Is there a hard threshold? Do high risk investments such as penny stocks qualify as gambling? Do low risk investments? Annuities? Bonds? CDs?
This comment got me wondering.
Is it more to do with the venue? Stock markets and real estate vs casinos and the lottery?
Were the MIT Blackjack Team gambling or investing?
Is this just another semantic hotdogs are sandwiches discussion or is there an agreed threshold?
It really kinda does.
At least as close as anything can be guaranteed in this world.
Buying into a broad market index fund (S&P500 or wider) and staying in for decades, will absolutely grow in value faster than inflation.
The key here is time.
Anything can go up or down on a daily, monthly, or even yearly basis; The longer your time horizon is, the more all that volatility gets evened out into a steady gentle climb upward. So much so that if you pick any 25 year period over the last 200 years, you won’t find a single instance where the total value of all traded stocks was worth less at the end than at the start.
Because when you’re investing in the whole market, you’re investing in the whole society itself. And society is always doing everything it can to grow, produce, and consume more. That’s what humans do. Random forces may slow or stop that, for a time; But as long a humanity exists, it will still be true.
Turns out “close to guaranteed” is in fact, not “guaranteed.”
Here’s my 25 how did they do:
(hint: they’ve all filed for bankruptcy at some point)
Again, look at the Nikkei from the 1990’s - that’s an entire index that was flat for 30 years. Hard to put off retirement for 30 years waiting for that index fund to pay off.
Don’t bother dying on this hill, son, there’s plenty of other, nicer hills to die on.
“All traded stocks” isn’t “Any traded stock”.
It’s all of them collectively.
The 1990’s was only 10 years. And that’s also just Japan, which again isn’t “All Traded Stocks”.
If you had invested in the stock market (all stocks) in 1961, you would have lost 2% a year, every year for 20 years.
So $10000 in the market in 1961 was worth $6600 by 1981.
https://archive.nytimes.com/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html
On that 20-year diagonal, there are only eight of the seventy squares that didn’t have returns higher than inflation. And in every one of those few cases, holding just a few years longer made the investment outpace inflation. When even black swan events don’t break the strategy, this simply is more confirmation that investing in an index fund for long periods of time is a proven strategy.
Note that light-red boxes are investments that outperformed inflation. No clue why they would color making more money than inflation red…
“25 years”
1961 to 1988. Inflation adjusted, it was 749 in 1961 and 723 in 1988.
27 years.
https://www.macrotrends.net/2324/sp-500-historical-chart-data
My challenge didn’t include inflation. Though I did mention it prior to that, so it’s an easy assumption to make.
That’s also just the S&P500, which isn’t even all US stocks, let alone international. But I did previously mention it as the minimum of “broad”. I’ll accept that as well.
So with some asterics, I congratulate you.
That always must be assumed. Otherwise you could claim Zimbabwe had the best return on investment over the past 20 years.
I don’t disagree with the general point of, “there’s no guarantee”. But I think you can make an argument that taking the safest course available to you is not gambling.
When talking about longer time frames you have to account for inflation, holding on to your money instead of investing it is a risk in itself, which makes this entire conversation about semantics.
“Kinda” meaning not actually.
So not guaranteed then.
Yes. True. Just as not guaranteed as the sun rising tomorrow.
I’m glad you’ve realised that what you wrote was incorrect.