The whole piece is just a confused mess with only the most tenuous grasp on a thesis. It skips from treasury yield rates to meme stocks to national debt as an explanation for why passive investing is over.
The author also seems to be living in a reality where high inflation has persisted - they talk about interest rates rising into the double digits to suppress inflation, despite inflation being firmly back to normal and no evidence of any major rate hikes (if any!) on the horizon?
I'm mostly with you on the conspiracy theorist thing here - I think there's a motivated group of people who seem desperate to instill a narrative of economic doom-and-gloom, despite the facts on the ground not at all warranting such an outlook at the moment.
Also it's not clear that the author themselves understands the notion of the "set it and forget it" passive investment? The entire point of something like a 401k is that you consistently put money into over a long period of time. This cost averaging accounts for periods of poorer returns. That is in fact the entire point of such an investment strategy.
Indeed: "This cost averaging accounts for periods of poorer returns. That is in fact the entire point of such an investment strategy."
The goal of the "motivated group" would be: retention or acquisition of power/influence? Usually that is highly correlated with having wealth. So is it a push to make people buy what they're selling (which is)?
Or is this a bitcoin (i.e. this moment's GOLD) push behind the scenes? (e.g. BlackRock's BTC ETF).
My read is this is pure political kvetching rather than astroturfing for some product. There's your usual WSJ implication that things are bad because our monetary policy is not austere enough.
Then there's the vaguely classist complaining about how "young investors" don't know how to invest and ruined the stock market forever by dumping their stupid money into unprofitable companies (which is funny because these unprofitable companies have oodles of institutional investors and up until 18 months ago were VC darlings - but yes, it's the young people who are idiots)
The fact that the author isn't hawking some kind of solution is IMO telling that this is just another "let's complain about the economy" piece that's meant make people believe things are terrible despite little compelling evidence of it.
So yeah, it's a day that ends with a "Y" over there at the WSJ.
The bond collapse could get worse, if interest rates continue to climb. The bond market (if I understand correctly) doesn't think it will, projecting that rates will drop after 1 to 2 years. If they're wrong, then bond prices will not collapse, they will move to the level implied by the interest rates.
Stock prices should reflect the present value of expected future earnings, with a risk premium. "Present value" takes into account expected interest rates. Stocks were high because, in a zero interest environment, future earnings were not discounted (other than for risk). The question now is, is that coming back, or is it gone for good? If it's gone for good, stock prices should fall to reflect that. That won't be a "collapse", exactly, but it will be a correction.
I can’t even tell what the suggestion is for the article.
Panic? Assume my money is going to become worthless? Buy some fancy fund that manages risk better (but, historically, does worse than the s&p)? Seems like this is yet another chicken little prediction that is going to be found to be inaccurate years later.
The author doesn’t really give any evidence that this time is different. And, given that everyone cries this time is different, I’m extremely skeptical.
The suggestion is to simply to lower expectations. People always expect their 401Ks to beat inflation over the long run. Author is saying you might see a lost decade where you gain very little.
The 'lost decade' issues only have previously applied if you dump all your money in at a specific timeframe, then never contribute anything else. Or, alternatively, if you pull out a large amount of money after the downturn.
Traditional 'set and forget' 401k funding would imply you continue to contribute throughout the period (i.e., dollar-cost-averaging). By putting money in during the downturn, those dollars earn outsized rewards when the market inevitably bounces back. It essentially cancels out the money lost.
Which is stupid. If I shouldn't expect returns on my investments to beat inflation why would I bother investing in equities? By that metric I should put all of my money in TIPS and be done with it.
Just another submarine story [0] for actively-managed portfolios. The WSJ publishes these on the regular, because the broad shift to index funds means a lot less free money for overpaid fund managers. Ignore it and move on.
You clearly did not read the article and you also showed your ignorance of the market. The article talks about broad market issues, not index vs active.
This year is shaping up to be historic. As in capital-H historic.
Treasuries have never been down 3 years in a row since the 1700’s. [0]
Finally, you can very easily create a 60/40 portfolio using index funds. SPY & AGG are 2 common ETFs used, while VFINX & VBMFX are two common index mutual funds used.
The article does seem to be punching a straw man though. A 60/40 portfolio is basically only recommended for those approaching retirement who cannot stomach high volatility.
Target date funds that are commonly used would put 30 year olds into a 90/10 portfolio.
"Treasuries have never been down 3 years in a row since the 1700’s. [0]"
That just means that Treasury interest rates have not risen this much (proportionately) 3 years in a row since the 1700s, and we can blame that squarely on ZIRP.
During ZIRP, 60/40 was a ludicrous asset mix and obviously to be avoided.
I think his article would have been better if he focused on that more and how changes away from ZIRP will impact investors. Instead he danced around it a bit. I would have preferred a head-on approach.
One thing I would say is that tons of people have target date funds and were/are still in a higher bond mix than they should have been. But investing is tricky and most investors don't do the right thing all the time.
Please don't break the site guidelines like this. You broke several of them here, including:
"Edit out swipes."
and
"Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that.""
29 comments
[ 2.7 ms ] story [ 66.1 ms ] threadI want to know "what's coming"...
The only problem is, nobody does. Including the guy who wrote the article.
The conspiracy theorist in me thinks there is a subversive campaign trying to shift emotions and get the market to tank in time for election season.
The author also seems to be living in a reality where high inflation has persisted - they talk about interest rates rising into the double digits to suppress inflation, despite inflation being firmly back to normal and no evidence of any major rate hikes (if any!) on the horizon?
I'm mostly with you on the conspiracy theorist thing here - I think there's a motivated group of people who seem desperate to instill a narrative of economic doom-and-gloom, despite the facts on the ground not at all warranting such an outlook at the moment.
Also it's not clear that the author themselves understands the notion of the "set it and forget it" passive investment? The entire point of something like a 401k is that you consistently put money into over a long period of time. This cost averaging accounts for periods of poorer returns. That is in fact the entire point of such an investment strategy.
The goal of the "motivated group" would be: retention or acquisition of power/influence? Usually that is highly correlated with having wealth. So is it a push to make people buy what they're selling (which is)?
Or is this a bitcoin (i.e. this moment's GOLD) push behind the scenes? (e.g. BlackRock's BTC ETF).
Then there's the vaguely classist complaining about how "young investors" don't know how to invest and ruined the stock market forever by dumping their stupid money into unprofitable companies (which is funny because these unprofitable companies have oodles of institutional investors and up until 18 months ago were VC darlings - but yes, it's the young people who are idiots)
The fact that the author isn't hawking some kind of solution is IMO telling that this is just another "let's complain about the economy" piece that's meant make people believe things are terrible despite little compelling evidence of it.
So yeah, it's a day that ends with a "Y" over there at the WSJ.
Well, the bond collapse already happened (and could get worse). The writers thinks stocks (which are historically overvalued) are next to collapse.
Stock prices should reflect the present value of expected future earnings, with a risk premium. "Present value" takes into account expected interest rates. Stocks were high because, in a zero interest environment, future earnings were not discounted (other than for risk). The question now is, is that coming back, or is it gone for good? If it's gone for good, stock prices should fall to reflect that. That won't be a "collapse", exactly, but it will be a correction.
Panic? Assume my money is going to become worthless? Buy some fancy fund that manages risk better (but, historically, does worse than the s&p)? Seems like this is yet another chicken little prediction that is going to be found to be inaccurate years later.
The author doesn’t really give any evidence that this time is different. And, given that everyone cries this time is different, I’m extremely skeptical.
Traditional 'set and forget' 401k funding would imply you continue to contribute throughout the period (i.e., dollar-cost-averaging). By putting money in during the downturn, those dollars earn outsized rewards when the market inevitably bounces back. It essentially cancels out the money lost.
[0]: http://www.paulgraham.com/submarine.html
Succinct, yes.
Correct, no.
This year is shaping up to be historic. As in capital-H historic.
Treasuries have never been down 3 years in a row since the 1700’s. [0]
Finally, you can very easily create a 60/40 portfolio using index funds. SPY & AGG are 2 common ETFs used, while VFINX & VBMFX are two common index mutual funds used.
[0] - https://markets.businessinsider.com/news/bonds/chart-of-the-...
Target date funds that are commonly used would put 30 year olds into a 90/10 portfolio.
I agree about the 30 years olds, but people aged 40+ have a higher ratio where they actually see the impacts of this.
That just means that Treasury interest rates have not risen this much (proportionately) 3 years in a row since the 1700s, and we can blame that squarely on ZIRP.
During ZIRP, 60/40 was a ludicrous asset mix and obviously to be avoided.
I think his article would have been better if he focused on that more and how changes away from ZIRP will impact investors. Instead he danced around it a bit. I would have preferred a head-on approach.
One thing I would say is that tons of people have target date funds and were/are still in a higher bond mix than they should have been. But investing is tricky and most investors don't do the right thing all the time.
"Edit out swipes."
and
"Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that.""
If you'd please review https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it.