Good reads from around the Web.
A couple of weeks ago Weekend Reading featured an inspiring story about a janitor who died at 92 to leave an estate worth $8 million.
His secret? Regular saving and investment into a range of blue chip US stocks (and living until 92 to work that compound interest!)
But could a janitor achieve the same thing today?
The Philosophical Economics blog thinks not.
In a deep and nerdy-in-a-good way post that unpicks returns over the past 65 years, the author concludes that it would not be feasible for the average janitor to sock away sufficient cash to get to the $8 million mark, given today’s starting valuations and the low US minimum wage.
There are wrinkles though, so do read the whole post.
I especially liked the conclusion, which was that anyone who would become rich via the stock market needs to pray for a few crashes on the way:
If you’re an investor with a short time horizon, you should want valuations to stay high, or even better, go higher, into a bubble, so that you can get the most out of your holdings when you cash them out. But if you’re a disciplined investor that is in this for the long term, particularly a 20-something, 30-something, or even early 40-something, with a lot of income yet to be earned, you should not want valuations to stay where they are.
You definitely should not want them to go higher, into a bubble. Instead, you should want the opposite of a bubble, a period of depressed valuations–the lower the better.
Granted, a rapid downward move in the markets, towards valuations that are genuinely cheap, would entail the pain and regret of mark-to-market losses on present holdings. But that pain and regret will only be short-term.
In 20 or 30 or 50 or 65 years, the paper losses, by then evaporated, will have been long since forgotten, having proven themselves to have been nothing more than opportunities to compound wealth–monthly contributions, reinvested dividends, and share buybacks–at high rates of return.
The very thing that keeps many people out of equities is what we’re banking on for our long-term returns.
As I’ve explained before, it’s why I buy in bear markets.
Let’s hope we get another one soon! 🙂
From the blogs
Making good use of the things that we find…
Passive investing
- Risk management always matters… – A Wealth of Common Sense
- …even if rebalancing does not always add value – Newfound Advisors
- A quick history of the global equity portfolio – Pragmatic Capitalism
- Passive podcast with Mike Piper [US funds, but relevant] – Couple Money
Active investing
- Doubling down can boost returns: Evidence – The Value Perspective
- Finding small cap dividend paying stocks – Clear Eyes Investing
- A retrospective on a cheap-for-a-reason stock – Oddball Stocks
- Four better ratings than “hold” – Richard Beddard
- Valuing the FTSE 100 – Retirement Income Today
- Investing lessons from Dragon’s Den – Under the Money Tree
Other articles
- How our memories shape market cycles – A Wealth of Common Sense
- The safe withdrawal rate: A optimist’s take – The Escape Artist
- MMM sticks it to school [And I agree, dreadful places] – Mr Money Mustache
- A fun farrago of middle class folly – Simple Living in Suffolk
Product of the week: The Post Office has launched a new ‘Holding Account’ cash ISA that enables you to switch between multiple Post Office cash ISA rates and terms. The Telegraph asks if all cash ISAs will be like this one day?
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
Passive investing
- Why it’s not too late to buy the FTSE 100 [Video] – Motley Fool UK
- Dividend fund diversity [US, but relevant insights] – ETF.com
- UK house prices versus the FTSE 100 since 1985 – ThisIsMoney
Active investing
- Swedroe: Be very wary of hedge funds – ETF.com
- Housel: Two imaginary hedge fund managers reveal all – Motley Fool US
- Help online for DIY active investors [Search result] – FT
- Gervais Williams: Why small caps will prosper – ThisIsMoney
Other stuff worth reading
- How the new Marriage Tax Allowance works – Guardian
- Hargreaves Lansdown slashes pension drawdown costs – ThisIsMoney
- How to invest in Enterprise Investment Schemes [Search result] – FT
- How long before a loaf of bread costs £21? [On inflation] – Telegraph
- Jack Bogle’s principles for a good life – CNBC
- Tech investors are hunting unicorns again – New York Times
Toy of the week: Amazon has knocked £15 off its Fire TV
Like these links? Subscribe to get them every week!
- Note some FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
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> anyone who would become rich via the stock market needs to pray for a few crashes on the way
What’s not to like? Be greedy when others are fearful. So easy to say, but so hard to do….
No connection to the above, but Dilbert has started giving ‘investment advice’ (http://dilbert.com/strip/2015-02-23).
I see as of today (23/02/15) Nutmeg has finally announced their pension offering similar to their ISA offering using Hornbuckle for Pension administration. Charges 0.3 – 1% dependent on funds invested. Fifferent portfolios available dependent on risk/timescale using ETF’s. I would value your views on this and/or a article.
Just to say thanks for the links, something I always look forward to on your Weekend posts.
So would this also apply to a 70year old with no partner? Or should I continue with total return & low fees?