
Investing Returns on the S&P500 - minimaxir
https://github.com/zonination/investing/blob/master/README.md
======
jakozaur
I don't think it is fair to say that next 100 years will be same as last 100
years:

1\. GDP growth is not as high as it used to be anywhere in developed world:
[http://www.oecd.org/std/productivity-stats/oecd-
compendium-o...](http://www.oecd.org/std/productivity-stats/oecd-compendium-
of-productivity-indicators-22252126.htm)

2\. USA is superpower at the peak. Plenty of other stock market economies
hasn't been so successful. E.g. Argentina used to be one of the richest
country in the world. Investing in history is easy, e.g. you can also say
about Apple stock that it will always recover based on past data, but plenty
of other companies hasn't.

3\. Most of the 100 years we have inflation:
[http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_...](http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp)

Right now interests rate are close to zero, which is rare. Long term trends
may change if we continue to operate in those climate.

Edit: Inflation was factored in the graphs. Sorry I was wrong about that.

~~~
xiaoma
> _" anywhere in developed world"_

I hate this terminology. If the US has, in fact, "finished" developing, then
the future of the S&P will be bleak. I don't think that's the case at all,
though. I think development has just started and we'll see fantastic advances
in bio-informatics, solar power, 3D printing and a number of other fields in
the upcoming decades.

When I was a teenager, I pirated music. I seriously hope my children pirate
gourmet cheeses and burritos as teenagers. I download apps that organize my
notes. May they download the bio-app that lets them dunk from the free throw
line.

~~~
amaks
US is far from finishing deveping, fortunately or unfortunately. Take trains,
for example, area where US is far behind China, Japan, or European countries,
despite the size of its territory. I'm sure there are other examples.

~~~
nerfhammer
Tangent, but the US freight rail networks are much better than Europe. US is
good at freight rail and bad at passenger service, Europe is vice versa.

~~~
xiaoma
Actually, I find Europe's passenger service uninspiring compared to Japan or
especially Taiwan.

~~~
reddytowns
Taiwan's trains are subsidized

~~~
xiaoma
So are Japan's. The idea isn't to get a profit off of tickets vs operating
costs. The idea is to improve the efficiency of the country and economy. It's
an investment.

If the US had a similar political climate the east coast would already have
high speed rail from New York to Miami.

~~~
reddytowns
Japan has a very low subsidy and most of its railways are private and receive
none.

~~~
knd775
I think that Japan's population density and relatively small size makes it
much easier to make money on railways.

------
chollida1
Cool, this is very similar to what I had people do at one point as part of the
interview process.

Give them a bunch of historical data

\- find me the longest period that we would be flat/negative

\- find the best time to invest

\- find the optimal portfolio off stocks to hold over a given period.

I think I've said this before but I see too many people who think that they
need to have a huge public repository of code to show off in an interview.

If you want to be a programmer at a hedge fund just having some very shallow
analysis like the above would get a programmer to the top of the resume pile.

Now if you want to be a quant the bar is obviously much higher:)

~~~
mailshanx
I'm interested in walking the quant path. Just how high is the bar? And would
there be an equivalent project that would put a prospective quant to the top
of the resume pile?

~~~
chollida1
I've attached two pdf's on what you should expect.

The latter was the take home an old company used to give quants as a test. If
you can answer the questions on teh practicum then you probably have enough
math skills to start as a quant.

[https://drive.google.com/folderview?id=0B1iikX5PwNx4d2dKQ3FT...](https://drive.google.com/folderview?id=0B1iikX5PwNx4d2dKQ3FTSWVRSDA&usp=sharing)

~~~
aorth
Just in case anyone else doesn't know what a "quant" is: quantitative analyst.

[https://en.wikipedia.org/wiki/Quantitative_analyst](https://en.wikipedia.org/wiki/Quantitative_analyst)

------
dap
The NYTimes has a great visualization of S&P 500 returns for money invested
any year between 1920 and 2009 and withdrawn between 1921 and 2010:

[http://www.nytimes.com/interactive/2011/01/02/business/20110...](http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-
graphic.html)

~~~
tunesmith
I brought up this chart as a counterpoint to the OP's graph in a separate
discussion.

The difference is that this one factors in "taxes and fees".

In this chart, it says 1979-1999 is +8.2% per year.

Using the OP's data source, 1979-1999 would be 12.464% (using
[https://dqydj.com/sp-500-return-calculator/](https://dqydj.com/sp-500-return-
calculator/) which uses the same Schiller data set).

That's 4.2% per year obliterated by "taxes and fees". That seems excessive for
"taxes and fees", given that it's buy-and-hold.

I don't know what to make of this discrepancy but I find it aggravating.
Either Schiller's data has some strange assumptions built into it, or the OP's
analysis draws improperly bullish conclusions from it, or the NYT chart is
unreasonably bearish.

Either way, I still strongly believe people should not be generally expecting
their investments to quadruple in 20 years. There's a whole investment
industry that is based off of bad assumptions, and it's keeping people from
investing in actually producing value for themselves and others.

~~~
cesarbs
> and it's keeping people from investing in actually producing value for
> themselves and others.

What do you mean?

~~~
tunesmith
Well, starting a business is a good example - doing the work to find an actual
market opportunity and investing in it. Or, I could scrimp to put that money
in the S&P, or I could invest in myself through further education.

------
maxxxxx
Looking at the discussions here I find it interesting that even in something
as number driven as the stock market everybody argues about the meaning and
the validity of the numbers. There really is no clear picture.

But somehow the regular guy is supposed to navigate his way through this
jungle of conflicting, confusing or meaningless numbers. And considering the
long time frames most people don't have much opportunity for leaning from
mistakes and doing better. Once you realize that your strategy doesn't work
you have already wasted many, many years and lots of money.

~~~
dforrestwilson
1\. If you're right 51% of the time when you invest you're going to get rich.
Unfortunately the odds of you being right 51% of the time are incredibly low.
2\. Heed Rule #1, and put most (if not all) of your money in broad market
ETFs. 3\. If you DO decide to actively invest, think about your strengths both
in terms of character and industry knowledge and play to those. I don't know
jack about healthcare and have had my head handed to me in Biotech because I
am willing to hold through a lot of pain. What I AM good at is seeing strong
secular trends in tech stocks and value discrepancies there. So most of my
cash is in broad market ETFs, and I do a small amount of active investing in
tech and telecom. And I work in Equity Research..

It astounds me that so many people think they can be great investors. It would
be like me trying to build an ark with no experience in carpentry or ship-
building. Really it just strikes me as a legal and socially acceptable way to
gamble. Please recognize that this is a zero-sum game, and the other person
taking your trade is likely a professional who spends their entire work week
doing deep analysis.

~~~
hellofunk
> If you're right 51% of the time when you invest you're going to get rich.

Sorry, but this is completely incorrect.

The approximate formula for success in investing or trading is "percentage
right" * "average win profit" \- "percentage wrong" * "average loss" = overall
profit.

Many traders are correct only 20% of the time (I'm looking at you, stock
options traders) but make fortunes because they understand this formula.

You can also lose a lot of money even if you are right 90% of the time because
you fail to manage a big loss properly.

~~~
base698
Can confirm. Been trading options for 3 years, lose money on 90% of my trades,
but still up 30% for the year.

It's basic expected value, magnify your wins and minimize your loss to what
you know you can lose.

~~~
malz
So your counterparty makes money on 90% of his trades and is down 30% for the
year? He must feel like a schmuck.

~~~
hellofunk
That is not at all how the market works.

------
ozten
Does the stock data used suffer from Surviver bias?

That is a free download of historical data that lacks failing, delisted
companies of the past.

~~~
mrb
Yes sometimes companies are delisted from the S&P500, but if you invest in an
S&P500 _index fund_ , then your investment is also automatically adjusted to
remove that company.

Which makes me think: with index funds becoming more and more popular, should
we see bigger and bigger crashes of stocks when they are removed from an
index?

~~~
SilasX
And then that index fund has to take the loss that comes with having bought a
stock that failed and sell at a loss, while not capturing the gains of stocks
that got big enough to make it on the index.

Shouldn't the index "return" thus diverge from the return of an actual index
fund in practice given enough years?

~~~
jonknee
That's not how it works, the return of the index is the actual return of the
included stocks _while they are in the index_. There will be winners and
losers, but the return is actually what you get.

~~~
ced
I'd appreciate if you could expand on that, because I share the same concern
as GP. It seems to me that the index fund has to sell a lousy company at a low
price (since it's being delisted) and buy a strong one that's being included
in the index. Whereas the index, being just a number, can magically perform
the swap without taking a hit.

~~~
jonknee
Sometimes it's OK to sell a lousy company at a low price--it's a lousy
company! The beauty of a wide index fund like the S&P is that any one company
diving won't hurt you. Companies typically last in the S&P for a _long_ time,
so the potential gains of adding companies earlier or selling them at a
different time average out. Even Facebook has more than doubled since being
added to the S&P and that's the definition of a strong growing company. If you
really like a company that is being booted from the S&P you can just go buy it
directly after the announcement and you'll most likely be able to pick it up
on quite a discount.

You can use different indexes if you want to have smaller companies (the
Russell 2000 is a good choice), but the whole point of the S&P is that it is
made up of established firms. Perhaps lower reward, but also lower risk.

~~~
robryan
Is there any data out there on variations? It would be interesting to see how
other strategies compare such as buying the next 100 largest market caps
outside the S&P 500, also not selling stocks that are removed.

------
tbrooks
Warren Buffett bet $1mm that S&P500 will outperform a hedge fund over a 10
year period.[1]

That's good enough for me, I'll follow the oracle.

[1] [http://longbets.org/362/](http://longbets.org/362/)

~~~
comboy
This bet ends in less than 2 years. Does anybody know what would be the result
if it would end now?

edit: I guess it depends on the detailed terms that they haven't disclosed,
but educated guesses are fine

~~~
phonon
65.67% vs. 21.87% returns so far (net after fees)

[http://fortune.com/2016/05/11/warren-buffett-hedge-fund-
bet/](http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/)

Almost impossible for Warren to lose at this point.

~~~
emblem21
Hedge funds are downstream of money with performance-driven interest.

Markets (the major players that skew the averages) are downstream of banks who
use money the Fed's pay the interest on.

His gamble is that the elite would rather give the market unlimited welfare a
la Japan to keep the signals of valid global demand alive.

The Fed will not allow a correction... mostly for political reasons.

~~~
AnimalMuppet
I don't think that was the gamble when Buffet made the bet. The gamble then
was, in ten years of completely unknown (at the time) market conditions, the
S&P 500 will outperform hedge funds.

If you picked a different 10 years (say, 199X-200X or 200X-201X), I suspect
that Buffet wins for most values of X, but I have not checked.

------
rando18423
Lots of talk in here concerning superpowers falling, and not much about how
it's way more favorable for companies to use debt financing in a low interest
rate environment... Lol developers should stick to developing

~~~
Evolved
Who do you think created HFT (High Frequency Trading) systems? Surely bankers
_stick_ to banking but hire developers to give them that competitive edge. The
odds are that software engineers would have come up with the idea of and
implementation of, a working high frequency trading system before bankers
would have despite banking probably not being a software engineer's specialty.

~~~
rando18423
I think market makers used technology to do exactly what they've always done
at increasingly higher speeds. History also shows you're wrong, for hundreds
of years market makers have sought an edge by trying to get information faster
and faster. Hell, it used to be carrier pigeons that gave them the edge.
There's really not much new here...

~~~
AceJohnny2
> for hundreds of years market makers have sought an edge by trying to get
> information faster and faster.

And then it spurred the telegraph, and then the telephone, and then... :)

------
vanderfluge
I'd be curious to see results for other countries, the graph of "Chance of
Losing in the Stock Market" in particular. In the case of Japan, it appears
that if you'd still have significant losses if you invested 25-30 years ago:
[https://finance.yahoo.com/echarts?s=%5En225+Interactive#{"ra...](https://finance.yahoo.com/echarts?s=%5En225+Interactive#{"range":"max","allowChartStacking":true})

~~~
lintiness
this is the biggest fallacy in the investing thesis. buy and hold didn't work
in russia, or argetina, or many others. because we live in a country that's
prospered (for a plethora of reasons), we assume the prosperity must continue
unabated forever.

~~~
varjag
Would investment in a Russian market managed fund panned out any better?

~~~
cesarbs
I think they're referring to the fact that the Russian stock market collapsed
completely (i.e. total loss) in the beginning of the 20th century.

~~~
varjag
Clearly. But they were considering investment strategies (buy&hold vs
alternatives). My point was that few if any investment policies would hedge
you against market extinction events.

~~~
e12e
I would probably have preferred to own real-estate in Russia... Although If we
look back to before ww2, probably not...

------
Jabbles
"Buy and Hold" applied to the S&P500 actually means "sell when an individual
company loses enough market cap, buy one that has gained enough".

------
tunesmith
The other reason none of these returns are realistic for an average person:

1) People don't get a lump sum at the beginning of their investment history

2) Ah, but you say, dollar-cost-averaging. The problem there is that people
get more money to invest when times are good, and less when times are bad.

3) As a result, even when buying in responsibly, people are buying more when
the market is high, and less when the market is low.

It distorts performance. Plus, betting on having average-or-better performance
is a risky bet. Don't count on more than 2.5% / year lifetime.

~~~
vm
A lot of companies offer retirement plans where a % of income is invested
monthly, a la dollar cost averaging (e.g. 401k plans). It's really easy to set
up and let ride on autopilot.

~~~
greedo
But that still skews the dollars invested. At age 22 (college grad) you might
make $50K. You put in 6% and get a 3% match, for $4500 into your retirement
fund.

Fast forward to age 50, when you're making 200K (this is 28 years from now, so
inflation and pay raises bump you very high), you're putting in the same %,
but that equates to $18K/year.

So even with dollar cost averaging, the majority of your money is invested in
a small, 10 year time window when you are at peak earnings.

~~~
cryoshon
Ahem, good comment, but:

At age 22, you make 25k and get 0% matching, and can afford 0 to put into your
still-hypothetical retirement fund.

At age 50, if you're the median person, you make 50k. And you need that money
to put your kid through college.

------
chrismealy
The stock market isn't some immutable thing. It's the product of economic and
social forces, the share of income given to capital and labor, international
politics, etc. Basically stocks are a convenience for rentiers that the little
people are allowed to access. There's no reason to expect the social forces
that underly market returns will deliver the same returns in the future.

~~~
tim333
>There's no reason to expect the social forces that underly market returns
will deliver the same returns in the future.

Except human nature is the same, economics is the same.

~~~
cmrdporcupine
Except that people didn't live under a capitalist economic system with stock
exchanges, shares, and private property for the 10000 years of settled urban
existence before the 18th century, so, yeah -- apparently "economics is the
same" isn't true.

~~~
cesarbs
I suggest you read A Splendid Exchange. Although humanity didn't have the
exact same economic system as today's, it's a mistake to think there weren't
complex systems in place in the past.

~~~
cmrdporcupine
I never said anything of the sort that there were not complex systems in
place. Precisely because I can see that I can say that the system we have now
is not inevitable, immutable, or eternal.

------
yread
Would be more interesting to compare it against a realistic return from a
savings account instead of saying "if the index is worth the same after 20
years then you haven't lost anything". You would have almost 25% more even in
a 1.1% savings account.

~~~
arbitrage
I haven't seen a 1.1% savings account in the better part of a decade. Perhaps
that's not useful to theorize about in the modern economic wonderland we've
created.

~~~
kapkapkap
[https://www.ally.com/bank/online-savings-
account/](https://www.ally.com/bank/online-savings-account/)

------
minimaxir
via this /r/dataisbeautiful post, with added commentary from the author:
[https://www.reddit.com/r/dataisbeautiful/comments/4q9iwa/40_...](https://www.reddit.com/r/dataisbeautiful/comments/4q9iwa/40_years_of_investing_returns_in_the_sp500_with/)

------
rrecuero
I really like the write up & simplicity of the explanations. Obviously,
choosing Vanguard Index funds and avoiding timing the market it is a great
financial advice. One piece that I always find missing is that in my opinion,
money is not worth the same as you age.

From my point of view, money in your 20s, 30s have 3x or 4x more value than
when you are 50. You can go skydiving, scuba diving... When you are 60 your
options to enjoy that money are much more limited. I think that should be
factor in financial decisions that it is often overlooked

------
eevilspock
What of opportunity cost? That should be factored in just as inflation is.

> After 20 years, you're almost guaranteed to sell high.

Not if you factor in opportunity cost. If I invest $100K and after 20 years I
sell at $110K, which works out to a 0.5% APR, I wouldn't consider that selling
high.

------
ryandrake
Funny how his time horizon stretches out to 150 years, where the vast majority
of people don't live past 100, and have probably, what 25-35 or so years of
investing time in their lives? The insanely long term is a simplified look at
the stock market as some money-multiplication machine, but I don't think it is
really that to most people.

Given a normal person's time horizon, the difference between "did I start
investing in 2007 or in 2009" is significant.

~~~
dceddia
A little further down it shows graphs of a "typical investing timeline" from
around age 20 to age 60. It still looks pretty solid.

~~~
ryandrake
Ahh, you're right. My comment is directly addressed in the article--that's
what I get for skimming it. My only nit then would be that I don't know too
many people in their 20s putting money into the stock market. Most people that
age are spending every dollar they make on rent and their student loans.
You're probably not in the position to "invest" until you have a professional
job, well into your thirties.

~~~
lmickh
Typical federal student debt payment is ~$300/mon assuming 6% interest, 10
year repayment, and >$30k of debt. With less than $35k income, that payment
drops.

You have to make some really poor decisions about where you live to be
spending every dollar on rent and student loans assuming you have a job that
does not pay minimum wage.

Making investing a priority can be hard, but it is far from impossible at that
age. Even a small amount early on will far out weigh a much larger amount
invested later. It is important to communicate that instead of telling people
they probably can't do it.

------
enoch_r
By defining the probability distribution as the historical distribution of
one-year returns, you're severely warping the possibility space. Imagine two
experiments:

Experiment A: you flip a coin 1000 times. You estimate the probability that
the coin flips heads, and use this to estimate the odds of flipping 10 heads
in a row.

Experiment B: you flip a coin 10 times. You repeat that experiment 100 times.
You use the results of that experiment to estimate the odds of flipping 100
heads in a row (by looking at how many times it occurred, and dividing by
100).

Assuming reasonable results and a fair coin, you'll conclude from experiment A
that the probability of a heads flip is around 50%, and that the odds of
getting 10 heads in a row are (1/2)^10.

In experiment B, ~90% of the time you'll conclude that it's impossible to flip
10 heads in a row, and ~10% of the time (in the cases where you did flip 10
heads in a row at least once) you'll overestimate the likelihood of doing it
again by a factor of 10 (at 1%, instead of the true value, <0.1%).

So when you only look at annual returns, you're effectively looking at an
aggregate of 365 daily returns (or 365*6.5 hourly returns).

------
HorizonXP
It's funny that this is so non-intuitive. My wife continues to try to "time
the market" despite me telling her that it's pointless over such a long time
horizon. Maybe this will help convince her.

~~~
purplelobster
That's because most people (perhaps subconsciously) view the market as zero
sum. What goes up must come down.

~~~
VLM
Negative sum, all that fun hardware and hard workers live off trading
commissions.

Something to think about is the market originally existed to raise capital for
massive industrial projects like transcontinental railroads and Ma Bell and
steel mills and factories in general.

That's methodically been destroyed and soon will be as economically relevant
as selling farm tractors is today.

True its diversified out into providing capital to set up financialization
schemes, holding companies, stuff like that. But in the very long run I'm not
seeing a purpose in having a stock market. That would tend to make it go away.

Take America 2016 and just turn all the dials up to 20 and call predictions
for 2036. The last industrial employer closed years ago so no need to raise
money for factories full of workers. The last privately funded construction
project was built long ago and all construction not just sports stadiums and
corporate HQs are completely government funded, no need for stock market funds
if all the money comes from taxpayers. Income inequality has accelerated to
the point of there no longer being a consumer economy, no need to finance
consumerism like retail stores or car loans by selling stock. That also means
no advertising because there's almost no value left to extract once all the
blood has been squeezed from the stone, which in a country where no one can
afford medical care, higher ed, or housing means they don't need to sell stock
because they've crashed and no longer exist for all practical purposes. Of
course this sounds all rather negative but theres plenty of good news. I'll
continue to front money to my local farmers for my vegetable CSA and my
occasionally "half a cow" purchase... although none of that requires stocks.
Now that software has eaten the world and no computers cost more than a $5
Raspberry Pi, I can work a startup at my local makerspace with practically no
money and certainly no need to raise money by selling stock, capitalist
industrialism was so 19th century, I don't need to sell $25K of stock to buy a
Sun SunOS minicomputer to serve DNS in a world of cloud computing and $5
raspberry pis. There's no need to invest 401K funds because everyone except
the hyper wealthy is dirt poor, so no financial market demand.

Yes yes the interval from 1850 to 2000 or so was an era of needing massive
investment to build industrial infrastructure. And we need great piles of cash
in say 2050 to build... what? Nothing, would be my guess. So the marketplace
to raise great piles of cash will go away, more or less.

The future being unevenly distributed, you should be able to find a country
today thats de-industrialized (or never industrialized to begin with) and has
wide enough income inequality that the population has mostly gone back to
barter (probably computer / smart phone assisted agent bartering, but no
currency anyway). One where most of the population works non traditional jobs,
more like subsistence farmers or subsistence economy in general. How about
subsistence farming in Columbia, how healthy is the fraction of the Columbian
stock market that focuses on or works closely with subsistence farmers? Oh
there isn't one? Oh. Well that's the future of the NYSE given recent trends.

------
pbreit
I am not a financial advisor and this is not financial advice!

Robinhood seems like an OK way to keep a free portfolio of ETFs approximating
a Vanguard all-in-one fund.

My super-unscientific portfolio is loosely based on Vanguard's LifeStrategy
Growth & Moderate Growth funds with a sliver of MGK that seemed to both boost
returns and moderate declines.

A $5k portfolio would be 6 MGK (10%), 19 VTI (40%), 23 VXUS (20%), 12 BND
(20%), 9 BNDX (10%).

From what I can tell, you can hold this portfolio in Robinhood for free.
Shouldn't need to re-balance more than once per year or so.

[https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...](https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0914)

[https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I...](https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0122)

Pay off your credit cards and max out your 401k/IRA first.

~~~
artursapek
I really don't understand the appeal of Robinhood... if you're going to hold
stocks for years you really shouldn't be skimping on an $8 commission. Get a
proper broker with a reputation.

~~~
smpetrey
Well for one, it's about disruption and change. The creators are more than
familiar with brokerage, and it shouldn't be a shocker that most brokers do
not operate trades, it's mostly electronic.[1] If you're going to hold stocks
for years, why not skimp on an $8 commission? If you make a purchase of 100
shares of $FB, it could save you at least $800 for that sale.

So the real question is, why not?

[1]
[https://www.youtube.com/watch?v=JwpQpFqzoAE](https://www.youtube.com/watch?v=JwpQpFqzoAE)

~~~
jdmichal
> If you make a purchase of 100 shares of $FB, it could save you at least $800
> for that sale.

That's not how commissions work. They are per order, not per share.

~~~
inthewoods
Not completely accurate - while most brokers are per order, you can use a
broker such as Interactive Brokers which charge per share (with a minimum).

~~~
jdmichal
Yes, at $0.005 per share. It's pretty obvious that $8 is going to be a per
order commission.

------
the_watcher
I wouldn't say this is surprising. If you can extend your horizon, you can
weather downturns that reduce your asset value, buy while demand is low, and
simply wait for the cycle to reverse. Real estate shows the same pattern. The
problem is that not everyone has the means to simply extend their horizon.

------
edpichler
I am a holder and, as a small stock market investor, this study is gold to me.
As a holder, the worst years are the first decade, after that, the interests
become explosives.

The difficulty to be a holder is to spend less on the present to get return in
a future. Human being is definitely not good on this.

------
pfarnsworth
Try this on stock markets like the Nikkei, and I think you'll find completely
different results.

~~~
Apes
I definitely am interested in seeing this for different stock markets, and the
global stock market.

------
ianai
The take-away I got from this is: unless you have 30 years, forget the s&p 500
market.

------
thro1237
Is it possible to do it for dollar cost averaging? That is what happens if one
didn't invest in a lumpsum but invested $1000 every month -- how does the
returns look like for different time periods?

~~~
prattmic
It is only over 10 years, but Vanguard has a short analysis of Dollar Cost
Averaging at
[https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c...](https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-
cost_Averaging.pdf)

~~~
pilom
The gist of their analysis was "since the market always goes up eventually,
investing all up front will give you higher average returns but significantly
higher variability"

------
sp527
This is not very interesting. Anyone who has attempted even a cursory
inspection of market returns understands this rationale.

The more interesting problem is to attempt to train an investment curve based
on some normalized metric for market value, which would be superior to both
the lump-sum and DCA strats. What he's not showing you is that gyrations in
the market have a tremendous impact on the long-run return outlook and this is
extremely detrimental to the lump-sum strategy in particular. DCA is slightly
better but still not perfect. You therefore want to pool cash over certain
periods of time and invest more, relatively speaking, during periods when the
market is trending lower. This is a tough model to construct because there are
certain subjective features (how to normalize market value properly) and more
complicated variables you have to account for like a negative ROI on holding
cash.

All that said, I actually built a model fitting this description a while back
and it works swimmingly.

------
tempestn
One important thing to note is that although the far right end appears to
narrow, that is not because returns become more certain over very long time
ranges, but rather simply due to lack of samples over those very long periods.

What's more indicative of reality is the relatively constant vertical
distribution, in a log scale, across any time range up to about 90 years, when
the lack of data starts to play a significant role. So, in relative terms,
uncertainty remains fairly constant over time. In absolute terms it actually
increases. In a sense risk still does decrease over long time horizons, as the
chance of earning over any given amount does increase with time; contrary to
common belief though, the distribution of possible returns (another possible
definition of risk) actually increases with time - or remains roughly constant
on a log scale, as mentioned.

(You can find a great many opinions surrounding this by googling "time
diversification".)

------
kmm
I like the animation. You can see crises percolate backwards in time

------
nullc
These graphs with inflation adjusted returns need a cash line, to show that in
inflation adjusted terms cash is not some magical safe option that doesn't go
under 1.0.

------
plg
an oft-neglected nugget of info that has great bearing on a buy-and-hold
approach, esp with mutual funds: FEES

Fees can kill your returns

There are many low-fee or no-fee options

~~~
mercutio2
To the best of my knowledge, there are no available to the general public
truly no-fee options for having someone else buy a variety of stocks for you.
ETFs internalize fees, so many people are not aware of them, but their fees
are generally comparable to the equivalent index fund's fees.

------
chae
As somewhat alluded to in the article, some of the graphs here extrapolate
historical data and assume it to be a good predictor of the future. Without an
understanding about the deep nuances of economics - for which someone else can
supply good or bad reasons why this or that might happen - there is no reason
why the future should necessarily rely on anecdotal evidence.

------
tim333
If you want to know the returns for the next 7 years, GMO has quite a good
track record, based on ratios being mean reverting
[http://www.gurufocus.com/news/349958/how-to-play-gmos-
latest...](http://www.gurufocus.com/news/349958/how-to-play-gmos-latest-7year-
asset-class-forecast)

------
FuNe
<fun-at-parties-mode: on> Ehm it's a bit of a long shot to assume next 100
years will be more or less business as usual. Having said that and after a
quick look around the climate frontier, economy and international affairs I'd
probably buy (if I had money to burn) defence industries stock. <fun-at-
parties-mode: off>

------
bllguo
Very cool project, but - and I mean no offense by this - these views are
taught in basic finance! There are similar graphs in standard finance texts.
So it surprises me that so many people here seem to be caught off guard.

I look forward to seeing where the project will be heading next. In fact it is
inspiring me to do similar analyses.

------
meric
This is great analysis. Keeping in mind there's more motivation to do this
kind of analysis during euphoria phase of the stock market than during
capitulation phase of the stock market like in 2009 or 2010, I think this
shows investing in the long term will cancel out losses in the short term.

------
Jackmc1047
It would be great to see the long term results as compared to buying less
risky assets, like treasuries. It's not a question of whether the market's
returns are positive over the long run, but whether they are positive enough
to justify the additional risk.

------
pilom
If you want to run your own analysis about what retirement might look like for
you, I recommend the extremely powerful
[http://cfiresim.com/](http://cfiresim.com/)

~~~
hellofunk
Wow that site's UI needs some work. Just the wordings are confusing with no
explanation.

------
nradov
This is a silly analysis in that it ignores investment costs. You can't invest
in the S&P 500. You have to either buy an index mutual fund, or buy the
individual component stocks. Either way the investment costs will
significantly cut into long term returns, even with a fund like VFINX.

~~~
Inufu
The expense ratio for VFINX is 0.16%, compared to average yearly returns of
6%.

Over 30 years, that's the difference between 5.74x and 5.48x your starting
capital. Noticeable, but insignificant compared to the taxes you'll pay.

~~~
twblalock
It can be even cheaper than that. If you buy VOO, the ETF equivalent of VFINX
(Vanguard's ETFs hold the same portfolio as their corresponding funds), the
expense ratio will be only 0.05%. If you buy this ETF through Vanguard, you
will not pay any commissions. It's very close to being free, and definitely
the cheapest way to invest in the S&P 500.

------
javiramos
I have followed
[http://www.crossingwallstreet.com/](http://www.crossingwallstreet.com/) for
years. I have traded the portfolio he lists and I've done pretty well. His
focus is in the long-term...

------
styli
any chance you can show us some of the source code? curious to know how to
build these type of graphs.

------
thomaslieven
i've made simmiliar visulations in backtest app which shows returns on cash
invested > [https://itunes.apple.com/cz/app/backtest-stock-asset-
portfol...](https://itunes.apple.com/cz/app/backtest-stock-asset-
portfolio/id1064281237?mt=8)

------
known
Just find out how to do insider trading without getting caught.

This is even better :)

"Give me control of a nation's money supply, and I care not who makes its
laws." \--Rothschild, 1744

~~~
jrockway
Just buy a baseball bat and threaten to hit people if they don't give you
their money. Way better returns than the stock market.

Of course, you won't be able to enjoy that money in prison.

------
socrates1998
There are a lot of issues with this data.

1) Last 100 years has ZERO chance to be the same as the next 100 years.

2) The SP 500 adds and subtracts companies as they grow, fold and go bankrupt.
So the only way this would be maybe work is if you invested in the ETF.

3) Macro-economic events are notoriously hard to predict and anticipate, and
your returns are very much tied to how you time your entry point. If you
invested in the beginning of 2008, you would have a 33% return, same for a
2001 entry. In the beginning of 2009, around 100%.

Or a mid 2013 entry would get you a 17% return for three years, around 5% a
year.

And if you invested in mid 2014, you haven't seen ANY return, 0%.

The point is that entry points are insanely important. Getting 33% return for
15 years is horrible, especially given the opportunity costs.

This is the problem that you get when Warren Buffet fools you into "buy and
hold". Yes, it has worked for him, but he is an insanely great investor. You
can't replicate his returns. You can't even sniff his returns.

So what's the answer? I don't know, do what you want with your money, just
don't listen to anyone who thinks they know the answer.

~~~
edanm
I totally disagree with your points.

"2) The SP 500 adds and subtracts companies as they grow, fold and go
bankrupt. So the only way this would be maybe work is if you invested in the
ETF."

First of all, it's not _the_ ETF, it's _an_ ETF. And this isn't exactly news -
this is the basic method of investing always recommended (alternatively, an
index fund, which is similar).

"3) Macro-economic events are notoriously hard to predict and anticipate, and
your returns are very much tied to how you time your entry point. If you
invested in the beginning of 2008, you would have a 33% return, same for a
2001 entry. In the beginning of 2009, around 100%."

Well, yes, but this is kind of the point of the article. It shows what is the
chance of coming out ahead out of any 20 year period in the last 100 years.

"This is the problem that you get when Warren Buffet fools you into "buy and
hold". Yes, it has worked for him, but he is an insanely great investor. You
can't replicate his returns. You can't even sniff his returns."

Warren Buffet _doesn 't_ "buy and hold", but he recommends it for most people
exactly because it's relatively easy, and gives you very good returns.

