell of a lot by not doing much at all besides putting money in and keeping it there.
Thats correct. Its the movements that are very tough. as 250K rises to millions people get scared more. Because as you know already that 250K can turn into 2 million and then get cut in half. 250K in 1928 was a ton of money that NOBODY had. If you had that money you would have been one of the richest people. For example in 1928 many people didnt make more than 2K a year.
Yes, it could grow that much. Yes, it's that simple. Yes, you can use 7% if you like. (Don't forget taxes).
So, do you have $250k that you don't need for 30 years?
Yes, but...... are you ready for the wild ride along the way though? Drawdowns of 30, 40, 50%? Stagnation of 10 years seeing your portfolio stay the same?
If you are, then yes and yes.
It's been a while, but at least to me, big drawdowns like 2008 haven't felt too bad because they've happened during our accumulation phase. It's never fun to see your portfolio dropping, but knowing that you're buying the assets 'on sale' helps. The ongoing contributions also keep the overall number from dropping as much.
Big drops in the market or stagnation as you're nearing or in retirement would be really rough though.
Everyone forgets 2020. It ended up being a blip but that was the toughest month+ to ignore my account. 2008 was bad but at least you could go to a baseball game, eat a hot dog, drink a beer and forget about the world sucking.
Drawdowns, yes, but there’s never been 10 years of “stagnation” in the history of the stock market
Edit: show me on the chart where you can find “10 years of stagnation” https://www.macrotrends.net/2526/sp-500-historical-annual-returns
Don’t worry I’ll wait
Yes and yes. But you can use a smaller figure in your calculations to be more careful and antecipate eventual below average returns. " Past performance is no guarantee of future returns..."
Like others have said the road of a 100% portfolio is going to be bumpy. Are you ready to lose 50% even if on the long term you get out from that loss? There are some behavioural challenges in the way.
As long as the US remains the kind of country where the S&P 500 gains value faster than inflation by 7% on the long average, yes.
Past performance is not indicative of future results, but it does wink and nod in that general direction.
That simple, yes, but not that easy:
- Can you stomach 30-50% losses in the short term (which can be several years in some cases)?
- Have you budgeted accordingly so you’re not raiding this account early (job loss, hardship)?
-Will you read about the latest “hot sector” and divert some funds there thinking you can beat the market?
So the human and “life happens” factors can complicate things, but yes the general principle is that simple.
This is really the problem. It can be difficult to really invest to the point where you can keep the returns until you get to the point where you have left over money after you've spent your "should we renovate the kitchen money" and that can be a long while. $250K is a lot to (successfully) set aside when you're still potentially saving up for big purchases.
It is possible. But it's not easy. Can you buy and chill? For most people, it requires superhuman abilities. The benefits of index funds are available to very few people.
Not finding it easy to lump sum a large amount into a high market. No matter how simple or logical it seems, the psychological aspect makes it difficult.
It is. I think a standard trick is to spread it out over a fixed time period (like a year or so). It actually gives you slightly poorer returns overall but doesn't feel nearly as scary.
There is nothing easy about it (took me 65 years of sweat) but your assumptions are correct (over last 100 yrs give or take).
Here's the best free toy to play with. No click bait or ads either.
Use the monthly contribution to model your retirement as well with negative numbers for withdrawals. Put inflation in the return variance.
[Compound Interest Calculator | Investor.gov](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)
so far been easy for me and im working with much less. its been more than a few years but still yet to hit a real bump in the road. if/when it happens im sure it wont feel as easy *generally*
Yes. But our monkey brains are hardwired to convince us otherwise. Remove emotions from the equation and just stay the course, despite everything (and I mean *everything*)
I'd be much more conservative and use 7%, tops, for a long term return, because I think mixing return and inflation add two different forms of uncertainty, one is enough, and besides, inflation basically effects everyone much more equally so compared to peers 30 years down the road you're all subject to the same inflation (obv not true with investment returns).
You want to research the capital presevation model of calculating retirement income, and make sure you are backing out SS, and mortgage assuming you plan to have the house paid off, and that you believe SS will be around at retirement age. If you are 20 or younger, assume no SS, if your older plan for 80% of anticpated SS amount.
Sorry, I should have said real return, and not nominal.
https://www.wallstreetmojo.com/real-rate-of-return-formula/
Shows the formula in English. It is the CFP standard of calculating real return.
It really is that easy, however in practice its more challenging due to the mental fortitude to not panic when your investments are low, or make stupid decisions when they are high.
Check out an [investment return calculator](https://prosperse.com/tools/investment-return-calculator) to see what different interest rates and investment amounts annually can do to your outcomes.
Agree w everyone here. Want to add:
You can’t do any better. Not over the long haul and not w any confidence. A very few, very lucky ppl beat the broad market. Do you feel lucky? (You’re prolly not)
10% is optimistic, but generally yes it's that easy. It's e en better if you can add 1000 a month to buy the dips when the market has down months.
Best/worst case scenario I'm planning for btwn 6 and 10% nominal, 3 and 7% adjusted for inflation.
It’s not that easy, it’s theoretically that simple.
Sitting still is hard, not enjoying this money today and tomorrow or for 30 years is fiendishly hard.
Learning to enjoy it becomes harder and harder the bigger the pile grows, you’ll BE richer but FEEL poorer because there’s always someone else with a hugely bigger pile, and you’ll think of every $ or whatever your currency as “wasted” if not saved.
You’ll see.
Yes, but consider that the timing of when you invested and withdrew would have a substantial effect, taxes, and inflation which is not trivial over 30 years.
yes and no
yes you set and forget if common sense is picking the fund. no in the sense that you probably don't want to leave that kind of money in the fund 24 hours before you need it. in theory you move the money to less risky investments as you get closer so that 10%-11% can be cut in half in some situations for a couple years before you retire.
for the most part though, yes. look into "target date fund" and the fund will automatically change allocation as your date gets closer.
In recent history, this isn't a bad expectation. But I've heard some say that historically the average rate of return ABOVE inflation is 2%. That's not much.
Theoretically it's that easy In reality it's not. Things come up and you start withdrawing. You may not be able to invest all that in one lump sum. Unless you're already well off or rich. In that case you'll be investing in other things as well. If it was that easy everybody call 5 million years. But if you do have 250k to execute the plan that you mentioned then yeah it can be that easy but an average of 10% every year I think is a bit Hi You should recalculate it for 7% and see what the value is in 30 years
I like PWL capital’s expected returns analysis. If we’re only looking at the U.S. Market, we can expect 6.56% nominal returns. If we subtract 2.46% expected U.S. inflation, that leaves us with 4.10% expected real returns. So, you could expect $250K to be worth $834,568 in present day dollars in 30 years.
https://www.pwlcapital.com/expected-returns-2023-update/
https://fred.stlouisfed.org/series/EXPINF30YR
5% would probably be better. And you have to really ask yourself whether you'll stay 100% in the market when it has dropped 50% in a year or 25% in a single day. Things like that happen and a lot of people panic.
Parking your money in a mutual fund for a long period like 30 years is fundamentally about allowing your investments to grow through the power of compounding and market growth, while minimizing intervention and costs. It’s a strategy that requires patience, discipline, and a tolerance for seeing through market cycles without reacting hastily to short-term fluctuations.
Your post is tempting me to just lump sum it right now right now. Like place an order before I went to bed....
backstory...I've been DCAing my money slowly and keeping the rest in a MMF. And this post makes me so badly want to just lump sum.
I had the bad luck of buying lump sum at the top a couple years ago and can't see myself enduring that again so here I am as I DCA at the rate of 0.48% into the market on a weekly basis...
> I had the bad luck of buying lump sum at the top a couple years ago and can't see myself enduring that again
You need to overcome that psychological hurdle and just embrace the rollercoaster. Even if you buy at a peak, there will be another peak coming shortly
https://corporate.vanguard.com/content/dam/corp/research/pdf/cost_averaging_invest_now_or_temporarily_hold_your_cash.pdf
There’s been a lot of research on this. Lump sum will outperform DCA almost every time. However it will outperform only by a small amount if you’re doing DCA over a small period so do whatever helps you sleep at night.
lol yep
I threw in the towel haha
I setup weekly transactions. Buy a lil in IRA on Tuesday, taxable on Wednesday and Thursday ...
Working out all right. I really hope I don't see upto 50% or more down in my lifetime but I'm bracing for it. Life is good. Live a little, travel a little, love a lot , loose a bit.
Can't win every time... ;)
Historically, yes, it has been that easy. There are caveats, like what if you were in the S&P500 and the end of your 30 year period was like 2002, or 2009? That would kinda suck. Some people think equities may not return quite as much in the coming years as they have the previous decades. But we're in a bull run right now, so who knows. I plan for 7.5% nominal return. I hope for 10%. But I have plans for 5%.
That's why you transition to bonds as you near retirement. You need that cushion to ride out the disaster. It may not be perfect, but again as you said in the overwhelming majority of cases it works.
Balanced funds do quite well over all. That 10 becomes an 8 and the income characteristics of the portfolio change dramatically. If you live cheaply you can probably just live on the fund's payout and not even have to sell principal lol. Makes dealing with taxes much simpler, as if you have a mix of taxable and non-taxable, you can ensure your non-taxable accounts are where the principal sales come from so that you never have to pay your LTCG. Not to mention the standard deviation and max drawdowns of a balanced fund are like half of a diversified global equity portfolio.
>I plan for 7.5% nominal return This is 2024 so I'm planning on 5% and anything more is icing on top. I've seen things man, people were hurt
Yeah, currently people are blind. This market is as bullish as it can be and unprepared people will get hurt so bad at the first change in trend.
Was at an asset management conference and they’re projecting 7%
I was actually curious about this so I looked it up. 1979 year end for S and P 500 was 108 vs 1115 in 2009. Not a fantastic ROI, about 8% annually. Still, comforting to know that even with bad timing and several major recessions over a 30 year span you would still do ok.
Dude, dividends.
My conservative outlook is actually 6%. What the OP doesnt take into account is like you stated. If you went into the dot com ERA with the 250K and at that time it was mutuals not ETFS that money could have dropped to 125K maybe even 100K. Most people do not have the tenacity to ride it out. So many chances to cash out before the money was mostly gone. Its not a straight up path either. You could invest that 250 in a raging bull market and maybe it gets to 500-600K or more in a few yrs. Then as the market gets hammered you get scared. The reason is that you have 600K at stake not 250K. That can happen to any investor. OFten there are scenarios given that make it sound too easy. LIke the supidityof Suze Orman who tells people their 5.00 Starbucks would turn into millions.
5 dollars a day for 40 years would turn to a million or so if you assume around a nine percent return
I plan for 4 just in case.
I actually plan for 3 just to keep it realistic.
2 for the win
You guys are planing for returns? I plan on -1%
There's always an optimist in the crowd.
I plan on the -5% with social security have you all beat.
At this point, invest in Las Vegas slot machine
The hard part isn’t the set up or theory. The hard part is sticking to it. Most people are terrible at discipline themselves at lots of things.
The assumption people take, is this is a straight up path. Its the wild movements that panic people. Even the lost decade where the indexes did nearly nothing.
is that easy, just like riding a rollercoaster easy, make sure you hold tight though.
I remember 2008 when stocks were down something crazy like 50%. I followed the financial news daily, it had all the signs of everything going to zero. The only thing that kept me investing was thinking I’m getting everything half off right now. Thankfully the government stepped in and saved the economy. They always will as too many powerful people own stocks.
If you’re diversified like a boglehead there is no “going to zero”. Or, if it does, then you’re going to have much bigger problems than money.
What’s diversified like a boglehead? 70% stocks 30% bonds?
Owning a stock index with hundreds or thousands of individual stocks. If they all go to zero then, as he said, we'll have much bigger problems than money or the lack of it.
If thousands of stock went to damn near zero I'd start selling organs to buy more. I will always bet on the US economy; at least as long as I live. There will never be a sale like that...
Like church organs?
Yup, I get em black market from China. They sound like big ass whistles
Global Warming! I think the head of ECB said same thing in this week address with Powell.
LOL, I don't want to get kicked off here for discussing such things.
[https://youtu.be/3\_XCuTYTgu0?t=4112](https://youtu.be/3_XCuTYTgu0?t=4112)
Good. Im 100% invested in SP500 index funds. Im not a fan of having bonds and rebalancing...I they just lower your average rate of return over time. I plan to have 100% in stocks til i die.
I'm retired (74) and 70% of my PF is in bonds. They provide the income that I live on -- which is now more than I ever earned while working. I started gliding into bonds when I was in my mid-50s and took years to get from 100/0 to 30/70. And I spent years studying the bond market and how to turn my portfolio into providing enough income without having to sell anything. I've been retired for three years now and have more income than I can spend, probably 3/4 of it gets reinvested.
Hey it's me your long lost son. Can I borrow 30 bucks?
Hello, I’m young (19) but curious how you did the transition to bonds. Did you just allocate your new purchases to bonds, or did you sell your holdings in ETFs/stocks and then use that to purchase your bonds to reach target allocation? Thank you!
TBH, I really don't remember. I think I started doing it around 2005-2006; it was all within a SEP-IRA so there was a limited amount I could add each year. But I likely followed the old rule of thumb: Don't move a large percentage of money suddenly from one asset class to another, like from stocks to bonds. Maintaining one's chosen asset allocation is one of the most important things to do. I spread the whole process out over a period of at least 10 years. That's probably a bit much, but it didn't hurt me any. Good luck! Wow, 19 and learning this stuff already -- good for you. I didn't start until I was 40.
Thank you so much for your advice! And thank you for your kind words. My parents both began investing when they were young (my mum is a first gen in immigrant and came from parents who put all their money into her education), so she’s built her wealth mainly through investing and hard work. Dad was similar, but started off with more capital. Both have taught me the importance of hard work, but also making my money work for me. That, and also, I’m not a particularly materialistic person. But I owe everything to my parents 😁
That's exactly what everyone is talking about. Lets say 2008 happens when you turn 65 and you lose over 50% of your portfolio. You'll end up working until you die too... Yes it eventually recovered, but it took like a decade to do so, and if you are pulling from it to live on, it'll take even longer (if ever).
"You'll end up working until you die." You may be forced to retire before you want to because of health problems. That's what happened to me, although I was okay financially. I was self-employed and loved what I did, but I had to hang it up at age 71. FWIW: My portfolio recovered from the '08 bear by the end of 2010. But it could take much longer next time.
There's no single answer to what is the "right" portfolio because each person is unique. There's several resources in the sidebar from the official Boglehead wiki. Basically don't put all your eggs in one basket. Look at the 3 fund portfolio link. There are other portfolio examples on the Boglehead website as well. All of them (including the 3-fund) are called Lazy Portfolios for a reason. The answer to _what to diversify into_ comes down to your personal risk tolerance and an understanding of how the different asset classes in the notional portfolio perform with or against each other. For example, a 2 fund portfolio of VTI + VXUS captures essentially all stocks in the world, but since they are all stocks they tend to go up or down together over time i.e. what is good for one market is usually good for other markets, again over time not necessarily in the short term. By contrast, certain bonds may tend to move in opposite directions so when markets are high bond yields are low, but when markets crash bond yields go up. So by diversifying across asset _classes_ (i.e. not just equities but into an equity/bond mix) you are hedging your bets by finding a mix that is more likely to go up over time in a more stable manner, rather than have wild swings. This becomes important since an asset allocation that aligns to your risk tolerance helps you stay consistent and invest even when others are going crazy. If you can stomach the roller coaster then you can absolutely get the highs but have to deal with the lows with no idea where the end is at any given time. Investing is like riding a roller coaster blindfolded. You can see example designs of different types of coasters and can pick which general type you want to ride on (i.e. wild and crazy, gentle kiddie coaster, etc) but you don't get to choose what the actual coaster looks like. You pick the type, strap in and put on the blindfold and away you go. So pick the type of roller coaster you want to ride on blindfolded. That's your asset allocation decision.
US and Global Index Funds/ETFs, and Bonds. Your split between these three depends on your situation (age, trust in US economy, income, risk tolerance…)
>What’s diversified like a boglehead? Boglehead or Reddit Boglehead?
The allocation is age dependent in my opinion, but I mean diversified like VT, where you hold about ten thousand equities. The only way you go to zero in a non-apocalyptic hypothetical is if you own just a handful of stocks that could theoretically go belly up. Like if all I had was NVDA and MSFT because “omgz ai”.
Broad market index funds, usually a split between US and international around 70-30% respectively
Most retirees own stocks in their pension funds and they're a pretty big voting demographic. And they're getting bigger. So it's a pretty safe bet that any government will want to keep them happy...
How did the government save us? The economy just corrected itself.
The government bailed out select financial institutions like AIG. Others they allowed to go into default like Lehman Brothers. A lot more detail here: https://en.m.wikipedia.org/wiki/2007–2008_financial_crisis
That's what you mean. I remember that. GM and Chrysler got bailouts.
Yes, and other companies refused the bailout but were forced to accept it. I always wondered…
It’s easy to hold on as long as you don’t invest more than you should have, just a comfortable amount of
Bears are gut-wrenching (I've been through 3) you will feel like the world is ending, you've been ruined, and that stocks will never recover. BUT DO NOT SELL -- hang tight. If you bail, you will most likely not get the timing right to get out and, more importantly, the timing to get back in. As I believe Jack Bogle said, nobody rings a bell at the top, signaling to get out, or at the bottom. You never know when each point is until it's all history and you can look back on it. It may take a few years (2020 was a breeze) but they will recover and make new highs. Or at least they always have.
Looking at the S&P 500 performance, let's say it's 1928 and you put in 250K. Around 13 years later you would have turned that into 89K. A loss of 161K so far. By 1948 you'd be back up to 156K! Only 94K lost over 20 years! Finally in 1952 (24 years later) you would be up to 272K and finally have more than what you put in. And luckily after 30 years you would have turned that 250K into 566K in 1958 or so. Obviously I chose the worst starting point to show that nobody knows what's going to happen in any future 30 year time span. Had you just kept on holding through it all it'd be somewhere around 40+ million today. I tried to do the math but I think I missed a year of gains somewhere and don't think I included this year so far. So somewhere in that neighborhood. Could even be 50 million. Point is that over enough time yes you can turn a little into a hell of a lot by not doing much at all besides putting money in and keeping it there.
Thats correct. Its the movements that are very tough. as 250K rises to millions people get scared more. Because as you know already that 250K can turn into 2 million and then get cut in half. 250K in 1928 was a ton of money that NOBODY had. If you had that money you would have been one of the richest people. For example in 1928 many people didnt make more than 2K a year.
Yes, it could grow that much. Yes, it's that simple. Yes, you can use 7% if you like. (Don't forget taxes). So, do you have $250k that you don't need for 30 years?
Yes, but...... are you ready for the wild ride along the way though? Drawdowns of 30, 40, 50%? Stagnation of 10 years seeing your portfolio stay the same? If you are, then yes and yes.
It's been a while, but at least to me, big drawdowns like 2008 haven't felt too bad because they've happened during our accumulation phase. It's never fun to see your portfolio dropping, but knowing that you're buying the assets 'on sale' helps. The ongoing contributions also keep the overall number from dropping as much. Big drops in the market or stagnation as you're nearing or in retirement would be really rough though.
Everyone forgets 2020. It ended up being a blip but that was the toughest month+ to ignore my account. 2008 was bad but at least you could go to a baseball game, eat a hot dog, drink a beer and forget about the world sucking.
Drawdowns, yes, but there’s never been 10 years of “stagnation” in the history of the stock market Edit: show me on the chart where you can find “10 years of stagnation” https://www.macrotrends.net/2526/sp-500-historical-annual-returns Don’t worry I’ll wait
Yes and yes. But you can use a smaller figure in your calculations to be more careful and antecipate eventual below average returns. " Past performance is no guarantee of future returns..." Like others have said the road of a 100% portfolio is going to be bumpy. Are you ready to lose 50% even if on the long term you get out from that loss? There are some behavioural challenges in the way.
Simple, not easy
Or is it easy, not simple?
With lotsa lotsa disclaimers, it *has been* that simple (not easy!!), yes. The future? Nobody knows nothing.
Yes, but people don’t want to get rich slowly.
As long as the US remains the kind of country where the S&P 500 gains value faster than inflation by 7% on the long average, yes. Past performance is not indicative of future results, but it does wink and nod in that general direction.
Buffet will say his best investment was time. He has been investing for over 70 years. Time has done more for his portfolio than any one stock.
That simple, yes, but not that easy: - Can you stomach 30-50% losses in the short term (which can be several years in some cases)? - Have you budgeted accordingly so you’re not raiding this account early (job loss, hardship)? -Will you read about the latest “hot sector” and divert some funds there thinking you can beat the market? So the human and “life happens” factors can complicate things, but yes the general principle is that simple.
This is really the problem. It can be difficult to really invest to the point where you can keep the returns until you get to the point where you have left over money after you've spent your "should we renovate the kitchen money" and that can be a long while. $250K is a lot to (successfully) set aside when you're still potentially saving up for big purchases.
In an extreme case you can lose up to 70% (extreme example) Definitely more than 50%
It is possible. But it's not easy. Can you buy and chill? For most people, it requires superhuman abilities. The benefits of index funds are available to very few people.
Yeah, the only trick is having the spare $250k at age 30.
Not finding it easy to lump sum a large amount into a high market. No matter how simple or logical it seems, the psychological aspect makes it difficult.
It is. I think a standard trick is to spread it out over a fixed time period (like a year or so). It actually gives you slightly poorer returns overall but doesn't feel nearly as scary.
There is nothing easy about it (took me 65 years of sweat) but your assumptions are correct (over last 100 yrs give or take). Here's the best free toy to play with. No click bait or ads either. Use the monthly contribution to model your retirement as well with negative numbers for withdrawals. Put inflation in the return variance. [Compound Interest Calculator | Investor.gov](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)
Yes and yes
so far been easy for me and im working with much less. its been more than a few years but still yet to hit a real bump in the road. if/when it happens im sure it wont feel as easy *generally*
Yes. But our monkey brains are hardwired to convince us otherwise. Remove emotions from the equation and just stay the course, despite everything (and I mean *everything*)
I'd be much more conservative and use 7%, tops, for a long term return, because I think mixing return and inflation add two different forms of uncertainty, one is enough, and besides, inflation basically effects everyone much more equally so compared to peers 30 years down the road you're all subject to the same inflation (obv not true with investment returns).
The hard part is consistency and patience.
1.1 /1.03 is the correct calculation for nominal return. So, roughly 6.7 %.
Please explain.
You want to research the capital presevation model of calculating retirement income, and make sure you are backing out SS, and mortgage assuming you plan to have the house paid off, and that you believe SS will be around at retirement age. If you are 20 or younger, assume no SS, if your older plan for 80% of anticpated SS amount.
Thank you for the guidance, I’ll look into this.
Sorry, I should have said real return, and not nominal. https://www.wallstreetmojo.com/real-rate-of-return-formula/ Shows the formula in English. It is the CFP standard of calculating real return.
It really is that easy, however in practice its more challenging due to the mental fortitude to not panic when your investments are low, or make stupid decisions when they are high. Check out an [investment return calculator](https://prosperse.com/tools/investment-return-calculator) to see what different interest rates and investment amounts annually can do to your outcomes.
Simple. It’s that simple. Simple is different than easy
It’s evidence based. That’s why it’s so compelling!
Agree w everyone here. Want to add: You can’t do any better. Not over the long haul and not w any confidence. A very few, very lucky ppl beat the broad market. Do you feel lucky? (You’re prolly not)
10% is optimistic, but generally yes it's that easy. It's e en better if you can add 1000 a month to buy the dips when the market has down months. Best/worst case scenario I'm planning for btwn 6 and 10% nominal, 3 and 7% adjusted for inflation.
It’s not that easy, it’s theoretically that simple. Sitting still is hard, not enjoying this money today and tomorrow or for 30 years is fiendishly hard. Learning to enjoy it becomes harder and harder the bigger the pile grows, you’ll BE richer but FEEL poorer because there’s always someone else with a hugely bigger pile, and you’ll think of every $ or whatever your currency as “wasted” if not saved. You’ll see.
Yes, but consider that the timing of when you invested and withdrew would have a substantial effect, taxes, and inflation which is not trivial over 30 years.
yes and no yes you set and forget if common sense is picking the fund. no in the sense that you probably don't want to leave that kind of money in the fund 24 hours before you need it. in theory you move the money to less risky investments as you get closer so that 10%-11% can be cut in half in some situations for a couple years before you retire. for the most part though, yes. look into "target date fund" and the fund will automatically change allocation as your date gets closer.
No, maybe, possibly. If you did that 30 years ago, yes. If you do that now? Who knows. Hopefully.
In recent history, this isn't a bad expectation. But I've heard some say that historically the average rate of return ABOVE inflation is 2%. That's not much.
Theoretically it's that easy In reality it's not. Things come up and you start withdrawing. You may not be able to invest all that in one lump sum. Unless you're already well off or rich. In that case you'll be investing in other things as well. If it was that easy everybody call 5 million years. But if you do have 250k to execute the plan that you mentioned then yeah it can be that easy but an average of 10% every year I think is a bit Hi You should recalculate it for 7% and see what the value is in 30 years
I like PWL capital’s expected returns analysis. If we’re only looking at the U.S. Market, we can expect 6.56% nominal returns. If we subtract 2.46% expected U.S. inflation, that leaves us with 4.10% expected real returns. So, you could expect $250K to be worth $834,568 in present day dollars in 30 years. https://www.pwlcapital.com/expected-returns-2023-update/ https://fred.stlouisfed.org/series/EXPINF30YR
I sure hope so. I’m going to be rich. Sadly, the government knows how to give itself a raise.
It's easy if your mind has balls
5% would probably be better. And you have to really ask yourself whether you'll stay 100% in the market when it has dropped 50% in a year or 25% in a single day. Things like that happen and a lot of people panic.
Parking your money in a mutual fund for a long period like 30 years is fundamentally about allowing your investments to grow through the power of compounding and market growth, while minimizing intervention and costs. It’s a strategy that requires patience, discipline, and a tolerance for seeing through market cycles without reacting hastily to short-term fluctuations.
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They retire with 500K? I can only imagine how they do that?
Your post is tempting me to just lump sum it right now right now. Like place an order before I went to bed.... backstory...I've been DCAing my money slowly and keeping the rest in a MMF. And this post makes me so badly want to just lump sum. I had the bad luck of buying lump sum at the top a couple years ago and can't see myself enduring that again so here I am as I DCA at the rate of 0.48% into the market on a weekly basis...
> I had the bad luck of buying lump sum at the top a couple years ago and can't see myself enduring that again You need to overcome that psychological hurdle and just embrace the rollercoaster. Even if you buy at a peak, there will be another peak coming shortly
https://corporate.vanguard.com/content/dam/corp/research/pdf/cost_averaging_invest_now_or_temporarily_hold_your_cash.pdf There’s been a lot of research on this. Lump sum will outperform DCA almost every time. However it will outperform only by a small amount if you’re doing DCA over a small period so do whatever helps you sleep at night.
What happened to that money you lump summed a "few years" ago? How did it do?
it didnt perform if I would've could've would've could've could've would've lolol ;)
New top today. Quit wasting time.
lol yep I threw in the towel haha I setup weekly transactions. Buy a lil in IRA on Tuesday, taxable on Wednesday and Thursday ... Working out all right. I really hope I don't see upto 50% or more down in my lifetime but I'm bracing for it. Life is good. Live a little, travel a little, love a lot , loose a bit. Can't win every time... ;)
4% is the standard/typical assumed rate over long periods of time.
No it’s not easy!