Passive strategies so far has done better than active strategies. It's the most recommended system.<p>I've tried trading before. I studied all the technical analysis, the fundamental analysis, etc. I know my candle sticks, trend lines, chart patterns etc. I've done it with stock markets, FOREX, and BTC.<p>Maybe I sucked. Or maybe I deluded myself thinking I can beat the market. But buying shares and forgetting about them got the best results. This is the strategy most advisors advise. It saves time, stress, and it works.
The problem I think is that there are asymmetric outcomes and the quality of life changes are exponential.<p>Let's say you have $1000 and there's a 1% chance you can 100X your money in a year by buying $AMAZING. Someone will look at this and say, well, if I 100X my money then I'll have 100,000 and I can buy a house. If it goes to zero I'll be broke, but I was already broke anyway so nothing changed.<p>A rational person will say, yeah but if you took your $1000 and invested at a regular rate of return of 10% and waited <i>50 years</i> I'd have $17,000! An excellent return on investment, except now your entire life has gone by.<p>edit: I actually meant to say 30 years instead of 50 but will leave the error up for transparency's sake! At 50 years it's more like $120K or so.
Buy S&P500 ETF. It's guaranteed to go up. Why? Because if it goes down, Federal Reserve and the Treasury will always find a way to pump it back up. Historical examples are not relevant, it's a new thing - started around year 2000. This game will never stop - even if pumping leads to the debasement of currency, it will continue anyway.
I think one problem with this advice is that not <i>everyone</i> can be a passive investor. There has been an absolute explosion in passive investing in the past 10-20 years, so there is actually a bigger battle going on to <i>lead</i> the giant sums of that passive money. Mike Green has commented a lot on this new phenomenon, some very good info: <a href="https://hiddenforces.io/podcasts/mike-green-passive-investing/" rel="nofollow">https://hiddenforces.io/podcasts/mike-green-passive-investin...</a>
Speaking from personal experience, this worked for me. Buy the market, using mutual funds and ETF on Vanguard, and just wait patiently; ignore all the noise, not easy to do sometimes, but you will be rewarded if you just leave it alone.<p>Who says there are no free lunches?
Will the US Stock market continue to provide exceptional returns? If you had invested in the German or Russian markets decades ago, you wouldn't have made much gains at all. <a href="https://www.bridgewater.com/research-and-insights/geographic-diversification-can-be-a-lifesaver-yet-most-portfolios-are-highly-geographically-concentrated" rel="nofollow">https://www.bridgewater.com/research-and-insights/geographic...</a>
> But the reality is that the stock market has also offered a path for ordinary people to build wealth — and more so in the last generation than ever before. You haven’t needed to burn down the system. All you’ve had to do is take the laziest, simplest approach to stock investing imaginable, and have a little patience.<p>> Any schlub on the street can put money to work harvesting a small share of the earnings of hundreds of leading companies, led by some of the sharpest corporate executives on earth and their millions of employees.<p>This is leaving out a very important detail, which is that you first have to be living comfortably and holding excess savings (that you're willing to risk, or at least leave alone!) to be able to even take the safe road in the market. That's not something "any schlub" can do; it excludes something like half of Americans. The "40% don't have $400 for an emergency" statistic is tired at this point, but it's telling here. You shouldn't be investing, even in an index fund, if you don't have enough cash to cover an unexpected emergency. It's not a question of patience.<p>The really predatory thing about Robinhood and the like isn't that they prey on "impatience", it's that they prey on <i>desperation</i>. A person who can't afford to put $1000 in an index fund and leave it alone for ten years can maybe scrape together $100 to bet on the small chance of striking it rich and pulling themselves out of borderline-poverty. It may still be bad advice, but when people don't have other options, the calculus starts to make sense from their perspective. Robinhood's commercials even emphasize this specific angle.<p>This article is great advice for the shrinking middle-class, but it comes off as tone-deaf for a growing majority of Americans.
The main argument (passive investing) has issues when inflation is high, pulling this from a newsletter I read recently:<p>"Bianco further notes that, for an investor who bought the S&P 500 in 1966, it would not have been until 1993 — 27 years later — that the holding would have delivered real, inflation-adjusted gains."
The adage that "the stock market always goes up" has been true for decades but there's nothing inherently true about that. A Ponzi scheme can also go up for decades as long as there's growth. It's when there are contractions that it pops.<p>Anytime someone invests in "the stock market" they're doing this: creating growth without underlying value. And it might work out -- and it has for decades so far -- but that doesn't mean it makes sense or will continue that way forever.
I think some people can beat ETFs by pick and choose stocks, assuming they know what they are doing and get lucky. For me the biggest problem with this approach is that it becomes a job. Maybe not a full time job, but you end up spending non-trivial amount on this. If you really enjoy it then it's OK. But for many people it takes over other important hings in their life (their job, family, etc). You need to decide if it's worth it.
I think the thing it's talking about is building wealth, which is easiest to do passively. But if you want to get rich, I feel like now days you either have to play the stock market or start a successful business. You can work your whole life and get enough to maybe retire comfortably, but if you ever want to be actually rich, I don't think you can just passively invest anymore.
As a civilization it is better for 95% of the people to think that holding stocks for long term is better. We leave the milking to the top 5%, and we enjoy peace of mind.
Question for the room:<p>Are index funds that focus entirely on socially and environmentally responsible companies something that’s on your radar? Why/why not?
Folks seem to be fighting about which way is "best" to play the stock market. Boomer ETFs and Index funds with regular deposits vs buying individual stocks vs day trading vs WSB YOLO plays.<p>I think there's a place for all of them. I've been okay dumping money into index funds, but my best "play" ever was buying 5 shares of AAPL a few years ago. That ~$500 is now up over $2k. If you have the capital, there's room for all 3. Boomer investing to stay safe and have an EF and build your retirement nest egg. Buying individual stocks that you like with a smaller percentage. Maybe a small amount of "fun money" for day trading/YOLO.<p>Everything in moderation, including moderation and all that.
Hell yeah, boomer strats FTW. Hedge against inflation and by appreciating assets and forget about it. If you want to get rich quick you're probably better off starting a software company or something, or getting lucky with startup RSUs.