I'm old enough to recall the boom of the 1990s. Me and my professional friends were constantly invited to come to seminars about investing. All the mutual funds were trying to convince us to invest in the stock market. At that time, the stock market was booming, so it was easy to believe that investing in the stock market was a legitimate way to become wealthy.
All of the pitches recited the same set of numbers: we could invest in low risk mutual funds and get 12% returns, or we could invest in high risk mutual funds and get 16% returns. It was explained that when we were young we should prefer high risk strategies, and as we got older we should prefer lower risk strategies.
Then the crash of 2001 happened. Nasdaq took 10 years to come back to life. The stock market was flat for many, many years.
Around 2003 we started getting invitations to seminars that taught us how important it was to invest in real estate. We were told that the value of homes had never gone down, in all of USA history. It was the safest investment, and had significant returns.
Then the crash of 2008 happened. My friends who had bought homes were underwater. Even as recently as 2015, I still had friends who owed more on their homes than the homes were worth.
These notions that it is easy to get stable long term returns has not been born out by my experience, or the experience of any of my professional peers.
Our actual experience was very well described by the Bible:
"I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."
And yet the annualized rate of return of a total stock market index from 1990 to 2017 is 9.82%. There are absolutely booms and busts. It’s absolutely not stable when you look inside the cycles. But there are, reliably, cycles. Period and amplitude vary. But on a long enough time horizon, it works out. It’s also expected to decree as your risk exposure as you get closer to retirement to mitigate the risk of retiring at an unlucky time.
And yet, starting tomorrow, we might be at the start of another down cycle like the one that ran from 1966 to 1982. That was 16 years. For any actual living individual, it would be life changing, in a bad way. Even for young people. From 1966 to 1982 the nominal stock market index declined slightly, at a time when inflation was in the double digits, so the real rate of return was horrible.
Yes - no one is proposing that one can retire in 16 years. The S&P 500 over a 40-year working career from 1966 to 2006 returned 5.57% after inflation [0].
This is basically impossible for reasons explained here:
https://voxeu.org/article/suprasecular-stagnation
I'm old enough to recall the boom of the 1990s. Me and my professional friends were constantly invited to come to seminars about investing. All the mutual funds were trying to convince us to invest in the stock market. At that time, the stock market was booming, so it was easy to believe that investing in the stock market was a legitimate way to become wealthy.
All of the pitches recited the same set of numbers: we could invest in low risk mutual funds and get 12% returns, or we could invest in high risk mutual funds and get 16% returns. It was explained that when we were young we should prefer high risk strategies, and as we got older we should prefer lower risk strategies.
Then the crash of 2001 happened. Nasdaq took 10 years to come back to life. The stock market was flat for many, many years.
Around 2003 we started getting invitations to seminars that taught us how important it was to invest in real estate. We were told that the value of homes had never gone down, in all of USA history. It was the safest investment, and had significant returns.
Then the crash of 2008 happened. My friends who had bought homes were underwater. Even as recently as 2015, I still had friends who owed more on their homes than the homes were worth.
These notions that it is easy to get stable long term returns has not been born out by my experience, or the experience of any of my professional peers.
Our actual experience was very well described by the Bible:
"I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."
http://biblehub.com/ecclesiastes/9-11.htm