GICs vs equities | Page 2 | General financial discussion | Discussion forum

The claim I heard about was on Louis Rukeyser on PBS in 1972. And before I posted it, I confirmed it with AI. I was quite young then; I was watching the show with my mother, an accountant, and father, minor in economics — both said this was true. I am not unfamiliar with stock broker jargon;

claude.ai

using just the raw index price, CPI-adjusted, with no dividends included, the Dow did climb back above its inflation-adjusted 1929 peak by late 1972. That actually lines up with what you heard.

RetirEd said . Remember the 2008-ish frenzy by brokers to get clients to 'stay the course'? The broker commissions were reliable. The investors who tried to ride it out were not so lucky.  

Riding it out was absolutely the right thing to do. Depending on your asset allocation, your investments would have recovered within 1-3 years or so. I certainly “stayed the course” and brokers had zero to do with it.

It's true that an elderly person who has achieved all of his/hers financial objectives does not need to bother with investments. For everyone else ignoring equities is a bad choice.

mordko said

RetirEd said . Remember the 2008-ish frenzy by brokers to get clients to 'stay the course'? The broker commissions were reliable. The investors who tried to ride it out were not so lucky.  

Riding it out was absolutely the right thing to do. Depending on your asset allocation, your investments would have recovered within 1-3 years or so. I certainly “stayed the course” and brokers had zero to do with it.

It's true that an elderly person who has achieved all of his/hers financial objectives does not need to bother with investments. For everyone else ignoring equities is a bad choice.  

Or consider what your financial goals are, if you needed to gamble at all in the stock market, and not be a part of it. There are even other investments. Do not jump out the window or anything at the thought.

RetirEd said

ALL: the specific times of negative windows are beyond my research capabilibties. …
 

In 2015, I did a study of the S&P 500 for the 1928 to 2014 period.

I enumerated the losing 10+ year periods and the returns of those periods.

Only 5 of the 78 ten-year holding periods had negative return. None of the holding periods longer than 15 year had losses.

I also did the holding period return thresholds.

Most of the replies recently have been about recovering market index value. This is not what I have been talking about.

A ten-year sliding window is one started on any date, for a ten-year period. Not just certain decades. And movement since a particular index point is not relevant to an individual investor - what matters is what's happened during their tenure of the investments they hold. And they never know when they buy where the future curve is going, and they don't always hold for an exact ten years.

Note Freedom's comment a few days ago:

This is another important assumption. It assumes that every investor will have the emotional strength, financial flexibility, and time horizon to remain invested during severe downturns. In reality, people may need to sell because of illness, job loss, retirement, family obligations, or changing financial goals. Investors are not machines, and human behavior is part of investment risk.

Not to mention leverage...

Most of the replies recently have been about recovering market index value. This is not what I have been talking about.

An average retail investor underperforms the market. That much is true. Some get too emotional, some try to time the market, some bet on a couple of “sure things” stocks and all active investors play against the big boys and insiders. But that's not a good reason to stay out of stocks. Equities are still the best option for any $s you don’t need in the next couple of years. That's the reason to buy a whole of the market ETF and be done with it.

And although an average equity investor underperforms the market, he still beats inflation and fixed income. That's the real world vs a hypothetical straw man.

AltaRed

It has nothing to do with equity capital markets themselves. Savvy and informed equity investors who are principled and disciplined do very well in equity capital markets.

Do you believe that a situation like the Great Depression can never happen again because of modern techniques of managing the money supply? Or is it inevitable that it will happen again?

It's really not about stocks or fixed income — it's about sales jingles that brokers and banks use to make it seem like there is no risk in the equity market, and that it is as safe and secure as the government bond market. Such as: "There has never been a ten-year period, for any living human, where the government bond market has outperformed the stock market."

That is a paraphrase of what was said. It makes it seem like there is no risk in the stock market — that it's just as safe as government bonds — which is what many who make money off equities say.

But just the logic test says that's not likely true. I saw a veteran on TV who was parachuting with one of the royals — he was 102 and had been alive during the Depression. His statement was untrue.

These types of statements are deception by people who make their living from selling equities.

And the point of them is to create the impression that there is no risk in the stock market compared to government bonds or GICs.

It is about manipulation by salespeople to get you to purchase things that benefit them and not you.

Do you believe that buying stocks is as guaranteed (and the same risk )a return as a government bond or GIC?

Freedom said

With the GICs on this site, you will always have more money at the end of the GIC term than you had at the start, assuming you hold the GIC to maturity. That is not necessarily the case with the stock market.

For people in their 50s and older, investing in the stock market can certainly increase net worth, but it can also result in significant losses. It seems misleading to talk about investment returns as though they are guaranteed or inevitable.

For someone who cannot afford to lose their capital, a GIC may be a much more appropriate option than the stock market. The stock market should not be presented as the only path to building wealth—or as a solution for people who are desperate to increase their net worth.  

GIC is guaranteed NOT the path to build wealth, it destroys wealth slowly and surely.
Why would a profit making institution continuously pay u a return that is relatively risk free, and able to beat inflation consistently ? They don't run a charity.

Freedom said
Do you believe that a situation like the Great Depression can never happen again because of modern techniques of managing the money supply? Or is it inevitable that it will happen again?

It's really not about stocks or fixed income — it's about sales jingles that brokers and banks use to make it seem like there is no risk in the equity market, and that it is as safe and secure as the government bond market. Such as: "There has never been a ten-year period, for any living human, where the government bond market has outperformed the stock market."

That is a paraphrase of what was said. It makes it seem like there is no risk in the stock market — that it's just as safe as government bonds — which is what many who make money off equities say.

Freedom, there will be bear markets again as there have been 3 since the Great Depression as in: 1973-1974 (oil crisis), 2000-2002 (dotcom bubble), 2007-2009 (GFC). There will be another but there will be nothing like the Great Depression when there was no monetary policy by any central bank like there is today. Even the Great Depression wasn't catastrophic given the passage of time. Regardless, recovery from a bear market will always happen within a finite time frame. All the global datasets from 1929 forward prove it. It is a matter of having a diversified balanced portfolio that takes risk and volatility into account tailored for each investor and to manage it accordingly.

Savvy investors ignore the hype and misleading information from sales folk. They look for and examine real data for themselves and buy accordingly, rather than being sold product. The Internet has provided access to a vast array of independent financial history and resources, including the likes of Morningstar and wikis like https://www.finiki.org/wiki/Main_Page. It is up to the individual to do the investigative work required just as one would research buying a vehicle or a TV.

Mordko summarized it nicely. No one has said equity (and corporate bond) investing has no risk. It is a case of managing risk within one's own risk tolerance. Capital has to be put at risk to achieve returns that exceed inflation on an after tax basis. GICs will never do that on any long term basis. That is simply how it is. They are savings vehicles and that may be good enough for a portion of one's portfolio, or in some cases, the entirely of a person's liquid assets. It is up to the individual to decide what is right for them.

I have been investing since circa 1980, including an equity component, and have being doing it completely self-directed since shortly after the dotcom bust rather than through an advisor. The amount of real information available to the investor has exploded since circa 2000 and a ton of new product, especially low cost passive index ETFs, have been spawned to make retail investing, self-directed or otherwise, as easy as ordering takeout online. There has been a world of change in a dramatically short period of time.

mordko said
1. Another bear market WILL happen. It's not about whether it “can” happen. We don’t know when but it will.

2. As noted in post #42, a hypothetical whole of the market investor who put 100% of his money into stocks at the very peak in 1929 would have recovered all losses in real terms in 1936. That's based on S&P 500 and dividends reinvested.

3. In practice it's extremely rare to transfer everything from a savings account into the market in a single moment when it peaks. It's an implausible sequence of return scenario. People add to investments when money becomes available, usually monthly over many years.

This is where we disagree on facts.
As noted in post #42, a hypothetical whole-of-the-market investor who put 100% of his money into stocks at the very peak in 1929 would have recovered all losses in real terms by 1936. That is based on the S&P 500 with dividends reinvested.
No, the information I got was from media reports, including PBS and The Wall Street Journal. It was also confirmed by an accountant and someone with a minor in economics. When I asked AI to calculate it, it did not come up with 1936 either. Just because you say it does not make it true.
4. Nobody in this topic said “no risk,” and regulations oblige sellers of financial products to talk about risk. So that's a straw man.
What they implied was that the stock market has never lost money over a 10-year period in a living human lifetime. That's the sort of thing brokers say to get you to buy high-commission products that benefit them rather than you.
5. While everything has risk, you are saying that over the long term, fixed income is more risky than equities. Equities have greater short-term volatility but outperform routinely over decades. That's not a guarantee, but you are saying that's what has happened in real life again and again and again.
We disagree here as well. Government bonds of a country are usually considered among the lowest-risk investments, not stocks. So saying that fixed income is more risky than equities is not something I agree with. I am not sure what you are saying here but maybe we agree

I don't usually find people with whom I disagree on facts. Do you have an economics degree, or are you a chartered accountant? Usually, when I meet people with those backgrounds, we don't disagree on facts, and I get along with them fine because we tend to share a similar view.
They don't ask what professional credentials you have when you sign up here.

4. Nobody in this topic said “no risk” and regulations oblige sellers of financial products to talk about risk. So that's a straw man.

5. While everything has risk, over the long term fixed income is more risky than equities. Equities have greater short term volatility but outperform routinely over decades. That's not a guarantee but that's what happened in real life again and again and again. Also, a government bond is often a certain way to lose money in real terms (even ignoring the tax).

6. The choice isn’t “all or nothing”. Something like VBAL has 40% in fixed income and softens the downturns in most cases. But 0% equities is really the worst asset allocation for any investor with a meaningful time horizon.