Bolshevism. An S&P 500 index will crush any bond, CD, whatever, over the next 20 years. When you are investing long term, the ups and downs and whatever volatility traders and hedge funds cause do not matter, you are still owning a piece of the company that on average will grow exponentially in value.
With inflation on the horizon, stocks are a way better hedge than cash or bonds.
And that said, if you go hunting for value and well priced stocks, you will be way better off.
Or, it might not. Stocks have been flat to negative over the last decade. Stocks are great when they are going up. You can make amazingly high returns, but the market has this bad habit of crashing every few years or so, and if you're relying on it for retirement money, you might be screwed. I truly hope you weren't heavily invested in stocks and needed to retire at the end of 2008, or in 2002.
I've found a much better portfolio allocation that gives similar long term returns to being invested in equities, but without the wild swings:
That's a huge presumption considering we've just done the same things that historically create deflation and resulting depressions.
Trillions in questionable debt is still outstanding, and the Fed and Govt's intervention is far from clearly solving that.
It's very possible we could end up like Japan in the 90s - deflating - or worse since they had household savings then and we don't.
It's also possible we could get some unholy combination of currency inflation and debt deflation, which I have no idea what that looks like, but I imagine it ain't pretty. Only thing I'm certain of is that stocks outperforming bonds and cash over the next 20 years is not a certainty. The past 50 years is not enough data to know that for sure.
Your using the word deflation wrong here. It trips many people up.
Inflation is when the money supply grows, deflation when it shrinks. The person your responding to is correct to point out out money supply is being inflated, and inflation has been increasing in rate.
This may well lead to economic troubles which will cause some businesses to lower prices out of desperation.
You can call that price deflation if you want.
But don't forget the qualifier and then claim the other guy is wrong when you equate one economic phenomena with another by misunderstanding the terms.
I know you probably haven't heard about this, most mainstream economics talk is acutallu political talk that tries to pretend inflation is measured in price (an effect of, not the cause of inflate.)
For instance it is correct to say inflation was one of the causes of the great depression which resulted in price deflation. Also a major effect there was the real deflation of the criminalization of gold that literally made the us currency illegal eliminating much if the money supply -- while inflating paper money.
That's not the commonly used definition. When the government puts out CPI, that's price inflation, not monetary inflation. Monetary inflation is only one component of price inflation. The other two are the velocity of money and change in productivity. There has been large monetary inflation in the past couple of years, but low price inflation because the velocity of money has gone down so much.
In a fiat, fractional reserve system, money = debt. When large amounts of debt are defaulted, the money that had been created by fractional lending gets destroyed too, hence a decrease in the supply and velocity of money, hence 'debt deflation'. I wasn't talking about 'price deflation', though I should have qualified that term both times I used it, not just the second time.
Price deflation is just a symptom of underlying problem/s, not the actual problems. It's the canary in the coal mine, not the gas leak that's about to blow it up. Prices can deflate or inflate for a number of reasons, from supply:demand imbalances (typical business cycle), change in money supply (which changes demand for goods and services relative to supply), or some other structural change in aggregate demand. Price inflation/deflation is only interesting to me in that regard as a vaguely-specified warning light urging further investigation/troubleshooting, but not as the underlying problem.
I agree with Steve Keen's hypothesis that jwhite linked here, Bernanke can print all he wants, and drop interest rates all he wants, but there's a realistic chance that it won't have the effect he intends. Banks won't start issuing new credit until they are confident the economy can support both the old credit (at an acceptable, pre-crisis default rate) and the new credit.
With the government and Fed propping up a significant percentage of our GDP right now, the odds of banks regaining that confidence aren't great.
Qualifiers are certainly important in this case, it frustrates me no end that mainstream media can't distinguish these. Thanks for your insightful comment.
Steve Keen has an interesting article on endogenous money at www.debtdeflation.com. Bernanke has increased M0 drastically in an effort to stave off deflation (I guess asset price deflation is the key in this case), but Keen believes it won't work because our system is not a true fiat money system but a credit money system with a fiat money subsystem tacked on, and in the current circumstances banks/companies are not going to expand credit no matter what happens to M0. That is, banks lend money first, then go hunting for reserve supply (M0) to back it up, opposite to the text book theory for how the money supply works.
Looking back to 1971, for any 20 year period the S&P 500 netted a gain. For the last 20 years, that gain was 6% per year. OK, but not what I would term "crushing" performance.
For the last 10 years, the S&P 500 is down 2.5% on an annual basis. You could have done better w/ govt bonds & CD ladders.
I think the 20 year plan assumes a greater will power than the greater investing community possesses.
Right, you can cherry pick 10 year periods of time when the S&P did good, but don't forget about all those times it crashed. The problem with following Wall Streets advice to put all your money in stocks is that they make too much money from trading commissions to trust them for impartial advice.
Typical investment advisors tell you to buy stocks and then point out that over the last century stocks have done very well. The problem is that none of us are investing on 100 year long timelines. We are usually investing on 30-40 year timelines and hoping to have a good amount saved when we retire. If you happen to need to retire and start pulling money out in a bad year like 2008, you're screwed.
S&P 500 today is not made up of the same companies as back in 1971. The 6% annual growth excludes any companies didn't do well and were delisted or got wiped out (100% loss of investment).
With inflation on the horizon, stocks are a way better hedge than cash or bonds.
And that said, if you go hunting for value and well priced stocks, you will be way better off.