The tricky thing is that the stock market CAN be gambling, but it doesn't have to be.
Day trading is gambling. Buying triple levered ETFs is gambling.
Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.
> Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.
I’ve genuinely never understood why this is so unintuitive to many otherwise intelligent people I’ve known. Over a long enough time horizon (and with prudent management of risk as one ages/approaches retirement) serious increase in wealth is all but guaranteed short of the US absolutely collapsing. And if that happens, then we’d all have bigger fish to fry.
> all but guaranteed short of the US absolutely collapsing. And if that happens, then we’d all have bigger fish to fry.
I mostly agree with your assessment, but lots of governments have collapsed, and that doesn't mean that everyone loses EVERYTHING. Some people are able to retain some assets, if they have them in the right form.
I do think some of the hedges people take don't make sense, though... if your hedge is to keep a bunch of cash around, you aren't hedging against your risk because your risks are correlated - the event that will cause all your stocks to go to zero will also cause the dollar to go to zero.
If you are truly hedging against the collapse of the US, you would try to get assets that would survive that... lots of possibilities, and some of them make more sense than others, but all of them have their own risks, and some of those risks are way more correlated than people realize.
Because there are real world counter-examples take Japan and stock performance there.
It has worked to this point, but past returns are not guarantee of future returns. On other hand well both political parties really enjoy line going up, so even if it leads to inevitable destruction lot will be done to keep it going up.
your comment reminds me of when i interned at a large cloud services provider
i was very much infatuated by the idea of total reliability on a global scale and couldn't wait to talk about the CAP theorem with anyone who would listen. Read much of the research. I still love to flip through Designing Data-Intensive Applications by Martin Kleppmann occasionally.
As I was learning about said company's server racks there was a component that I asked an engineer on my team about – "Isn't that a single point of failure?"
He looked at me, exhausted and stressed out, and just said "Take it far enough, the Earth is a single point of failure."
It's because intelligent people understand the truth: the market can stay irrational longer than you can stay solvent and in the long run we're all dead.
There are no guarantees (other than maybe death and taxes). There's only the likelihood that as long as the market is rational you will make money in the long run. As soon as you start setting odds on success, it becomes gambling.
Investing in the market at-large, though, is based on so many presuppositions of general global order that I struggle to understand what the entire market being “irrational” over an investing period of 30-40 years would look like short of a new world war. And I mean that sincerely and without hyperbole.
It's unintuitive because it's technically not true. All that suff about time horizon is right, but there's a legitimate reason that the fine print on the perspectus says you could lose your entire investment.
I’ll allow that I have the misguided presumption that I’d’ve been so smart as to have pulled my money out of the market just before Black Monday in 1929. But I still stand by the belief that the “gamble”, if following the Vanguard model of DCA and prudently managing risk over time to gradually shift from stocks to more stable “receptacles of wealth” whether bonds/gold/cash, is only a gamble that the United States (and thereby the world economy) will not utterly collapse on the scale of world war.
I consider it gambling when your expected value for your return is less than 1.
So, if you run a Casino, I wouldn't call it gambling because your expected value is greater than 1.
Everything is a 'gamble' in the sense that there is a chance of ruin. It is a gamble to drive your car to work, because you could die in a car accident. People don't normally call it gambling, though, because it doesn't fit what we mean when we say gambling - taking a sub 1 expected value risk for the chance of a big return.
Is running a plumbing business gambling? Is opening and running a restaurant gambling? (Sure there's risk in running a business but risk is not the same as gambling.)
Because owning stock is basically owning a slice of a business. Owning a unit of a S&P 500 ETF or mutual fund is owning a slice of five hundred businesses.
> You have agency over your business. You're just betting on a stock. You wouldn't own enough stock to have meaningful agency over it.
Yes you have more agency in deciding how to run the business, but you have little to no agency about the economic environment you're in. You're highly concentrated in one financial asset, which means any little hiccup can have huge repercussions for your life, especially since you probably only have one business in one particular economic niche.
Whereas if you own a portion of dozens/hundreds of businesses, you have less control of how they are run, but no one business doing badly will impact you as much, nor even one particular economic segment (energy, transportation, tech, agriculture). By owning a broad index of companies you are more diversified.
Further, with modern financial products you can diversify not just between market segments (S&P 500, Russell 3000), but across countries (which deals with the now do Japan retort).
Gambling isn't about the chance to lose money, gambling is about the rush of feeling like you're taking risks, the thrill of winning, and the crash of feeling like you're losing.
As such, if you setup auto-invest into SPY and never look at it, you're not gambling. You don't know if you're winning, you're not thinking about it like a bet.
If you go with your definition of gambling then, well, taking your salary in USD is gambling because the USD, just like SPY, could go to zero and you lose it all.
> it isn't a zero-sum game, where you have winners and losers
Seems like someone who bought any time since last August and wanted to sell now would be a loser, right? Is now a good time to buy? What if the tarriff horrorshow continues and Apr 2 looks like a cakewalk? Should I put off buying until some time later?
I hate all of this and want to spend my time any way else. So, I do.
> someone who bought any time since last August and wanted to sell now would be a loser, right? Is now a good time to buy?
The parent is talking about longer term investing, about buying and holding diversified indexes for 10+ years.
Statistically, if you bought and held the S&P 500 for ~30 years, any day since its inception was a good day to buy.
So yes, last august was a good time to buy. Now is a good time to buy.
What the parent is talking about is the way of investing where you do not spend any real time on it.
The bare minimum time is to just setup an autoinvest in vanguard to buy some dollar amount of a broad index fund (like VFIAX) each month, and then never look at it again until you're ready to retire, or have to make a down payment or such.
When you take out money, you don't try to time that either, you just accept the rate is what it is at the time you sell, and only sell the amount you need.
And then, finally, if you want to not think about it much, hardly spend any time, but be slightly more diversified, you could do a 3-fund portfolio, setup autoinvest, and then adjust the autoinvest once a year to push it towards the desired balance. That's a few hours of initial setup time (reading Boggleheads wiki, setting up accounts and auto-invest), and then maybe 1 hour each year from then on (checking rough percent, adjusting auto-invest numbers to push more money towards anything that's lower than desired).
as long as you don't sell during this period, the exact time you buy should wash out? 30 years from now it won't really matter that much how efficient your monthly payment was in a particular year is the strategy
Like I said, I already have a retirement account that is doing this. I just keep the rest in high interest savings and CDs or whatever and not care about this stock market junk at all.
IMO one of the communication issues is that there is more money to be made by media talking about individual stocks and how to time the market then by saying "buy SPY and forget about it".
I see the value in investing in and benefiting from the growth of a global economy. I despise having to do it in a way that only makes the large companies larger; real economic growth for me lies in small independent entrepreneurship, not in publicly held corporations.
I am not talking about startups but classic entrepreneurship in non-tech areas, and it may be our definitions of growth also differs. From a systemic perspective, I am not a fan of cancerous growth. Not all growth is positive for the participants of a system.
Day trading is gambling. Buying triple levered ETFs is gambling.
Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.