Nice, but I would be more interested if they also took inflation into account. How long would it take to reach 1mm _in todays dollars_? 1mm in 45 years could be something like $330,000 in today's dollars (calculated with default values from this calc: https://smartasset.com/investing/inflation-calculator#CbeXqX...). I'm not following financial markets at all, but I noticed the other day that this year the US had maybe the highest inflation rate since around 1990?
What I've found interesting this year is the response of the "average" US person to inflation - by which I mean somewhere between panic and grave concern.
Whereas where I live inflation has been in the 3-6% band, give or take a bit, my whole life. At the moment it's near the top of that band. And to be clear people here have complained about it my whole life too.
But inflation has 2 interesting attributes. It devalues savings (so instead encourages either plain spending or asset-other-than-cash accumulation, and it also devalues loans.
In other words it intrinsically encourages things like home-buying, (mortgages can be used here as savings accounts as a store for savings, thus saving interest and offering effective rates same as your mortgage).
Hyperinflation is bad, but we're not talking about that.
And if you are on a fixed value pension then sure, it's getting smaller. (hint: avoid fixed value pensions, that always ends up being worse than you think.)
In short inflation is not good or bad, it's just a part of life that offers a bunch of upside for those that keep their eyes open.
With current banks, most of them having negative interest, this method will make sure your grandkids will become poor if you put today a million dollars for them in an account. Best way is to invest instead of deposit.
An OK resource, but very much "draw the rest of the owl". Compounding interest is indeed powerful. But good luck finding a savings account that gives you 5%...
... and the other risks. I use the word 'risk' in the English sense and not the borderline deceitful co-option of the word by the finance ecosystem -- I guess one appears smarter if one replaces 'increasing' with bull. Consequently, a lot of bull is what we get.
You may have noticed various pensions being bailed out by taxpayers - assume this will continue, although the rampant and excessive inflation is also alleviating this problem (to the detriment of beneficiaries).
This perspective seems common, so I’m curious where you are keeping your money that you have been seeing returns in the 5% range given that basic S&P 500 index funds have turned in a 10-year average of closer to 17%.
What types of investments are you using to generate the perspective that 7% is rather optimistic?
US stocks have experienced stellar returns over the past 10 years that exceed growth in underlying earnings. Returns over the next 10 years will likely be lower as the stock market reverts to the mean. The cyclically-adjusted P/E ratio (CAPE ratio)—defined as current stock price divided by average annual earnings over the past decade—is a common way of looking at mean reversion. The relevant results can be found in Figure 5 (page 10) of a 2016 study by StarCapital Research [1] or Figure 1 of a 1996 study by Robert Shiller [2].
As of Fri Dec 3 2021 the CAPE ratio for the S&P 500 was ~38 [3].
Valuations are important, thanks for raising the CAPE ratio. My intuition is to adjust every valuation concern for the extremely low level of prevailing interest rates. Fortunately, Schiller (of the CAPE ratio) already has a measure for this: excess CAPE yield[1]. Current ECY is roughly where it was in a decade ago, near the beginning of a long bull run. TL;DR; as long as interest rates stay low, equity valuations are not necessarily out of whack.
Interest rate forecasting is a different beast entirely, but worth noting that we have not had "normal" interest rates for ~15 years (and then only for a couple of years), and Japan has not had "normal" rates for close to 30 years.
