Lately, I’ve seen all kinds of talk online about “mindless dollar-cost averaging,” “long-term compounding,” and “retiring on index funds.” I think it’s gotten a little distorted.
It seems as if all you have to do is invest in U.S. stocks, and compound returns will let you retire early, move to Dali or overseas, and live the digital nomad lifestyle.
But has history really been that rosy?
During the dot-com bubble in 2000, the Nasdaq plunged 77.9% and took 15 years to regain its previous high. The S&P 500 fell 49.1% and took 7 years to recover.
During the 2008 financial crisis, the Nasdaq fell about 55.6%, while the S&P 500 fell 56.8%; the latter took around five and a half years just to break even.
I’ve seen far too many people in crypto get shaken out by Bitcoin’s four-year cycle—so imagine enduring the U.S. stock market’s cycles, which can last more than a decade.
When your assets are cut in half, you see no light at the end of the tunnel for years, and you even have to cover living expenses with a shrinking nest egg, how many people can really stick to so-called long-term investing?
I’m not against dollar-cost averaging. It’s a great investment strategy. What I oppose is presenting index funds as a risk-free retirement plan that you can blindly go all in on.
Index funds can diversify away the risks of individual stocks, but they can’t eliminate systemic risk. And the market’s long-term rise in the past doesn’t mean everyone has enough time and cash flow to wait until they break even.
Ordinary people should allocate their savings, investments, and living expenses sensibly, maintain cash flow, and prepare for the worst.
The biggest risk in investing isn’t necessarily that your assets won’t recover. It may be that you misjudge your expectations and your own capabilities.
Investing should improve your life—not make you gamble your life on compound returns.
Don’t romanticize investing, and don’t dress up risk as freedom.
$QQQB
It seems as if all you have to do is invest in U.S. stocks, and compound returns will let you retire early, move to Dali or overseas, and live the digital nomad lifestyle.
But has history really been that rosy?
During the dot-com bubble in 2000, the Nasdaq plunged 77.9% and took 15 years to regain its previous high. The S&P 500 fell 49.1% and took 7 years to recover.
During the 2008 financial crisis, the Nasdaq fell about 55.6%, while the S&P 500 fell 56.8%; the latter took around five and a half years just to break even.
I’ve seen far too many people in crypto get shaken out by Bitcoin’s four-year cycle—so imagine enduring the U.S. stock market’s cycles, which can last more than a decade.
When your assets are cut in half, you see no light at the end of the tunnel for years, and you even have to cover living expenses with a shrinking nest egg, how many people can really stick to so-called long-term investing?
I’m not against dollar-cost averaging. It’s a great investment strategy. What I oppose is presenting index funds as a risk-free retirement plan that you can blindly go all in on.
Index funds can diversify away the risks of individual stocks, but they can’t eliminate systemic risk. And the market’s long-term rise in the past doesn’t mean everyone has enough time and cash flow to wait until they break even.
Ordinary people should allocate their savings, investments, and living expenses sensibly, maintain cash flow, and prepare for the worst.
The biggest risk in investing isn’t necessarily that your assets won’t recover. It may be that you misjudge your expectations and your own capabilities.
Investing should improve your life—not make you gamble your life on compound returns.
Don’t romanticize investing, and don’t dress up risk as freedom.
$QQQB