Another flaw: equating S&P 500 returns with an individual's investment returns is a huge stretch. Few people invest entirely in an S&P fund. Those that do only invest in simple index and bond funds tend to do worse than the funds they invest in. https://www.thestreet.com/story/11621555/1/average-investor-20-year-return-astoundingly-awful.html
If they forget they have an account they could cheerfully sit through a 50% loss. For everyone else in the market, it really sucks. And anyone preaching index investing should at least acknowledge peoples' doubt and frustration about drawdowns, and that most don't actually follow through. "Everyone says indexing is best, so I should try it" isn't a mentality that will get anyone through a recession.anyone who uses vanguard can cheerfully invest in something that correlates at like 96 percent with the s&p. it is almost entirely free to do this.
Explain to me then. I want to make the point that ignoring the idiots is a methodology problem. If you ignore idiotic tendencies and unfounded 'gut feelings' in your methodology, your methodology can't be applied to people. If someone reads "7% from indexing" enough places and jumps on board without the right mental prep, he won't be able to keep holding through a recession. Between fall '07 and Spring '09 the S&P dropped ~50% -- you don't just read some blog articles and maybe a book and have the mental groundwork in March '09 to say "I have half the retirement savings I did a year ago, but this is all part of my investment plan." It takes serious willpower to index through a recession when it looks like the whole finance world is collapsing. Don't say anyone but an idiot could.it's not a methodology problem, it's a people are idiots problem
if someone invests serious money in the stock market and doesn't understand the strategy behind it, they deserve the bad things that happen to them you are basically saying that if someone reads half the rules of a club then gets kicked out for not following the other half, they have grounds to complain -- and that the club should then change its rules based on how those people think you are right about people. most are too stupid to invest in the stock market/trade, but do anyway. you are not right about what that means for the rest of us, or for people building models based on rational behavior. if we build our models based on irrational behavior, we may as well stop building models. i take back my previous comment. you do know what you are talking about. i misunderstood one of the sentences you wrote earlier.
I don't proofread for clarity enough, sorry for that. My issue with the article boils down to his comparison of a spectrum of college results (including stupid decisions) with indexing returns (excluding stupid decisions). - I agree that people are responsible for their own decisions, informed or not. - Some people do stupid things. Many do thinks without proper background research. - A knowledgeable rational index investor will know not to sell after the market drops steeply. - Even with that knowledge, following through is hard. Doubt is a part of human nature, especially when news says "it really is different and worse this time." I think a partially informed investor is more likely to get 2% than 7% if every mention of indexing ignores that the hard part is mental.
makes sense, i think the 'on average' bit is extremely misleading. but i do think it is right to exclude people who screw up on the market; the study is trying to contrast bad and good scenarios. i think the whole thing could boil down to the sentence: "skipping college and investing your pseudo-tuition sometimes will be a better idea than going to college" and the only rebuttal needed is: "if you're going into debt for college, you'll get a loan. if you're going into debt to put money in an index fund, you will not" i mean, i suppose. but there is really only one piece of information in the equation. "do not remove your money." you're implying a second piece of information which gets lost, "sometimes this process will suck." it seems like a rule 2 -- see rule 1 situation to me.My issue with the article boils down to his comparison of a spectrum of college results (including stupid decisions) with indexing returns (excluding stupid decisions).
I think a partially informed investor is more likely to get 2% than 7%
the little note at the bottom always says: *past performance not indicative of future results Im not sure its really fair to compare the outcomes of the S&P 500 during falling interest rates to the performance of the S&P in the ZIRP environment. That being said there is another huge variable that swings the math way in favor of no college: Anyone who does not complete college (a large % ~41) gets a big fat zero return of, or on investment. Economical college only makes sense for some very specific majors and career paths. Sending your kid to a 3rd rate college almost never makes sense.
Considering a lot of the people I work with have University degrees this makes sense. I've trained a few people who months ago would have been considered on a solid path to adulthood. I wonder if the people underemployed affect these results in any big way.