Homer, you have a point here but you have overstated your case. We assume an equity risk premium around here otherwise we would all be posting about our Certificate of Deposit portfolios here. We have faith that stocks will outperform bonds over the long term, if we didn't we wouldn't bother with stocks.HomerJ wrote: ↑Tue Jul 09, 2019 12:35 pmThe criticism is somewhat valid.
We don't actually know the odds. There are very limited data points. There are no repeatable experiments. Human emotions are involved. Human laws and regulations (that change over the time periods with already limited data points) are involved.
Quite often (not always, but often), when a new investing method is discovered, it stops working.
We don't really know the odds... Not enough to make predictions with any precision at all.
We have know how different asset classes and sub-classes have performed over time. One of which is the Low-Volatility stocks, which have such things as Consumer Staples and Utility stocks. These are the so-called defensive stocks and they have over time behaved in rather predictable ways. We know how nominal treasuries with AAA credit perform compared to High Yield Junk Bonds, we know that credit quality makes a difference. We also know that bonds with longer maturities are more volatile than bonds with shorter maturities. We don't know everything with 100% certainty but we have a pretty good idea of how different asset classes and sub-asset classes will act in different market conditions. We know enough that we can make some educated projections into the future.
Again, this isn't precise. Investor preferences change over time. We have seen changes in the economy and the markets over time. So none of us has a crystal ball. But having knowledge of market history gives us context and gives us a pretty good idea of what might happen in the future.
If we took your argument to an extreme, it wouldn't matter what we invested in. We could take a rather fatalistic attitude and say none of this matters. Of course, almost no one here would take that position. Most all of us here have stock/bonds/cash portfolios largely because we have expectations that stocks will outperform bonds over the long term and that bonds have lower volatility than stocks while producing a steady income. We all have expectations and we all, even subconsciously, make predictions about the markets. Otherwise none of us would invest, the rationalization being this is a gamble anyways.