[ryandrake]

Not comparing apples to apples, though. Those government bonds were, by any reasonable measurement, risk free (EDIT: as another commenter noted, not exactly, we could call them "minimal risk"), while "the market" is not.

Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.

[jameslk]

On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time.

This is especially true for stocks vs bonds. Because the cash flows of bonds are fixed, prolonged inflation or rate spikes can deliver a loss that stays a loss, making long-term "safety" in bonds partly an illusion.

http://www.efficientfrontier.com/t4poi/Ch1.htm

[cortesoft]

> The longer a risky asset is held, the less chance of loss you’ll have

I understand what you are trying to say here, but it really depends on what the “risky asset” is. If you hold a diversified set of risky assets, like a stock market index fund, then what you say is correct.

However, there are other risky assets that don’t hold to this “a long time horizon reduces risk” statement. For example, if you put all your investment in a single stock, that is a risky asset that does not necessarily revert to the mean over time. Many companies go out of business, and the stock goes to zero and will never recover no matter how long you wait.

It is important to note what kind of risk you are taking.

[ryandrake]

> On the timescale of 30 years for gov bonds vs diversified US stocks, this is almost meaningless statement. The longer a risky asset is held, the less chance of loss you’ll have. Short-horizon returns are extremely volatile, but that volatility "mean-reverts" over time.

This is only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?

[kimbernator]

Realistically, all that actually matters is where I land relative to the population at large. Since so much of the world economy is tied to stocks, by buying into it I will remain at least at parity with my current socioeconomic status regardless of whether the market goes up or down. Nobody with real money is just holding it in cash in case the whole stock thing doesn't work out.

If things go the way they have been for a while now, I'll be able to retire comfortably. If stocks don't gain or lose a penny for the next 40 years, I think society as a whole will have reframed retirement. If society collapses, it didn't matter anyways.

[Lerc]

I guess the questions to be asked would be

Will the US economy completely collapse in the next 30 years?

Will the US government completely collapse in the next 30 years.

For the past century I think the answers to those questions would have been, "Almost certainly not" and "Not a chance in hell"

I honestly didn't know where they stand today, but there's definitely been movement.

[tmtvl]

The past century, you say... wasn't there a little thing called 'the great depression' somewhere around a century ago?

[Lerc]

Wasn't a complete collapse. It took a significant hit, but still functioned.

[jameslk]

The same type of argument can be made about bonds and even cash.

And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too.

Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it

[southernplaces7]

>that probably means the US is toast and therefore bonds are screwed too.

If the US becomes toast, whatever caused it to happen, and/or the geopolitical, economic consequences of it having happened, would likely be so enormous that stock and bond prices in your portfolio would be the very least among your problems.

[narratives1]

This is almost the definition of technical analysis: “chart always reverted to mean so it will always revert to mean”

Note that almost every exchange outside the US has been flat or negative for decades. The US has held a precious position for a few generations that’s made “chart go up” feel like a given

[Kranar]

>Note that almost every exchange outside the US has been flat or negative for decades.

As someone who works in finance this struck me as a remarkable claim. Upon inspection it turns out to be spectacularly incorrect. After adjusting for inflation it's actually the opposite, the vast majority of countries have seen their own version of the S&P 500 grow over a 30 year period, after adjusting for inflation, not stagnation or decline. Developing countries, particularly those in Asia, have seen incredible returns over a 30 year period, albeit with a great deal of volatility involved.

Our neighbor to the north, Canada, has seen gains that are slightly below the U.S., but our neighbor to the south, Mexico has seen about the same growth as our own, once again accounting for Mexico's own inflation.

Europe has also experienced a great deal of growth with many European countries even growing moreso than the U.S., for example Germany.

While there are examples of decline, they are in countries that are both poor and have unstable governments. Most countries that are strictly poor but don't suffer from instability have for the most part seen growth rather than stagnation.

So I don't know exactly what led you to believe your claim that "almost every exchange" has been flat or negative, but it's certainly not correct.

[kgwgk]

> Developing countries, particularly those in Asia, have seen incredible returns over a 30 year period, albeit with a great deal of volatility involved.

The level of the MSCI China index 30 years ago was HKD 70 and it's HKD 75 today. It's kind of incredible but not in a good way. Total return is less than 3% p.a. MSCI Thailand is even worse.

MSCI Korea has a total return of 7% (not bad, 4% above inflation) but it doesn't do better than developed countries.

Of course they look much better if we start right after the 1997 Asian financial crisis but, hey, it was you who talked about "a 30 year period".

[kgwgk]

> Europe has also experienced a great deal of growth with many European countries even growing moreso than the U.S., for example Germany.

I can't make sense of that example. Are you maybe comparing the level of the S&P 500 with the DAX which is a total return index?

[narratives1]

African, Asian, and Latam exchanges included, many of which go defunct. Japan’s has been basically flat among developed countries

[throw0101c]

> Note that almost every exchange outside the US has been flat or negative for decades.

And the US itself was flat for over a decade, with the only thing saving a domestic investor's returns being bonds:

* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...

And as a Canadian, there are different sectors that would have given me positive gains over the years (I generally own mostly VEQT, a globally-diversified ETF):

* https://stingyinvestor.com/SC/PeriodicTableofAnnualReturns.p...

And it's perhaps looking more closely at what specifically about the US has been positive:

> Looking at this data, there are two distinct periods of extended U.S. outperformance—the late 1990s and today. And what do these two periods have in common? The rise of U.S. technology stocks. Bespoke Investment Group recently created this chart illustrating this phenomenon:

> Now that the U.S. technology sector makes up over 30% of the S&P 500 (as it did back in 2000), this begs the question: Is U.S. outperformance just a technological fad?

* https://ofdollarsanddata.com/do-you-need-to-own-internationa...

Outside of tech, how much better is the general US market than any other market?

[toasterlovin]

The thing is, we do actually have a tech industry and other countries largely do not. It’s like arguing that industrialized nations are only wealthier than agricultural nations if you include manufacturing. Thats the whole point!

[ty6853]

Holding stocks in the nation in which you live probably isn't very smart from a hedge perspective, considering US stocks don't have a locked correlation to foreign ones. Your assets would all be in the shitter at the same time you're out the job and need to liquidate them to survive.

[jameslk]

Yes I agree. I was using US stocks for the sake of comparison against US bonds. Otherwise, a diversified portfolio with risk adjusted to goals is what makes sense

[jajko]

Yeah buying Norwegian airlines stock for example would have been a brilliant idea, right. I mean country like Norway with their sovereign fund, oil, very moral population and good government etc, nothing can ever go wrong.

[kimbernator]

It's hardly fair to portray stock market investment in that way, though. Nobody should be investing in a single stock for 30 years. A diversified sector EFT is just as easy to buy and comes with diversification so a single failing company doesn't have that much of an impact.

[floundy]

The Nikkei 225 is still below its peak value from December of 1989. The US is an outlier in terms of historical average stock market returns and there is no guarantee this outperformance will continue into the future. Actually I'd say it's less likely, given that should it continue, the US market cap will eat the entire world stock market. The US stock market is currently 62% of the world's stock market capitalization.

[tokyoseb]

The Nikkei 225 may be below its 1989 peak in price terms but you can’t ignore the dividends which an actual investment in the index would have paid during that period. On a total return basis (if you had reinvested the dividends into the index as you received them) the Nikkei passed its 1989 peak in 2021.

[deanmoriarty]

I struggle to understand why an educated crowd like HN routinely forgets dividends when posting any sort of financial charts. Total returns are what matters.

[andrewmcwatters]

I don’t know how many people in tech you’ve worked with, but the number of other people I’ve interacted with who actually read quarterly reports of publicly traded businesses has been exactly zero.

[floundy]

My point still stands, as the original comment was discussing the risk of loss over 30 years, with no additional investment that was 32 years of the investment being below its peak value.

[throw0101c]

> The Nikkei 225 is still below its peak value from December of 1989.

Okay, and how many people put 100% of their money in at December of 1998? Versus how many people have been dollar cost averaging for the last 30+ years?

* https://ofdollarsanddata.com/now-do-japan/

Further, it's not like the US is immune to long periods of minimum returns:

* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...

Perhaps these examples are a lesson for what's important: diversification.

[ManBeardPc]

Only if you invested everything in the Nikkei on the height of the market though. Many US companies are pretty global and have a lot of sales outside the USA. In that sense the risk is a lot less concentrated outside of extreme political events.

[floundy]

Many international companies are global, and have a lot of sales to the US. But I never see anybody using that as a justification for not investing in the US.

As to the Nikkei retort this seems to be hindsight bias and ignorance of historical context, the general consensus at the time (both inside and outside of Japan) was that the Japanese economy was going to take over the world.

[scubazealous]

Bonds are considered safer because short of the US losing WWIII there is practically no way the US bonds would not pay out or lose value. US Bonds are safe and predictable, backed up by the immense military and resources of the nation.

Investing in Apple 30 years ago would net a much higher return on $5k but even Apple was considered a unsafe investment in the 90s. On the other hand, Enron was considered a safe investment by many but went bankrupt almost overnight and shares became practically worthless.

[kgwgk]

> there is practically no way the US bonds would not pay out or lose value.

Bonds can "lose value" and they did so quite strongly in 2022/23.

If you bought 20-year bonds in 2020 for $100 they are worth $60 now (and were as low as $55 in 2023). Getting $1 per year is far from compensating the loss.

They will recover gradually until they "pay out" $100 but right now they're underwater.

[taeric]

I mean... the risk of risky assets is that they won't last that long. Any asset you can look back on having held for a long time, is by definition less risky than you could have been. No?

[BlandDuck]

Exactly, if it had been obvious at the time that "the market" would deliver a better return, for certain, then nobody would have bought bonds at those prices.

Then bond prices would have declined (and their expected returns or interest rate would have increased) until, in equilibrium, the anticipation was that the stocks and bonds would deliver comparable expected risk-adjusted returns.

[JackFr]

Very few entities have a 98 year horizon. People sure don't. Some insurance companies do I suppose.

A more interesting graph would be to show me the 30 year return at each point along the way. My gues is that stocks would still mostly come out on top, but not the runaway you see here.

[tjwebbnorfolk]

"Risk-free" is a popular shorthand for "The US government won't default". But default is far from the only risk inherent in bond ownership.

Risk is the chance something bad happens to you.

Held for 30 years, bonds are eaten alive by inflation. That's a bad thing that happens to you if you hold bonds for a long time.

[kgwgk]

> Held for 30 years, bonds are eaten alive by inflation.

20-year and 30-year bonds yield 5% today. That's well above inflation expectations.

You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.

[tjwebbnorfolk]

You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free, then all I can say is I have a very different idea of what risk means.

I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.

[kgwgk]

> You're talking about making a 30-year duration bet that inflation will not increase. If you call that risk-free

I didn’t say anything about “risk-free” (the closest is the second paragraph but you don’t address it at all).

I was clearly commenting on the quoted sentence “Held for 30 years, bonds are eaten alive by inflation” which has not applied since the seventies, doesn’t seem the best assumption going forward, and has an easy solution as discussed.

> reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.

If your main objective is to beat inflation, getting inflation + 2.50% with certainty seems an attractive proposition! (Inflation-linked bonds have a “fixed” rate on top on inflation.)

[ty6853]

Indeed. There's always the story of finding stacks of bills in the wall of granddaddies house despite the fact creditors and the bank were up his ass to the bitter end for medical bills.

Given the ever increasing number of people bankrupted by medical bills, divorce, child support, lawsuits, etc we're quickly moving into a world where it might be foolish to expect assets accessible to a brokerage or bank will still be there by the time you need them.

[toasterlovin]

I'm not sure that a US government bond has a meaningfully different risk profile than an aggregate investment in US equity markets.

[ryandrake]

If this were really true, they would offer similar returns.

[toasterlovin]

Famously, Mr. Market deals in what things cost, not what they are worth.

[eweise]

isn't the stock market risk free over a 30 year span? Maybe with the exception of the depression.

[BJones12]

The US stock market has not had a negative return over any 30 year span. There are 30 year spans with total returns under 10%, which significantly lag what bonds returned in those spans.