Don't Compare to the S&P

[evanburnside12]

Dave Ramsey: But I can invest in the stock market and earn 12%!

This is a lie. In fact I suspect he knows this is false and says it anyway to get kick backs from the guys he recommends to manage money.

That 12% comes from looking at the average of the S&P going back decades. Here's the problem. The composition of the S&P is radically different than it was decades ago. Companies that went bankrupt get delisted from the S&P, so there is a strong survivorship bias. The market as a whole doesn't earn 12%. Not even close.

Average investors earn significantly less than the market. Forget average returns of the market. Look at average portfolio returns. They are far lower than average market returns. And this is before fees, taxes, etc.

So don't compare the 4-5% that you get from life insurance to 12%. 12% is an entirely fraudulent figure. Life insurance is a good place to park your money. The returns are reasonable and guaranteed. The stock market is risky and you never get the advertised returns.

 

[ageofreason2014]

@evanburnside12 You don’t understand the how the index moves if you think companies being delisted leads to survivorship bias. They don’t retroactively change the index based on the new selection of 500 companies.

 

[evanburnside12]

@ageofreason2014 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4170015

This is a commonly accepted fact in academics. Any stock market index has survivorship bias.

 

[ageofreason2014]

@evanburnside12 It’s different than you’re describing. An average company doesn’t perform at the level of the s&p 500 that’s true. You make the argument that delisting biases the index as if it’s doing something retroactive and only taking the performance of the surviving company. The delisted company still contributes up until it’s removed, then it stops contributing. So the index is correctly tracking the return of the 500 largest companies

 

[evanburnside12]

@ageofreason2014 It includes their growth before they were included in the S&P and pretends that they were always in the S&P. You can't backtrack performance of the S&P like this. Especially over decades.

 

[ageofreason2014]

@evanburnside12 No it literally does not, and it’s dangerous to spread misinformation like that.

 

[evanburnside12]

@ageofreason2014 You're wrong.

https://en.m.wikipedia.org/wiki/Survivorship_bias

 

[ageofreason2014]

@evanburnside12 I understand what survivorship bias is. It doesn’t change the fact that you’re mis-representing how the index is calculated.

The example in the wiki is true that if you just backcast using the current 500 members, it’s biased. But when people quote the s&p historical returns, it’s not recalculated using only the current 500 members. Daily prices are based on the 500 members included at that time. So it doesn’t have the type of bias that’s mentioned in your example.

 

[loadedcafe]

@ageofreason2014 This is the correct answer

 

[vickiegram]

@evanburnside12 Are you an agent? I understand your frustration. But you have to accept reality. No one is comparing insurance with s&p. Ppl like me are saying invest in term and invest rest in index funds. The return is more and that's the reality. Whether it's 12% or 8%, over all you make more money than insurance.

 

[shaimaaalmahdy]

@vickiegram Hello Primerica. Lol

 

[black_bear]

@vickiegram I'm going to have to disagree with you there, it's better to go with insurance. Reasoning or proof doesn't matter, because my opinion is just as valuable as yours in our democracy.

 

[vickiegram]

@black_bear And I gave you proof or reasons as well in other comments. But you don't want to read it. In any case I respect. I am from the oldest democracy in the world.

 

[evanburnside12]

@vickiegram Quit addressing imagined motivations and deal with the objection as stated. Even 8% is fantasy.

https://www.crews.bank/blog/sp-500-vs-average-investor

 

[ladyeag]

@evanburnside12 You picked one of the worst 20 year periods for the s&p and it still beat the 8% you are pretending is a fantasy. You seem to have an agenda here or are just quite biased and don't want to see reality.

 

[vickiegram]

@evanburnside12 Well the last 10 years of s&p 500 is much more than it and history says the same. If you go little aggressive , you may get much better than 8%. Considering you reshuffle every year at least.

 

[evanburnside12]

@vickiegram Congratulations. You can make good money during an historic bull run. What happens when we get another 2000 or 2008?

 

[evanburnside12]

@vickiegram What are the long term returns that you should expect when the CAPE ratio is 34?

 

[vickiegram]

@evanburnside12 You are not getting the point. Forget about all the technical numbers. Just start investing monthly with a discipline for the next 10-15 years and you will see results. Not talking about moving all of your money together. I am asking to move it slowly but with discipline for the long term.

 

[evanburnside12]

@vickiegram

Forget about all the technical numbers.