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    • As the market slides, I have - optimistically - begun a systematic program of buying index fund shares. Stocks are on sale, right? One cannot guess how low the markets will dip, so the solution is to dollar-cost-average: spread the buying out over many months and thus buy an average-of-the-low rather than a single purchase at the abyss. Obviously this strategy depends for success on a rebound in stock prices.

      What basis is there for long-term optimism? I cling to these factors: Trump will be gone sooner or later, and a degree of predictability will return to at least the US-centric realm of world affairs. Automation is progressing apace and will not stop for recession or wars - it will decrease labor costs in the long-term and thus enhance profitability. The underlying data on the US economy are still strong enough to support economic growth, according to government figures posted recently (December 2018).

      I acknowledge the causes for pessimism: damage to the world order from Trump's thrashing about on the world stage, increasing risk of nuclear war on various fronts (really bad for business), potentially more rapid environmental effects from climate change than have been predicted (leading to loss of critical infrastructure like ports, refineries, and agricultural lands; and displacement of large populations).

      Timing is everything. In the good old days, stock market dips sorted out after a couple of years. Some of the downside risks we face could exert significant drags on the world economy for longer spans, but their advent is also uncertain and may not arise in the current economic cycle at all. Then there is a sort of fatalism. If there IS nuclear war, who CARES what happened to my stock portfolio? Some kinds of disaster can be left off the financial-planning table because they are simply not the sorts of things one can plan around.

      Anyway, this seems like a good time to shut up and let the community straighten me out :D

    • Chris MacAskill

      I have a very simple set of high-level beliefs about the economy that don't predict specific events but I think do predict long-term trends.

      The first is it takes some time before the policies of any administration move the economy one way or the other. It took time for the economy to improve under FDR and Obama, and to decline under the second Bush.

      The second is I believe a small number of people are very focused on accumulating wealth at any cost. When that translates to making it hard for half the nation to fuel the economy by buying health care, cars, college, food, travel, etc., the economy turns down.

      The trouble is, it's very counterintuitive to spend on things like infrastructure, as FDR and Eisenhower did, or health care for the poor as Obama did — or to raise the minimum wage and install rules for worker safety and building codes. Those don't intuitively feel fiscally conservative to many people, especially rich ones.

      The intuitive thing to believe is that rich people, like the Trumps, are smart and know what makes a good economy because they wouldn't be rich if they didn't. But I believe it's hard for people like the Trumps to really understand how hard it is for the poor to lift themselves from poverty, because the Trumps have never tried.

      It's one thing to use celebrity status to get coal miners to believe you have the smarts to bring coal back, but what happens when they realize after a few years that you actually didn't know how to bring it back? Instead of developing a plan to help them get jobs in solar and wind, the problem festers and doesn't advance the economy.

      My very humble opinion is that during an economic boom we installed very rich leaders who have done everything they can to enrich the rich, take healthcare from the poor, and send the nation into the biggest deficit it has ever known.

      If there is a plan to lift the poor and middle class so they can fuel the economy, I haven't seen it. Bush was one of the most popular presidents in history until he was one of the most unpopular. It took time for the nation to understand the many costs of the Iraq war, and I think it will take time for most of the nation to understand Trump isn't the economic savior of the working class we hoped he was. I think the stock market will eventually reflect that. Maybe it's already starting to.

    • I never trusted investing, it's how I grew up. There were no loans to be had, except from government if you could get one (and that *never* came with compound interest rates), hence in order to buy something major you had to have the actual money! Period. End of story. My feeling is now that in the western world investing in the market in general is not doing any good to the society, however much praised it is via classic adages such as the power of compound interest, blah blah.. But when someone sees their hard earned retirement funds take a huge dip it ain't a funny theory or a game any more.

      And, aside from that, just looking at the overall big picture, consider the planetary scale economics impact on society (or just take a single country to make things easier), investing merely means moving money from on place to another, solely exchanging hands. It might make sense if this cash flow would in effect help lessen the world's needs, reward someone who worked harder, or invented something smarter, and in the process facilitate positive outcomes. What is, other than sentiments and promises, actually being bought and sold, in essence, translated to real life energies and benefits? I am by no means economically literate enough to make no judgement mistakes here, but do appreciate the opportunity to see other's thoughts and shared knowledge on these serious and vast topics.

    • When I started working, someone told me to "pay myself first" - meaning set some aside before paying all the bills. So I did that. I never really had any loans: a car loan one time, a mortgage here and there for a few years. I got out of them as quick as I could. But I did not spend a lot on anything ostentatious - comfortable dwellings and transportation but nothing new and flashy. I lived well within my means (wife saw to it!)

      But what to do with the savings? At first, it went into a bank savings account. But over the long-haul, nothing (absolutely nothing!) outperforms the stock market (for the average Joe). So once there was an emergency account in savings, I started buying stocks. I almost never held individual shares - I bought index mutual funds. So the mutual fund company buys a bunch of stock and individual investors by shares in the pool of stocks in the mutual fund.

      What good is that money doing? It is the capital that - at least in my case - the corporations of the S&P 500 (the 500 largest-capital public corporations on the NYSE) - use as their operating reserves. Without it, they cannot operate day-to-day. I bought shares in VFINX, the Vanguard 500 Index Fund (very low operating cost and no-load - I still recommend it!)

      Now, it can certainly be argued that some of those companies are staffed and directed by some evil bastards. I agree. But I also think that capitalism is the most efficient way humanity has devised to efficiently allocate resources. A diverse and prosperous economy creates more opportunities for more people than any other system. That isn't to say it doesn't have "excesses" - it has horrific excesses: I am practically communist in my politics because of so many ways I would like to see corporate excesses controlled by government.

      But to the extent that the corporate world is there anyway, and it needs cash, and I can make a good return by investing my cash - I put it in the market. I could spend my years sorting out who are the good guys and who are the bad guys, but my little piece of the pie is too small: it would make no difference whatsoever to any of those corporations if I left - and it is not clear to me that I could even tell the good from the bad if I tried.

      Corporations exist to maximize profit. It is almost impossible to configure them to attend to other matters like "impact on society". But they absolutely ARE trying to lessen the world's needs (as THEY perceive it), reward someone who worked harder (at least harder on the projects THEY pursue), and invent something smarter. If their efforts also lead to bad ends, I think that is a failure of government oversight and social leadership (again, a government function).

      Is the world better or worse for, say, Coca-Cola? I've enjoyed many a serving. The product is in DEMAND. And it has all sorts of detrimental effects because the company has tried to better meet demand by product innovations that were largely unregulated. The oceans are full of plastic and the world is full of sugar-overdosed obesity. We all share responsibility - we demand the product (we pay for it). I think government is the solution to the excesses: ban damaging plastics or compel recycling or something; restrict sugar content or demand warning notices or something - not picking on Coca-cola here; just making an example. The leadership decisions are hard and they affect all of society - they are rightfully governmental decisions.

      So I invest in the capitalistic system, advocate for far better controls on its excesses, and live comfortably in my old age on sumptuous returns from investments in the form of capital appreciation (known tax-wise as long-term capital gains), and dividends. What else is a man to do? Well, that is my two cents worth :D

    • I am going to save and re read this many times. Thank you so much for the eloquent, highly educational response! And although perhaps not relevant, as many simply use and regard it as a black box, I am also trying to understand where the investment gain comes from, regarding the cash flow, if regarded purely arithmetic in a zero sum game system, viewed from the perspective of risk avoidance if nothing else..

    • The stock market is not a zero-sum game. Day-to-day trading is zero-sum because one buys in when another sells, but for the long investor there is gain because the value of the company - its potential for producing earnings - is increasing. Of course, some companies fail too. Sometimes there can effectively be a last shareholder; no more buyers. Where does the long-term value arise? The saying "a rising tide lifts all boats", reflects that the economy (worldwide) is growing. There are more and more people living higher and higher quality lives. There is growing demand for more expensive products and therefore increasing potential for profit.

      Companies come and go. It would be nice to invest in one that is tiny (in someone's garage!), and have one's share of that tiny company blossom into a billion dollar stake. But there are many well-known pitfalls on the way. Rather than hazard those pitfalls, I take a lower potential gain by only investing in the companies that have managed to rise to the ranks of the 500 largest.

      I don't even stop my hedging there: John Bogle's scheme for mutual fund investing is simple brilliance. I keep a portion of my investment fund in US Treasury Bonds. Every six months, I check the distribution. Bond funds tend to rise as stocks fall, and vice versa. When stocks are rising, after six months I lock in some gains by selling stock and buying bonds (which are somewhat moderated in value) - restoring the distribution to my target level: for me it is 70% stock and 30% bonds, but everyone has to choose their own values: it is a balance between fear and greed as unique as - well, not fingerprints, but maybe blood type? Anyway, if stocks fall, then many will have taken shelter in bonds and inflated their price somewhat. It will be a good time to sell some of the bonds and buy stocks while they are on sale - as I mentioned in the original post.

      The balancing act of the Federal Reserve is to grow the money supply in harmony with the growth of the economy. If the products made by all the companies are increasingly valuable, and the populance is increasingly wealthy, but money is scarce: that can have a big negative effect: interest rates climb because there is so much competition for the limited cash (then interest rates can crash because suddenly there is no demand for capital as economic conditions deteriorate) Conversely, if the money supply is increasing faster than the economy is growing, there is excessive cash and each unit of the currency is progressively diluted in value (inflation). Because it takes more and more money to buy the same thing (more bills on the table to deliver the same value), banks tend to raise interest rates since the money they receive later in repayment of loans won't be worth as much. There is a sweet spot - where money supply and economy size are growing together. But it is really difficult to find because the size of the economy is MEASURED by the money that is being supplied! When interest rates rise - is the money supply running ahead of the economy or lagging behind? There is risk on all sides.

      I am not an economist. I have a rudimentary understanding, which I am happy to share. But it is certainly incomplete and perhaps wrong in ways I cannot imagine.

      I reiterate my call for viewpoints. What will happen in 2019 in terms of economic impacts? We each read our own share of the tea leaves. Are you hearing doom and gloom? Cautious optimism about the future? Enthusiastic plans?

    • I’m nodding my head as I read what you’ve written. I’m a boglehead though so maybe we are drinking the same kool-aid. 🙂

      I think the stock market will continue to slide (and I’ll continue to buy... following my investment plan) in 2019 but I’m optimistic that long term it will find its footing again.

      Why do I think it’ll go down before it will go up? I think it’s overvalued right now and I think the bull market has felt increasingly fragile. People will get skittish and start to sell. No politics. No data. I’m just thinking about behavior patterns here and saying what my hunch is. (This is why I have an investment plan so I don’t follow my hunch!)

    • This happened to me in 2008. I had a job from which I was saving some money. I was investing it week by week and the market was diving and diving. It was kind of terrifying at the time, and it looked like the last year of the job I had made zero savings. But then for the next two years while I was hanging out at a beach bar, my account kept going up and up! So, now I am up for it all over again. Bring it!