What if the market stops going up?

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acegolfer
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Re: What if the market stops going up?

Post by acegolfer »

abhi764 wrote: Wed Jan 06, 2021 6:47 pm IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run.
That's your assumption and as you said, market doesn't always go up. Instead the expected return is positive and greater than inflation rate.
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QuestioningWanderer
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Re: What if the market stops going up?

Post by QuestioningWanderer »

If market stops going up, then productivity has stopped.

If productivity has stopped, then a huge crisis has caused that to happen.

If a world suffers a huge crisis, then money might not be your biggest problem :)
Always question status quo.
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sperry8
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Re: What if the market stops going up?

Post by sperry8 »

alex_686 wrote: Thu Jan 07, 2021 2:22 pm
CyclingDuo wrote: Thu Jan 07, 2021 1:53 pm It took 25 years for the US market to hit new highs after the 1929 peak. It took 15 years for the Nasdaq to hit new highs after the 2000 peak. So we have had some nice digestion phases in terms of the amount of years it takes following speculative peaks in the US.

The Nikkei hit a speculative high on December 29th of 1989 which is 31 years ago. Hey, give it some more time. The past 8-9 years have been pretty good for the index. It wouldn't surprise some of us if in the next decade it finally hit another new high... :idea:
2 criticism here.

Not sure which indexes you are using for the US, but... I suspect that you are using the DJIA, which is a price weighted index which has issues. And that you are not counting reinvested dividends. And that you are mixing up different index.

The Nikkei is another very poor index. It is not price weighted nor factors in reinvested dividends. Like the DIJI it is selected by committee and is adjusted every year. What is worse is that it is not "free float" market cap index. While "free float" is a minor issue for the US it is a major issue in Japan with its cross holdings. In particular the period that you are choosing. Lots of issues during the unwind. I don't know of any Japanese index that handles this properly.
I never knew the Nikkei doesn't include reinvested dividends. If it did, does anyone know if it would've already breached it's previous high.
Also, never knew it wasn't free float index (although I'm not sure I understand why this matters). Care to expand?
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JoeRetire
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Re: What if the market stops going up?

Post by JoeRetire »

Scooter57 wrote: Thu Jan 07, 2021 5:33 pm You may be forced to retire in your late 40s, long before you are ready for a life of pickleball and grandkids. That was what happened to all the American IT folks I knew who had been doing very well in what they believed were safe jobs in the 1980s.
I am an American and was working in IT during the 1980s. Your statement is a wild exaggeration.

Nobody was or is forced to retire in their late 40s. Nobody.
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CyclingDuo
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Re: What if the market stops going up?

Post by CyclingDuo »

sperry8 wrote: Fri Jan 08, 2021 9:37 am
alex_686 wrote: Thu Jan 07, 2021 2:22 pm
CyclingDuo wrote: Thu Jan 07, 2021 1:53 pm It took 25 years for the US market to hit new highs after the 1929 peak. It took 15 years for the Nasdaq to hit new highs after the 2000 peak. So we have had some nice digestion phases in terms of the amount of years it takes following speculative peaks in the US.

The Nikkei hit a speculative high on December 29th of 1989 which is 31 years ago. Hey, give it some more time. The past 8-9 years have been pretty good for the index. It wouldn't surprise some of us if in the next decade it finally hit another new high... :idea:
2 criticism here.

Not sure which indexes you are using for the US, but... I suspect that you are using the DJIA, which is a price weighted index which has issues. And that you are not counting reinvested dividends. And that you are mixing up different index.

The Nikkei is another very poor index. It is not price weighted nor factors in reinvested dividends. Like the DIJI it is selected by committee and is adjusted every year. What is worse is that it is not "free float" market cap index. While "free float" is a minor issue for the US it is a major issue in Japan with its cross holdings. In particular the period that you are choosing. Lots of issues during the unwind. I don't know of any Japanese index that handles this properly.
I never knew the Nikkei doesn't include reinvested dividends. If it did, does anyone know if it would've already breached it's previous high.
Also, never knew it wasn't free float index (although I'm not sure I understand why this matters). Care to expand?
Many - such as the OP that I was responding to - quote the nominal return of an "index" which doesn't include the dividends among other issues such as inflation/deflation, currency, components of the index, how it is weighted, etc... .

There are some sites in various locations (Canada, the US, Europe, Japan) that have run the calculations for total return - and there is a history of posts here on Bogleheads that have calculated it all (although not recent enough to include all of the gains the Nikkei has experienced recently). Some use starting points such as 1979 (a decade before the bubble peak), some use other starting points.

Example from the Bogleheads forum back in 2015, but has a current Canadian link (and some explanation, corrections within that thread regarding the currency):

viewtopic.php?t=163600

Canadian Currency link for the Nikkei (includes dividends, currency, etc...) up until December 31, 2020:

https://www.taxtips.ca/stocksandbonds/i ... eturns.htm

There there is this Boglehead thread: Japan, 1989

viewtopic.php?f=10&t=23036

These sources at Bogleheads are available as well...

https://www.bogleheads.org/blog/2020/03 ... ld-part-1/
https://www.bogleheads.org/blog/2017/02 ... se-crisis/
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alex_686
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Re: What if the market stops going up?

Post by alex_686 »

sperry8 wrote: Fri Jan 08, 2021 9:37 am I never knew the Nikkei doesn't include reinvested dividends. If it did, does anyone know if it would've already breached it's previous high.
Also, never knew it wasn't free float index (although I'm not sure I understand why this matters). Care to expand?
I don't know of any index that includes dividends. For example there is the S&P 500 index and the S&P 500 Total Returns index. This is the standard convention because it is easier to explain daily price changes.

There are price indexes like the Dow Jones Industrial Average and the Nikkei. You take the prices of all of the stocks and add them together. This is great if you have to do all the calculations by hand. There is a bit more nuance here which I am going to skip. These tend to be old fashion. The problem is that the biggest company has the same weight as the smallest.

There are market cap indexes. You now weigh price changes by the market capitalization of the company. This gets you to the market basket. For example, Apple is 6.5% of the S&P 500. Some companies only have a weight of 0.1%. This is much better.

Then there is "free float". That is, the number of shares out there that one can actually buy. Critical for lots of reasons. In Japan it is because of Keiretsu. Company A owns 40% of Company B which owns 40% of Company C. And B and C own stakes in A. What is the market basket? We don't want to count the same shares twice, or 3 times. Also, what if C losses 50% of its value, thus dragging down the value of B, thus dragging down the value of A.

Tokyo Stock Price Index, or TOPIX, is the better index. But IIRC it only went market cap free float in 2010.
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sperry8
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Re: What if the market stops going up?

Post by sperry8 »

alex_686 wrote: Fri Jan 08, 2021 10:49 am
sperry8 wrote: Fri Jan 08, 2021 9:37 am I never knew the Nikkei doesn't include reinvested dividends. If it did, does anyone know if it would've already breached it's previous high.
Also, never knew it wasn't free float index (although I'm not sure I understand why this matters). Care to expand?
I don't know of any index that includes dividends. For example there is the S&P 500 index and the S&P 500 Total Returns index. This is the standard convention because it is easier to explain daily price changes.

There are price indexes like the Dow Jones Industrial Average and the Nikkei. You take the prices of all of the stocks and add them together. This is great if you have to do all the calculations by hand. There is a bit more nuance here which I am going to skip. These tend to be old fashion. The problem is that the biggest company has the same weight as the smallest.

There are market cap indexes. You now weigh price changes by the market capitalization of the company. This gets you to the market basket. For example, Apple is 6.5% of the S&P 500. Some companies only have a weight of 0.1%. This is much better.

Then there is "free float". That is, the number of shares out there that one can actually buy. Critical for lots of reasons. In Japan it is because of Keiretsu. Company A owns 40% of Company B which owns 40% of Company C. And B and C own stakes in A. What is the market basket? We don't want to count the same shares twice, or 3 times. Also, what if C losses 50% of its value, thus dragging down the value of B, thus dragging down the value of A.

Tokyo Stock Price Index, or TOPIX, is the better index. But IIRC it only went market cap free float in 2010.
Very helpful explanation, thank you
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alex_686
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Re: What if the market stops going up?

Post by alex_686 »

sperry8 wrote: Fri Jan 08, 2021 11:40 am Very helpful explanation, thank you
Follow up and over-analysis.

Price indexes are considered low quality, market cap free float are high quality. S&P Dow Jones has said the best quality of the DJIA is that it has a long history. Which is another way of saying it does not have much value.

"Total Returns" is the magic word for indexes that included reinvested dividends. It is common for a indexer to publish the standard index and charge a premium for the Total Returns index.

Back to Japan. I have been criticizing the analysis because it is based on a second rate data and cherry picking dates. But maybe I shouldn't. Even under higher quality analysis Japan's economy has done poorly, and stock and bond returns have been low. There is a fair amount to debate here. But the next 30 years of US and international returns could look a lot like Japan's prior 30 years.

For those people who are pointing a population and productivity growth, I say so what? That is only half the question. Investment returns are driven by the supply and demand for capital. We may be in the middle of a savings glut which is pushing down returns.
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Re: What if the market stops going up?

Post by texasfight »

It can't and won't in nominal terms.
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dogagility
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Re: What if the market stops going up?

Post by dogagility »

QuestioningWanderer wrote: Fri Jan 08, 2021 9:34 am If market stops going up, then productivity has stopped.

If productivity has stopped, then a huge crisis has caused that to happen.

If a world suffers a huge crisis, then money might not be your biggest problem :)
Bingo. Winner, winner, chicken dinner. :beer
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alex_686
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Re: What if the market stops going up?

Post by alex_686 »

dogagility wrote: Fri Jan 08, 2021 2:15 pm
QuestioningWanderer wrote: Fri Jan 08, 2021 9:34 am If market stops going up, then productivity has stopped.

If productivity has stopped, then a huge crisis has caused that to happen.

If a world suffers a huge crisis, then money might not be your biggest problem :)
Bingo. Winner, winner, chicken dinner. :beer
Nope, not a winner. There have been large swaths where this has happened but stocks either moved sideways, down, or up.

First, why would productivity gains increase earnings of public companies? Yes, sometimes they do. Other times they ravage those earnings. Increased competition, consumers, employees, and private business take a larger share of the pie. etc.

Second, why would increased earnings increase stock prices? If savings is increasing we have seen stock prices fall in these cases.
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secondopinion
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Re: What if the market stops going up?

Post by secondopinion »

abhi764 wrote: Wed Jan 06, 2021 6:47 pm IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?
It is possible for returns to be below inflation for long periods, but not likely to have this long term (why I think both international stocks and US stocks should be held); truly, failure of real stock returns is not a failure of index funds but a regression of the economy. If reinvestment is considered, then the market should be going up primarily long-term in a real return sense (albeit possibly slowly and with very long span of time). Long-term could be 30+ years to be honest.

Concerning retirement, lack of return could be hedged with bonds (remember they fix your nominal returns up to default risk and their terms). This is the primary reason I have bonds (I could go 100% stock if I wanted to volatility-wise, but I always consider long-term bad returns as a possibility).
It is better to be half-wrong than have a 50% chance of being all-wrong. With the former, you will learn and have money to try again. Otherwise, you will never learn and will have nothing eventually.
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Re: What if the market stops going up?

Post by Scooter57 »

JoeRetire wrote: Fri Jan 08, 2021 9:42 am
Scooter57 wrote: Thu Jan 07, 2021 5:33 pm You may be forced to retire in your late 40s, long before you are ready for a life of pickleball and grandkids. That was what happened to all the American IT folks I knew who had been doing very well in what they believed were safe jobs in the 1980s.
I am an American and was working in IT during the 1980s. Your statement is a wild exaggeration.

Nobody was or is forced to retire in their late 40s. Nobody.
I am not exaggerating, and for professional reasons I was in a position to observe what happened very closely. The Insurance IT people in previously busy hubs like Hartford started losing their salaried/lifetime jobs in the late 1980s, followed by employees at companies including IBM. They first turned to IT "consulting," but then the H-1Bs working for much lower wages were brought, and after a while, when they had enough people from India familiar with those systems, all the processing was shipped overseas.

This isn't hearsay. I knew a lot of those people really well having been one earlier and having gone on to an entrepreneurial role that was heavily involved with IT consulting.
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JoeRetire
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Re: What if the market stops going up?

Post by JoeRetire »

Scooter57 wrote: Fri Jan 08, 2021 7:34 pm
JoeRetire wrote: Fri Jan 08, 2021 9:42 am
Scooter57 wrote: Thu Jan 07, 2021 5:33 pm You may be forced to retire in your late 40s, long before you are ready for a life of pickleball and grandkids. That was what happened to all the American IT folks I knew who had been doing very well in what they believed were safe jobs in the 1980s.
I am an American and was working in IT during the 1980s. Your statement is a wild exaggeration.

Nobody was or is forced to retire in their late 40s. Nobody.
I am not exaggerating, and for professional reasons I was in a position to observe what happened very closely. The Insurance IT people in previously busy hubs like Hartford started losing their salaried/lifetime jobs in the late 1980s, followed by employees at companies including IBM. They first turned to IT "consulting," but then the H-1Bs working for much lower wages were brought, and after a while, when they had enough people from India familiar with those systems, all the processing was shipped overseas.

This isn't hearsay. I knew a lot of those people really well having been one earlier and having gone on to an entrepreneurial role that was heavily involved with IT consulting.
The only point I'll agree on is that formerly "guaranteed for life" jobs went away.

Other than that, we'll have to agree to disagree. I was there. I saw what was going on.

While they may have chosen to do so, nobody was forced to retire. Other jobs were available. Other jobs are always available. Some of those are in IT, some are not. Times change. Sometimes people need to change, too.

Perhaps you meant to write "You may be forced to find a new job in your late 40s"? That would make more sense.
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Scooter57
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Re: What if the market stops going up?

Post by Scooter57 »

I was most definitely there.

Finding a new job in your forties very often means changing careers and often means earning a lot less, especially in tech where youth is prized.

But your argument just backs up what I said originally: you'll be better off in your middle, productive years if you have built up a business you control, after starting it and growing it organically before you need it.

Underneath many of the counterarguments here seems to be the belief that people deserve to get the rest of the money they will need in the future without working for it, simply because they are a earning SOME money on their own.

It has worked well since the 1980s. Will it keep working? Who knows? A side business of your own is as good an investment or better than what Wall Street so seductively markets. (Which includes indexed products.)
dml130
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Re: What if the market stops going up?

Post by dml130 »

Scooter57 wrote: Thu Jan 07, 2021 4:22 pm Build alternate sources of income that do not depend on the behavior of stock and bond markets that are entirely out of your control.

Every time I post this suggestion here, explaining that slowly building a side business can pay off greatly as you get older, well-paid wage workers respond as if I had suggested taking up base jumping. But building a business organically can pay off very well and give you great security. I am not talking about taking loans and buying some business, but growing something out of whatever it is you enjoy doing and can build some mastery in.

Young workers, especially tech workers, have no idea how easily their high paying jobs can vanish or how short their professional careers may be. Having some kind of back up plan involving an enterprise YOU control that you build slowly during the years when you don't need the money it generates can be a life changer.
I'm sure building a small business can be rewarding, IF it is successful. But I think those "well paid wage workers" you refer to have a point. I'm not sure what the right answer is, however owning a small business is probably on average more risky than a total market index fund. And in this context, "if the stock market stops going up" (as per the OP question) and the economy stalls out, small businesses with less economic clout will likely be in even bigger trouble.
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JoeRetire
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Re: What if the market stops going up?

Post by JoeRetire »

Scooter57 wrote: Sat Jan 09, 2021 11:21 am Finding a new job in your forties very often means changing careers and often means earning a lot less, especially in tech where youth is prized.
Can we at least agree that neither "changing careers" nor "earning a lot less" is at all the same as "being forced to retire in your 40s"?

Because otherwise, we aren't dealing in facts.
A side business of your own is as good an investment or better than what Wall Street so seductively markets.
Maybe. Wouldn't it matter what the "side business" was?
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Scooter57
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Re: What if the market stops going up?

Post by Scooter57 »

dml130 wrote: Sat Jan 09, 2021 3:23 pm
Scooter57 wrote: Thu Jan 07, 2021 4:22 pm Build alternate sources of income that do not depend on the behavior of stock and bond markets that are entirely out of your control.

Every time I post this suggestion here, explaining that slowly building a side business can pay off greatly as you get older, well-paid wage workers respond as if I had suggested taking up base jumping. But building a business organically can pay off very well and give you great security. I am not talking about taking loans and buying some business, but growing something out of whatever it is you enjoy doing and can build some mastery in.

Young workers, especially tech workers, have no idea how easily their high paying jobs can vanish or how short their professional careers may be. Having some kind of back up plan involving an enterprise YOU control that you build slowly during the years when you don't need the money it generates can be a life changer.
I'm sure building a small business can be rewarding, IF it is successful. But I think those "well paid wage workers" you refer to have a point. I'm not sure what the right answer is, however owning a small business is probably on average more risky than a total market index fund. And in this context, "if the stock market stops going up" (as per the OP question) and the economy stalls out, small businesses with less economic clout will likely be in even bigger trouble.
My partner and I each have a business in two very different niches. Both took off in 2009. It really does depend what kind of business you are in. Too many people think of small businesses as being the most expensive high risk kinds of businesses you can rarely grow organically, like restaurants or dry cleaners.

Here are some businesses people I know started organically that are providing serious income in their older years.

Selling used books (after years of acquiring the knowledge to know what kinds of books sell and where to find them.)
Crafts sold online.
Providing content editing, line editing, or proofreading services to the growing ranks of self-publishers.
Web site development
Small scale home-based manufacturing with online sales with some services jobbed out to machine shops. Shockingly profitable.
Cookie baking originally sold at weekend farmers markets, now being distributed to stores throughout the region
Self published novels sold via Amazon. Can also be shockingly profitable if you are in tune with the market and can write.
Growing legal medical marijuana (with a state license)
Providing "virtual assistant" services to other small business people at a contracted hourly rate (so many hours per week)
Managing Social Media activity for busy business people who need a continual presence.

And these are just some. All these businesses gross anywhere from $20k to $500,000 a year. Many do not take 40 hours of work a week.
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Re: What if the market stops going up?

Post by dml130 »

Scooter57 wrote: Mon Jan 11, 2021 2:31 pm
dml130 wrote: Sat Jan 09, 2021 3:23 pm I'm sure building a small business can be rewarding, IF it is successful. But I think those "well paid wage workers" you refer to have a point. I'm not sure what the right answer is, however owning a small business is probably on average more risky than a total market index fund. And in this context, "if the stock market stops going up" (as per the OP question) and the economy stalls out, small businesses with less economic clout will likely be in even bigger trouble.
My partner and I each have a business in two very different niches. Both took off in 2009. It really does depend what kind of business you are in. Too many people think of small businesses as being the most expensive high risk kinds of businesses you can rarely grow organically, like restaurants or dry cleaners.

Here are some businesses people I know started organically that are providing serious income in their older years.

Selling used books (after years of acquiring the knowledge to know what kinds of books sell and where to find them.)
Crafts sold online.
Providing content editing, line editing, or proofreading services to the growing ranks of self-publishers.
Web site development
Small scale home-based manufacturing with online sales with some services jobbed out to machine shops. Shockingly profitable.
Cookie baking originally sold at weekend farmers markets, now being distributed to stores throughout the region
Self published novels sold via Amazon. Can also be shockingly profitable if you are in tune with the market and can write.
Growing legal medical marijuana (with a state license)
Providing "virtual assistant" services to other small business people at a contracted hourly rate (so many hours per week)
Managing Social Media activity for busy business people who need a continual presence.

And these are just some. All these businesses gross anywhere from $20k to $500,000 a year. Many do not take 40 hours of work a week.
Congrats on your success. And I'm sure that, as you say, there are many other people that have managed to convert their hobbies into successful businesses as well. I'm not dismissing that. But to me, if the economy slows down, it isn't clear that starting a small business is the solution.
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Re: What if the market stops going up?

Post by Scooter57 »

dml130 wrote: Mon Jan 11, 2021 6:05 pm But to me, if the economy slows down, it isn't clear that starting a small business is the solution.
I won't keep repeating this, but for one last time, I want to point out that I am not suggesting starting a small business when the economy slows. I am suggesting building it long before you might need it, building it slowly while you are young, energetic, and employed so that it will be there as a resource should the economy slow down, the market stagnate, and you lose your "secure" high paying job.

I spent years moderating career-oriented forums where hundreds of professionals posted daily about their career issues. One of the things that emerged from the discussions there that very few younger people seem to be aware of is the importance of mastering skills that could be useful to their older selves, rather than those of use only to large corporate employers. People who stayed aware of this from the day they graduate college had much better employment prospects in their mid 40s on or were able to morph into highly paid truly independent consultants. This doesn't mean you avoid learning skills of use to employers. But given a choice between mastering something that is only of use to a specific employer vs something that you could use on your own, go with what you could use on your own.
BogleMelon
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Re: What if the market stops going up?

Post by BogleMelon »

QuestioningWanderer wrote: Fri Jan 08, 2021 9:34 am If market stops going up, then productivity has stopped.

If productivity has stopped, then a huge crisis has caused that to happen.

If a world suffers a huge crisis, then money might not be your biggest problem :)
+1 to that.
We invest in the average (all) market. If all market isn't profitable for 3 decades, then the companies will cease to exist. This is a huge trouble. Maybe the end of capitalism?
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
dml130
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Re: What if the market stops going up?

Post by dml130 »

Scooter57 wrote: Tue Jan 12, 2021 10:41 am
dml130 wrote: Mon Jan 11, 2021 6:05 pm But to me, if the economy slows down, it isn't clear that starting a small business is the solution.
I won't keep repeating this, but for one last time, I want to point out that I am not suggesting starting a small business when the economy slows. I am suggesting building it long before you might need it, building it slowly while you are young, energetic, and employed so that it will be there as a resource should the economy slow down, the market stagnate, and you lose your "secure" high paying job.

I spent years moderating career-oriented forums where hundreds of professionals posted daily about their career issues. One of the things that emerged from the discussions there that very few younger people seem to be aware of is the importance of mastering skills that could be useful to their older selves, rather than those of use only to large corporate employers. People who stayed aware of this from the day they graduate college had much better employment prospects in their mid 40s on or were able to morph into highly paid truly independent consultants. This doesn't mean you avoid learning skills of use to employers. But given a choice between mastering something that is only of use to a specific employer vs something that you could use on your own, go with what you could use on your own.
Fair points, I don't disagree that this could be a good path for the right person, but what I also mean to say (with regard to this thread, and what you wrote above) is that the economy doesn't necessarily care to spare anybody just because they slowly built their business from the ground up when they were young and energetic. As an example, I know a creative entrepreneur who did build a successful business. That enterprise was nearly wrecked this past year by the crisis. Thankfully, last I checked, it's back to doing okay, but in a more prolonged crisis, who knows. There are no guarantees for anybody, entrepreneur or otherwise. But to your broader point, I wholeheartedly agree that the best investment a person can make is in themselves and their own skills. :beer
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