(All numbers are total return, the 2019 source didn't have fractions of a %)
That's not a bad four years' return.
(Yes, December 2018 had a big decline -- but the first 11 months of the year were pretty good, and we ended only 4.38% off even with the 21% decline in the last month)
I wasn't trying to make a special significance by looking back exactly four years -- I picked 2016 as a starting point because I felt that it gave enough context to show that the big drop in December 2018 was a little blip in what is actually a huge uptrend.
The value of the index tells very little. You must compare market cap to something and look at the ratio.
Here is good summary of important ratios December 27, 2019 https://www.yardeni.com/pub/valcapsales.pdf SP500 price to sales, price to earnings, market capitalization, TOBIN’S q.
We don't know what happens, but it's certain that if you buy SP500 at current price level, you must accept significantly smaller return next 10 years than previous 10 years.
Inflation..? What? We’re in a very low inflation environment right now. The Fed is actually trying to figure out how to get inflation to the target 2% annually. Unclear if they met it or not.
We've been conditioned to think of inflation as the rising cost of toilet paper and gasoline. But not in other things like stocks, bonds, rents and real estate. In theory the last two are part of orthodox inflation but they are heavily gamed. We've also been conditioned to think in terms of rates but not integrated over time.
Some things are more volatile than others. Since nothing can increase in price faster than inflation forever, there's no point in including the volatile things in your index. This is why inflation indexes commonly leave out energy. People say "but everything uses energy!" as if this was a problem - yes, everything uses energy, so the long-run increase in energy prices will be reflected in everything else, so it doesn't need to be explicitly included.
Somebody said that in an efficient market prices are within a factor of two of correct. People are so caught up in the fact that we have prices of everything to fractional pennies every microsecond, that they can't conceive of just how much is false precision.
Can't you begin by admitting that there is some uncertainty, that every price implicitly has some +/- amount associated? And next, consider that when an entire company is purchased, it usually costs a lot more than the immediately prior trading price, showing that separately from uncertainty, there is a big range between different shareholders?
People always predict the future from the past, but there are different ways to define a pattern.
Many people think that since the US stock market returned 8-10% for the last ~30 years, then it will for the next 30. This has worried me for a long time for various reasons, but nobody seems interested in my reasons.
However, a new way of looking at things occurred to me recently. In the early 80s, 30 year treasury bonds were ~10%, and with hindsight, stocks were very good buys too. If you bought either one and held until now, you would have made a pretty similar amount. So, if the future resembles the past, maybe what we should expect is that the stock market return for the next 30 years will be the same as the interest on a 30 year treasury today. Nominal, not inflation adjusted, which means ~2.3% is the best case scenario, and civilization collapses if inflation returns. Also, since dividends are about 2% and inflation is not zero, that means after tax returns for non-retirement funds are going to be essentially nothing.
> What makes you think that the next 10 years will generate smaller return?
Look at the link I provided.
If you have goose that lays golden egg worth $1000 every year, and the price of the goose goes from $20,000 to $30,000, how does the ROI (return of investment) change?
Valuation of thing relative to valuation it provides is important. All the factor of economic growth in OECD countries are declining so you should expect lower ROI (once the effect from increasing leverage stops).
