And if I’m wrong and everyone is actually doing it, how is it sustainable in the long run? I mean, we can’t all be millionaires.
In my experience:
- A lot of people do this with 401ks and such because many times there aren’t many other options.
- People I know who are serious investors with a lot of money tend to not invest much in the S&P 500 because they think of themselves as superior investors, but I don’t know of anyone for whom this is actually true based on past performance.
- I invest some 20% of my money in the S&P 500, which is probably not as much as I should. It’s some combination of the above hubris, which is natural, wanting to be diversified, and enjoying gambling on individual stocks.
Because its gate kept, particularly outside the US we don’t have any way to invest that doesn’t require some fee, so you need to be rich enough that your investment will make you more than the monthly fee to the broker. Then as a non cajillionare if the particular fund your invested in goes bust you get completely fucked over because debts are paid out to the largest creditors first.
Investing is something you do for the long run. Investing today and getting it all out in a month will probably make you lose money. The market will always go up and down but zooming out, it will go up. Investing in the long run will make you money. Investing in the short run, will make you vulnerable for market ups and downs.
So my tip is, invest a monthly a fixed amount of money every month (dollar-cost average) and don’t touch it for the next 5 years. Yes, also keep your hands off it when the market is going down.
If exercise makes you so healthy why doesn’t everybody do it?
Cuz it’s not a “surefire way to make money”. In the 2000s it was flat or went down even for like a decade after the dot com bubble. When the AI bubble pops and the recession comes it might be like that again.
If you are young a down market is a great opportunity to buy. That ten years allows you to pick up stock and build your portfolio.
“You need money to make money.”
Because it needs spare money.
Not everyone has money to do it, and not everyone knows you can do it. Also, as the dollar devalues most everyone will become a millionaire, but being a millionaire won’t mean what it used to anymore – which is already the case.
A large number of us CAN be millionaires. Which is a problem.
It took me roughly 40 years to become a millionaire. 40 years of investing in stable stocks and bonds and scrimping and living well below my means. I was finally able to afford to buy a house. Then the market boomed and suddenly I’m worth over a million.
Unfortunately, almost all of that is tied up in owning a small plot of land. If I sold it, I’d need to immediately use it to buy another small plot of land, or leave my city or go back to extortionate rent. And yet I need to pay monthly taxes on that land, or I no longer own it.
Where I used to spend $90/month on food, now I spend well over $500/month.
Essentially, if you’re over 55 and you’re not a millionaire and you’re living in a major city, you’re screwed because of inflation.
A large number of us CAN be millionaires.
It’s actually technically correct that we all can be millionaires, at least on a household basis. The mean household wealth in the US was $1.06 million as of 2022, by now it’s undoubtedly higher. So with a full redistribution of wealth every household would have over $1 million.
In reality though the median household wealth is just under $200k as of 2022, and doesn’t rise as consistently so who knows where it is now.
Such Boomer thought, why would someone younger than 55 have better chances?
I think you’re conflating a few things there.
Most people in North America and Europe under 30 today are likely to become millionaires before they die. My point was that being a millionaire is pretty much useless when you spend that much in groceries and rent in a year.
Over 55s had a dream of becoming millionaires when they were younger and a million dollars was enough to live on for the rest of your life. The sad truth is that those who didn’t make it are likely to die in poverty, while most of those who did make it likely still can’t afford to retire at 65.
The younger you are, the more the S&P will help you compound your savings to the point where you can afford to stop working before you die. Assuming you can save anything—which is really difficult and getting harder.
They’re saying that if you’re 55 and in that situation you are in trouble as you’re running out of time to get out of the situation. In your 30s it might not be great compared to previous generations, but you still have time to turn things around.
If investing in the S&P 500 is such a surefire way to make money, then why isn’t everyone doing it?
First, lots and LOTS of people (and companies do it).
Three reasons people don’t do it:
- Some people believe they can make even more money by putting it into something else (other riskier stocks, non stock investments like their own sole proprietor businesses, bitcoin, scratcher lottery tickets).
- Some people are entirely risk averse. If they can’t SEE their money they don’t trust where it is so they buy precious metals or stack cash up. Neither of these are good investments for returns, but are generally safer that index investing (which is what S&P500 is) if you need to sell on short notice.
- Investing anything requires money you don’t have to spend somewhere else. Lots of people are at negative money, so they don’t even have a dollar to invest.
- A ton of people rely on the advice of financial advisors who don’t have their interests in mind and who sell them mutual fund packages with high expense ratios that do poorly long term. These people generally lack the financial knowledge to know any different.
I was one of these. I started my IRA in my 20s with what little money I could put into it. When I left a job I’d roll my 401k back into my IRA under the same Edward Jones advisor.
After over more than 20 years I started questioning it. I asked for statements of all of my deposits. I took those dates and deposit amounts and plugged them into a basic historical simulator to see what would have happened if I put the same money into an S&P500 fund. My real investment account was over $40,000 lower than had I just put the money in myself into the S&P500. I dropped that advisor and transferred my entire balance into VTSAX and never looked back. Future deposits went into my own brokerage into boring index funds from then on.
I credit Edward Jones with making saving for retirement stupid easy for myself a dumb 22 year old at the time. However, I should have wised up sooner and it cost me at least $40,000 for my naïveté.
The stock market and investing (at least investing for the average person) is supposed to seem hard, and complex, and impossible to understand because how else are those thousands of mid-level Edward Jones employees and their ilk supposed to make a living?? Has no one thought of their incredibly easy white collar jobs??!!?
I’m definitely number 2. It takes a lot of effort to not sell shares after they go down even if it’s been years.
If you are currently in the process of saving instead of withdrawing in retirement, then falling stock prices are just buying opportunities. If the grocery store puts eggs on sale, you wouldn’t fret that the eggs currently in your fridge aren’t worth as much.
When you think of it that way, it gets a lot easier to hang on after a crash, and you might start looking for ways to buy even more at bargain prices.
Going to the gym and eating healthy is a surefire way to look good and have a longer healthspan too but most people aren’t doing that either. Why? Probably because it takes time and effort.
Also I’m not sure how many people have the patience to not touch the money once you get into tens or hundreds of thousands. I could pay off my house with my savings but I wont.
I mean if your house credit interest is higher than the return of investment of the S&P500 then you probably should pay it off :D
Yeah, but it’s not.
It’s not entirely without risk. 2008 saw the S&P lose over 30% for the year, and 2002 was over 20%. But it is up more often than down year-to-year, and it is usually up by at least 10%.
I found some good charts here, even though it is a EU site:
https://curvo.eu/backtest/en/market-index/sp-500?currency=usd
If you are investing for the long haul , you will take the occasional 30% haircut if you can get 10-20% the rest of the time. But it would suck if you got that 30% haircut just before you needed to sell…
If you got that 30% haircut just before you needed to sell
Yep. They key part is to invest for 20, 30, 40 years, where those consistent 10-20% gains compound and vastly outweigh the occasional 30% losses. Even if you had invested at the worst time in 2007, you are currently up 285%.
Even if you had invested at the worst time? That is precisely the best time to invest!
“The worst time in 2007” would’ve been the peak before the bottom fell out in 2008.
The bottom is the second best time to invest, after “every 2 weeks when I get my paycheck, regardless of the noise in finance media”
That worst was just before it fell (2008), not when it was already low.
Oh shit we got a buyhiguy here
When I tell my friends to do it they instantly reject the idea. Which is why I forced 1200 students in my school to play a game where you invest in stocks (Github), and people are ranked by profit in a leaderboard. I control access to a tool they need, so I’m making them play. I hope that the most of them will realise they should have invested IRL once they see the profits over time
We can, though. Index funds invest in large swathes of companies - meaning that they are taking part in the productivity of the companies involved.
I don’t like investing in the S&P 500 because it’s supporting the biggest most monopolistic companies out there. Russell 2000 helps, but it has CO2/sustainability concerns. But since big companies usually get bigger because the US has laughable anti trust/monopoly legislature, betting on the big ones is pretty safe.
As for sustainable in the long run, it lets those companies effectively have really low interest rates. It benefits big struggling companies like Boeing so they can borrow at low rates to prop up their business for a while. But with too much investment, you’d give even more leeway and safety nets to the biggest companies.
Last green index fund I invested in lost 50% during covid. Luckily I got out. I don’t see why the common person should worry about each individual stocks ethics within a large index fund. Our individual choice does little but ride us of huge potential gains for our retirement. I agree with your point but think it hurts us more than them.
Disagreement aside, why do you say Russell 2000 helps?
If it makes you feel better many green index funds aren’t green at all, and simply manipulate their holdings around audit and reporting times, in a phenomenon known as green window dressing.
Green Window Dressing by Gianpaolo Parise, Mirco Rubin :: SSRN - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4459352
We want to hold the owners of Amazon or oil companies accountable, and what makes them the owners of they hold a lot of stocks. Holding fewer stocks seems like you’re enabling the companies, just at a much much lower amount.
Russell 2000 is the top 3000 companies minus the top 1000 companies. So it doesn’t invest in the really big ones.
