It corrects, retrenches, and in time, exceeds its prior high.

Not trying to time the market is boring, and doesn’t sell clicks. But not trying to time the market is the only strategy guaranteed to win, unless an asteroid hits the planet, in which you don’t care about your USD anyway.

That's a lot of risk for chasing inflation adjusted returns…

Not to mention, there are a couple short volitilty ETFs that will be terminated soon, hope some long term ETF buyers won't be exposed to them or any big names they are holding who were exposed, because we're not done yet…

Jesus! What was this average person invested in? From the bottom of the market to back to the prior peak was 3 years for me. And I was so heavy in equities I lost 1/3 of my portfolio's value.

Where does this "decade" come from? The DJIA is nearly 90% higher than the peak pre-2008.

And I know you said inflation, but that has been 1-2% per year since then.

Still, I worked for a fund that swing traded futures for better returns and less risk than holding the market during this period…

Volatility is not risk.

Could you elaborate?

Until then, the less you pay for your stock purchases, the better your long term gains will be.

Robert Shiller (Yale finance professor, of Case/Shiller housing index) likes to make the following analogy. Predicting the stock market is basically the opposite of predicting weather. With weather our short-term predictions can be fairly accurate, but our long term predictions are very poor. With the stock market it's the reverse, short-term predictions are worthless, but long term predictions are generally fairly accurate.

Why should it be that way?

The keys to economic growth he identifies are (1) property rights, (2) scientific rationalism, (3) capital markets, and (4) adequate transportation/communication. All of these appeared in sufficient form for prosperous growth several hundred years ago.

There is of course no guarantee of continued growth at same rate as last several hundred years. But given the conditions that have prevailed it has settled at a fairly stable rate as sort of a natural law.

Without two hundred years of unsustainable consumption of fossil fuels, property rights or capital markets wouldn't have given us a fraction of the economic growth that we got. Stock exchanges don't do much for you when 97% of your population are either subsistance peasants, or make hand-crafted tools used by subsistance peasants, and you have to spend 8 hours a day banging rocks together to stay warm and to scare away mountain lions.

#4 is also only possible because of #5.

"Long term" is longer than 20 years.

The 20th century was particularly good and I think the average return was closer to 6 than 3.

The assumptions should be documented there.

However, the assumptions have only 80% in capital gains while this should be much higher for long term investors.

If you’re investing in a 401k then you add about 1-3% because you won’t be taxed each year and those gains are compounded.

And it’s assuming 1% admin fees from 2000+. This is way too high and is closer to .1% starting in the 80s with vanguard index funds.

So if you invest in tax deferred index funds you are looking at 5-6% after taxes and inflation.

But I like the way this matrix displays info and I want to find a version with assumptions for efficient 401k investors.

I mostly agree with you, but this is basically the gambler's fallacy.

If I'm flipping a coin every second for days, and I hit a run of 10 heads in a row, "reversion to the mean" just means that the next 10 flips are likely to be less extreme than the previous 10. It does not mean that I should expect "more tails than usual" for the next flips. We revert towards the mean, not past it.

Unlike in a casino, the returns and value of stocks are loosely coupled to the real economy.

If stock values grow quicker than the economy, then we should expect a correction, because of that loose coupling.

Of course, markets can stay irrational longer than we can stay solvent, so I wouldn't try to time it.

This is incorrect. Prior performance of the market over the span of years has little to no predictive power on future performance of the market.

Your statement is like saying: Because I flipped a coin and got heads 10 times in a row, I'm more likely to get tails in the future.

While it's true you should expect the market to revert to the mean over the coming years, there's no evidence that it will grow 'more slowly than average' in the coming years to 'make up' for the hyper growth in past years. If you were a betting man (and a non-sophisticated investor), you should bet that the future years will grow at exactly the historical mean.

Edit: I did some analysis on historical S&P 500 pricing to validate my intuition.

On average, the monthly growth rate of the S&P in a month following a bear month is -0.39%

On average, the monthly growth rate of the S&P in a month following a bull month is 1.08%

You might argue that it takes longer than 1 month for the market correction to occur, so I've included the script and data set I used here for you to play around with: https://pastebin.com/F78pLUka. You can use any cadence, and will find the same relationship.

Empirically, you cannot time the market, which implies future growth rate is not affected by past growth rate.

For the same inputs (sequence of future cash flows, enterprise value, and weighted average cost of capital [discount rate]), the long-run value will be the same. If the near-term share price value rises more quickly than the long-run intrinsic value model, it is entirely reasonable to assume future growth of share price will moderate, as it must in order to converge on the same long-run value.

I think it's not at all like your example with 10 coin flips in a row.

I think we only value stocks the way described (intrinsic value model) because its a cultural myth to do so. We can also think of stock certificates as baseball cards - of value mostly to other collectors. Sure there's a 'book value' or 'dividend value' behind them, but that's irrelevant most of the time for most stocks.

My assertion is that you cannot time the market at all. As a result, I'd just invest passively and immediately.

For data that supports my assertion, please see the edit of my original comment.

Fundamentally, I think there might be a deeper issue at play here. There's a common (and dubious) argument that Social Security is a ponzi scheme because the payments to retirees come from funds contributed by new investors. On some level, though, all of retirement is a little ponzi-like; ultimately you're always relying on the current working population to pay for your retirement, no matter what investments you put into your pension fund. What happens if that goes pop?

Well, no, not really. You're relying on the fact that you own some assets, which you can sell to someone else who wants to own those assets. That's very much not "ponzi-like".

This is counterintuitive, but globally saving is not possible, in a financial sense. IIRC from economic models it nets out to investment.

Which makes sense. Real world saving is amassing a grain store, or an oil stockpile in a strategic reserve, etc

And we can't do very much of that. Monetary savings depends on the ability to buy things of value from a later generation of producers.

A small country can use savings to buy from other countries. The larger the country, the less possible that is, as the large country becomes a significant portion of the world economy.

A simpler way of looking at it is: if the future generation started producing half as much, you wouldn't expect monetary savings to command the same worth in terms of real goods that they used to.

Of course, generally you wouldn't exchange your assets directly for food or healthcare; more likely you'd have stocks and bonds and make money from some combination of selling on to non-retirees and taking some of the profits when they buy things from those companies, but it's ultimately what you're doing in the end.

Retirement is non-ponzi like because the assets appreciate in value due to increased predicted future earnings. This is totally different from paying out what others pay in.

Assets can appreciate in value and income even without new investment.

You can trade those for things, now. In saving for retirement, you're planning to trade the earnings from those assets for future things made by future workers.

Assuming the economy continues relatively normally, we'll be able to do that when we retire. (I don't think retirement is a ponzi scheme).

But, I do think it's worth considering things from that angle. For example, could everyone do FIRE (financial independence, early retirement)? No. At least, not unless in their efforts they created perpetually working robots to replace everyone who retired.

To put this in other terms, you could say I'm saying "if there aren't enough future workers, the future value of investments will decline, causing retirement shortfalls". Which, again, doesn't make retirement a ponzie scheme. I'm just providing another frame: money can be confusing. It doesn't work in the aggregate the way it does for an individual.

Saving money is an illusion. The government can't just put your pension contributions into a savings account and withdraw it decades in the future. It must use the contributions of current workers to pay the pensions of current retirees.

Food doesn't last forever. If you buy food in your 40s the food is no longer edible in your 60s. If you don't buy food and instead choose to save your money the food is still going to rot away. You now have money but no food. As a retiree you are dependent on the current working generation to work for your food.

It doesn't change the fact that your second paragraph is true though - just a nitpick.

It doesn't make any of it like a ponzi scheme.

Exactly. The corn you eat needs to be grown today.

Seriously though, I think this is a bad analogy. I buy groceries when I need groceries, sales have little bearing on that. A car however, that is something that wait for a deal before I buy.

However most peoples' grocery shopping includes staples that have a relatively long shelf life if stored sensibly. Those who aren't dirt poor can and should purchase larger volumes of these products at lower prices if they know lower prices are not always available.

This is one of many ways that being poor is expensive, your financial status makes it impossible to invest up front on bulk items that would be cheaper over the medium term.

That said, I do adjust the amount I buy from groceries based on the current price. It's a cheap (in labor) way to save on them, but has lower gains than actively searching for deals.

Though right now I think we are close. The ticker is XIVIV. I just closed my bbg but I think we were pretty much there. I don't know if non standard trading hours matter though.

The trade was too crowded. Too many people shorting the VIX without looking at the risks. This ETN lost 80% of its value in a matter of days in 2011, and tanked 40% intraday in Aug 2015. It is too easy to forget the risks.

http://www.velocitysharesetns.com/xiv

Most people won't benefit from the crash because they have no savings to buy the dip.

What we need is jobs that pay and land prices that are not gouging productivity increases.

The level of utter destruction the US economy will face if it continues to double down on hedge-fund style acquisition/mergering of every one plus dog is hard to fathom, but it will be considerable. The remaining manufacturers are being managed into the ground, everything they do is being out-sourced, "streamlined", and systematically destroyed.

I wouldn't be surprised if the handful of companies that still make things in the US, like Ford, Boeing, and General Electric, are bought up, "reorganized" and sold off piecemeal, squeezing some juicy shareholder value out of them before throwing out the husk.

You have to do more than "invest" in things in order to have a functional economy. Shares don't employ people, sales of product and services do, and if people can't afford those products or services because you laid them all off as a cost-saving measure then you're doomed.

Capital alone doesn't do anything.

When you have demand and a profitable business model then capital can help you, but it's a tricky balance between too much capital and too little. If you raise too much money then the investors will be clamouring for returns you can't deliver on. If you raise too little you'll be starved for capital and stunt your growth.

The real problem is when it's all about capital, when you ignore everything else. If your only goal is to create more of it then you're going to have no qualms about driving businesses into the ground if you can make money doing it. That helps only a small group of people and causes a massive amount of trouble for others.

https://news.ycombinator.com/newsguidelines.html