Markets always go up in long run?
Should we be challenging the notion that markets will always go up in the long run?
If I had to boil it down to the Cobb-Douglas function (Output = Labour^elasticity x Capital^elasticity x Total Factor Productivity), presumably there's a point where these independent variables start to plateau.
Fertility rates are falling and life expectancy will eventually peak (I would think, bar a medical breakthrough). There's this concept of "technological singularity" which marks a shift from accelerating growth to a slowing growth. And unless/until we colonize other planets, capital is essentially finite.
And does this happen in next 80 years, 100 years, less? And how should this factor into people's investing decisions? Welcome peoples' thoughts!
Croupier, have you checked out these or run a search:
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You're welcome.
bump, especially given this week's developments
Instead of dollar cost averaging into the Sp500 American ponzi scheme, diversify and invest in high growth countries globally.
Please can you elaborate on why you think that the S&P500 is a Ponzi Scheme?
Markets will always go up in the long run until they don't, but when that happens America will probably be having a second Civil War or something. We'll all probably be dead by then though.
We can't factor this into investing decisions, unless you feel you know more about the future than everyone else.
Btw, you have the “singularity” backwards, I think. The premise is that technology/productivity grows exponentially
You're right. I did come across a contrarian take on the matter, which I had in mind.
https://www.technologynetworks.com/analysis/news/have-technological-adv…
Interesting question. I'd say the 'long run' in this thought experiment is irrelevant for practice. Keynes said 'in the long run we are all dead'. So with respect to your Cobb-Douglas function, i'd say it holds up good enough for practice. When it comes to the point where these independent variables start to plateau, we don't need to care anymore, it's outside of our horizons and landscape. In the long run, planet earth won't even exist anymore and there won't be any stock market. Would you then say that, in the long run the market will go to zero?
I'd also say that markets and the economy don't operate in a vacuum. For every force there'll always be an opposite force. When the variables start to plateau, some other economy will always rise, and traders will always be around to witness the rise of another market and will have priced in the shifts. Rise and fall
Also curious why you brought in the Cobb Douglas - i rarely see it being applied to markets, usually just economics.
Eager to hear people's thoughts
Thanks. I like how Cobb Douglas boils it down to those three inputs - at a high level, I think it's a fair representation of what constitutes economic output in reality. But agree that market doesn't necessarily equal economy and I know Cobb Douglas is somewhat controversial in certain circles.
Which market are you speaking of? If you're talking about US only, I agree with you that it's not necessarily a given. If I were to hazard a guess, I'm sure Europe seemed like a "no-brainer" place to invest for a long time but got absolutely decimated post-war and has underperformed either since then or for long periods thereafter. Japan also was the poster child country for a long time but is obviously famous for having never reached back to it's peak in the 80s.
All that's to say that I think you're right there's no guarantee that ANY market will go up or return 10% into perpetuity. However, I do like to believe that there will always be opportunities somewhere (sorry to sound like Jim Cramer). If the US isn't the place to be, I'd like to think that there's some other area of prosperity in the world and that their markets will do better. And even if stocks don't go up, I feel like something else has to do well. For example, even in this market, I'm now finally looking at bonds again for the first time in years. If I can lock in a 7%ish rate on a relatively safe bond for 5+ years, it's probably worth it whereas in the past, I'd have to take the plunge on a junk bond to get that kind of yield.
Bottom line - I'd stay long and stay diversified. Get your asset allocation correct based on age, risk-reward, risk-appetite, etc. and have faith that the world will get more productive over time. I mainly put my money in VTWAX and am now eyeing some short-term bond funds. Definitely keep some play money as well, but if you put most of your money in a diversified, international index, historically you'll go far. If that doesn't work, btw, all of humanity is in deep shit. So much wealth would be wiped out if equity everywhere crashed and never came back. I think I'd be more concerned about survival at that point than the number of digits and commas on my computer screen.
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