[boatsie]

The argument that the US stock market always goes up over relatively long periods of time seems somewhat flawed to me. If it were true that it was always best to invest in US stocks, everyone’s (longish term) money would flow to that asset class, thus undervaluing something else in return. So it just seems that it can’t be a dominant strategy or else everyone would be doing it. Wouldn’t that leave assets like bonds, real estate, foreign stocks, etc undervalued?

[cperciva]

I see it the other way: Corporations can invest in anything, so if any asset class outperformed equities we would soon see corporations listed on the stock market which simply held those assets. (This happened with BTC, with limited success, of course.)

[snowwrestler]

REITs are a classic example.

[boatsie]

Wouldn’t it just be better for them to invest in more equities, like an investment bank?

[dcolkitt]

So there are a couple of reasons that things wouldn't necessarily converge to equilibrium, and they're fairly well documented in all the asset classes you mention.

Foreign stocks: There's a well-documented effect called "home-country bias"[1]. Basically, investors tend to buy much fewer international stocks and are overly concentrated in their local domestic stocks. There's all kinds of reason for this, but they mostly seem to center around regulatory barriers (typically harder to open a fund to invest outside the country), political (major pension system are encouraged to invest at home for patriotic reasons), and reputational (losing money overseas tends to make the asset manager seem more reckless).

Real estate: Most governments heavily subsidize real estate from a combination of tax advantages and cheap credit. Look at how easy it is for the average Joe to buy a house with 400% leverage, no margin call, no capital gains on sale, and he gets all kinds of tax credits. Which means if you are getting those advantages than it's rational to invest in real estate, but if you look at raw returns real estate tends to underperform because investors with those advantages are willing to accept lower returns.

Bonds: The disparity between equity and bond returns is perhaps the most studied in all of finance, and is known as the "equity risk premium"[2]. There are numerous explanations, but two major ones standout. First, bond returns tend to be anti-correlated with the general economy. During recessions, when people are most likely to need liquidity, bonds tend to go up whereas stocks tend to go down. Second, many large classes of investors are basically forced to invest in bonds instead of stocks. For example insurance companies can only hold a tiny percent of their reserves in stocks and are required to invest in fixed income products. Similar story with banks, and to a lesser extent pension funds.

[1]https://www.gsam.com/content/dam/gsam/pdfs/common/en/public/...

[2]https://www.yardeni.com/pub/stockmktequityrisk.pdf

[danielmarkbruce]

It isn't a zero sum game. The underlying businesses have generated returns on the capital deployed. It can continue to go up forever.

[HDThoreaun]

There is a limited amount of energy we can harness on this planet. Seems extremely difficult to believe it can continue to grow exponentially forever.

[theandrewbailey]

You're moving the goalposts. Capital is not energy.

[heneryville]

You can use the efficient market hypothesis to talk yourself out of pretty much any good idea.

[sokoloff]

I think you’re conflating “consistently beats inflation” with “always best investment”.

That US stock market real total returns are positive doesn’t say anything about whether all long-term money will flow into it.

[1270018080]

Everything else goes up over relatively long periods of time too.

[paulpauper]

Stocks also have much more risk compared to bonds , so more risk compensated by higher returns .