> If the market sucks so much for 5+ years and your government can’t get it pumped back up, you probably have a bigger problem than your retirement savings, such as food and energy and security shortages.
The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual.
> It would be bold to bet against a government not constantly decreasing the purchasing power of its currency to prop up asset prices, especially with declining proportions of young people. The political apparatus will want to maintain old people’s position at the top of the social hierarchy, and if their purchasing power isn’t maintained so they can keep buying the fruits of others’ labor, it means the country is dissolving.
How does the government decreasing the purchasing power help old people?
This is quite the opposite, retirees survive off of a fixed income (mainly from welfare and pensions but also fixed income investments since they shouldn't risk the stock market) and are the most hurt by inflation.
> The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual.
At its worst, 1999 to 2009, SP500 total annual return was only -0.2%, per dqdyj. Thats really good considering the upside (which has since been realized), and it shows that the government is willing to pull out all the stops if the market is down just -0.2%.
> How does the government decreasing the purchasing power help old people?
Old people are likelier to have assets and/or fixed income from assets (such as defined benefit pension funds). The government can also increase Social Security benefits quicker than wages in the market. The government also can maintain current benefits and reduce them for younger people by increasing the retirement age and adjusting the “bend points” in the benefit formula.
Of course, the poorest old people won’t benefit as much, but there’s a solid contingent of old people who do have at least real estate in their home, if not investments in the broader market that are very politically active.
> mainly from welfare and pensions but also fixed income investments since they shouldn't risk the stock market) and are the most hurt by inflation.
They shouldn’t be in fixed income for expenses needed beyond 10 years. I’d even be so bullish as to say 5 years. The demographic changes of the population pyramid flattening and turning down just started hitting economies in the 2000s. I don’t see any other way out for governments, so your goal is to tread water, you at least want to be invested in whatever the politicians are going to backstop (which is evidently not USD or fixed income, but rather equities).
>At its worst, 1999 to 2009, SP500 total annual return was only -0.2%, per dqdyj.
That might not be adjusting for inflation. According to the calculator on moneychimp, with adjusting for inflation, the cagr for the S&P 500 over that time period was -3.42%. (i.e. $1.00 shrank to 71 cents if invested in S&P 500 Jan 1, 2000 to Dec 31, 2009.
>...and it shows that the government is willing to pull out all the stops if the market is down just -0.2%.
I imagine the potential collapse of the financial markets, was maybe a more important cause of monetary and fiscal policy around that time.
We don’t need to adjust for inflation since we are comparing nominal returns across the board.
What other investment options were there from 1999 to 2009 that had a similar risk profile (implicit backstop by government), but also unbounded upside (unlike fixed income options)?
> I imagine the potential collapse of the financial markets, was maybe a more important cause of monetary and fiscal policy around that time.
Because the businesses are so big ABs interconnected now. If a mom and pop family business goes out of business, that’s a few people who need to scramble, they’re not politically influential enough for a bailout.
If multiple SP500 companies are at risk, then I am going to bet Congress is going to shift into high gear to find a solution.
>We don’t need to adjust for inflation since we are comparing nominal returns across the board.
Well there are things like TIPS, so comparing real returns across the board might be more helpful. Some of the returns from S&P investing will be in the form of dividends, so ideally the amount of taxable gains would also be included to get a better comparison.
I agree that even with the history of long slumps that stocks are still one of the best investments out there.
>If multiple SP500 companies are at risk, then I am going to bet Congress is going to shift into high gear to find a solution.
I think we might be in agreement that bailouts come down to systemic risk and political pull. Silicon Valley bank fails and people got all their money bank even if the accounts were far above the FDIC limits. Other banks fail at about the same time and account holders get only up to the FDIC limit. Maybe there was systemic risk there, but it feels like political pull was at least involved.
When the dot com bubble burst, many large companies failed but there was no concentrated action by Congress or the Fed to bail them out. Hence the lost decade for S&P 500 investors.
Your average retiree should not hold stocks as they usually can't survive a 10+ year drawdown (which, as I just showed you, happens a lot more than people think, even in the survivor biased S&P500 example). This is why target retirement funds transition to safer fixed income assets as the target date approaches.
You're also forgetting that inflation doesn't just affect assets, it also affects living necessities (and that's how it's defined in fact), so it's unclear how this is a net gain for asset holders.
TL;DR: Inflation doesn't magically make asset holders richer and retirees would be some of the worst affected people anyways.
You're wrong on both fronts and your whole idea that the stock market is politically propped up by old people doesn't pass the sniff test.
> Your average retiree should not hold stocks as they usually can't survive a 10+ year drawdown (which, as I just showed you, happens a lot more than people think, even in the survivor biased S&P500 example). This is why target retirement funds transition to safer fixed income assets as the target date approaches.
Target retirement funds transition to a safer mix of bonds and stocks as the target date approaches.
Even VTINX has a conservative mix of 30% stocks.
I'd say if you cannot afford to hold any stocks you're probably not yet ready to retire.
> Even VTINX has a conservative mix of 30% stocks.
Your average retiree does not live off of VTINX.
> I'd say if you cannot afford to hold any stocks you're probably not yet ready to retire.
There's so many variables here that it's really not worth discussing.
I'll just say that investing in stocks for retirement is a pretty recent fascination that is far less common outside of the US and in poorer regions in the US.
Plenty of American retirees (maybe even a majority) own little to no stocks and live on a fixed income, making them very vulnerable to inflation (which was the whole basis of OP's idea that old people are holding up the stock market).
> There's so many variables here that it's really not worth discussing.
Fair enough. I only want to clarify what you wrote: "the average retiree should not hold stocks." To be crystal clear:
1. don't go out and buy individual stocks on a lark (good advice)
2. get all worried because your 401k is a conservative mix of mutual funds (hopefully index funds, probably managed mutual funds) and bonds (bad advice)
> Plenty of American retirees (maybe even a majority) own little to no stocks and live on a fixed income
The logically necessary flip-side is all I'm addressing: plenty of American retirees hold stocks in a 401k. To them I reiterate: don't fuss around with your target retirement fund.
>You're also forgetting that inflation doesn't just affect assets, it also affects living necessities (and that's how it's defined in fact), so it's unclear how this is a net gain for asset holders.
Because the rate of increase of asset prices is quicker than that of other prices, namely labor. Hence the griping by young people about wages not keeping up with costs over the past many decades.
Again, it’s not all old people, but a significant proportion are going to be pissed if their 401k show declines or even stagnation at this point. You can even include soon to be old people here, the 50+ year olds that are invested.
> Because the rate of increase of asset prices is quicker than that of other prices, namely labor.
This totally depends on the asset and is nowhere near as straightforward as you make it seem.
For example, companies who mainly sell to consumers and require constant capex will generally be negatively impacted by inflation.
Your idea that the government will hold up the stock market just doesn't up to historical data.
2020 was the big exception (and the most recent in memory, hence why you and others are so focused on it) but the inflation that caused has lead to economic hardship across the board.
I agree with you that there's a political force trying to prop up the US stock market, but I'm not sure it's as simple as "old people and their 401k's!"
Push comes to shove, the only question about whether or not a bailout will happen (since there is no technical hurdle to issuing more money, just changing numbers in a database) is are the parties receiving a bailout sufficiently influential.
And I argue that people exposed to SP500, whether it be by holding it directly or facing the prospects of higher taxes because the government pension fund holding SP500 is not meeting its returns, are now sufficiently influential that it is a given that leaders won’t allow the broad market to be negative for more than a couple years.
2020 isn’t even the most recent one. Here’s a multi employer pension fund bailout from Mar 2021:
> The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual.
Be careful not to mix up the S&P500 index numbers with the total return you get from holding the portfolio and re-invest dividends. (However, even with the total return you can find some longer stretches that are flat or negative.)
The S&P500 was flat or negative from 2000 to 2012. And this isn't unusual.
> It would be bold to bet against a government not constantly decreasing the purchasing power of its currency to prop up asset prices, especially with declining proportions of young people. The political apparatus will want to maintain old people’s position at the top of the social hierarchy, and if their purchasing power isn’t maintained so they can keep buying the fruits of others’ labor, it means the country is dissolving.
How does the government decreasing the purchasing power help old people?
This is quite the opposite, retirees survive off of a fixed income (mainly from welfare and pensions but also fixed income investments since they shouldn't risk the stock market) and are the most hurt by inflation.