"High Interest" rates at discount brokers | Page 2 | General comparisons | Discussion forum

There no guarantee. But, it is highly likely things will work out over ten years. S&P 500 history suggests around 94% probability.

I analyzed the annual calendar S&P 500 returns from 1928 to 2014 from New York University Stern School of Business: Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current. Results are below for calendar holding periods of one year to 32 years.

From 1928 to 2014, five of the 78 ten-year holding periods (6.4% of the holding periods) of the S&P 500 had a negative return. That suggests the probability of breaking even or better is around 94%.

None of the 72 16-year holding periods lost money. That suggests the probability of breaking even or better of at least 71/72 = 98.6%.

Couple of thoughts:
1. Re the 16-year periods above, looking at break-even in the stock market over 16 years is overly rosy. You also need to factor in at least inflation plus the opportunity cost of interest you could have made in interest-bearing securities during that time. That would change the numbers above a lot, I'd guess.
2. Governments at all levels throughout the West are swimming in debt so I'd don't see how interest rates can rise. A rise would trigger more defaults on sovereign debt (and never mind personal debt). For example, Ontario is in debt tens of thousands per citizen (not counting any federal or municipal debts, so it's funny to hear people say the government has more revenue tools - it does, but I don't see it squeezing out near enough more per citizen!), the province can barely keep its head up with today's unprecedented low rates. I've read that there are increasingly more places where negative interest rates exist or are a real possibility, so maybe savers won't be getting anything for their money for some time to come. And not good for seniors who depend on interest as income, though I guess deflation means life is getting cheaper.

Loonie said

Looks good, and I hope that past success proves to be a predictor of future, although every Prospectus in existence warns us never to assume that.

16 years is a long time for me. I'll be in my early-mid 80s by then, if I'm still here. Even 10 years could be a stretch. I have an excellent gene pool, but, in reality, it's a cr*p-shoot. I am always amused by financial planners who ask how long one expects to live, as if some reliable planning can be premised on the completely unknowable. They usually suggest 90. Why 90? I met with one who resisted my insistence that this be extended to 100. Maybe he was afraid he couldn't devise a plan for me that would last that long!
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I think the data can give us an idea of what the odds are like for the different holding periods. Is it 40%, 50%, or 90%?

Since there isn't 1,000 years worth of S&P 500 data, I would resist the temptation to predict any more precisely, for example, that one should hold for 16 years instead of 15. I would be comfortable with concluding that the odds at better than 90% for holding periods of ten years. The odds are better for even longer periods.

The losing periods for the longer periods seem to involve the Great Depression in the 1930's and what we just went through in 2008. I guess ten years has been put forward because there wasn't a losing 10-year period since the Great Depression, until 2008 came along:

Loonie said

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On the other hand, I don't know what the future is for the US economy. I do know that the US gov't is massively overextended financially, with unprecedented levels of debt which have not come close to stabilizing and probably can never be paid off. Long-promised interest rate rises have not been possible due to the fragility of the economy, resulting in some of the lowest rates ever. There is nothing much backing the dollar but faith. Other economies are on the rise. GNP is not strong enough, so I am told. The world seems to be in a state of great flux. Foreseeable environmental crises are going to be expensive in ways we cannot yet imagine.
And nothing lasts forever. The future? I have no idea.

I would love to avoid doom-and-gloom but I am just not hearing solid answers to these issues.

I think doom and gloom were also there in the 1928 to 2014 period. There was the Great Depression in the 1930's. World War 2 (1939 to 1945). Wasn't there a US-Russia nuclear arms race in the 1970's in which an accidental intercontinental missile launch could trigger mutual nuclear strikes and end the world? Lesser-developed country debt crises in the 1980's.

The biggest problem why recovery is very sluggish is because of income inequality. If you can recall what I have mention about Marginal Propensity of Consumption, you will see that the world with very severe income inequality means less consumption as poorer people spend greater portion of their income. As consumption is the biggest portion of GDP (and really, the only purpose of building an economic system), growth will be slow. Make this problem more severe, a slow growth in consumption will also reduce capital investment from company which reduce growth in future as company themselves expect a slow growth in economy. (I can go more in detail, but not until people ask more about it) In this regard, inequality have permanently damage growth in economy.

This is also the reason why there are more consumer debt than ever before, as middle class get more poor because their income growth stagnant when inflation pick up, they attempt to maintain their level of consumption by borrowing (Scale down on spending are difficult, as suggest by Ratchet effect). I however, are not excluding cultural reason through.

We may see government around the world taking up more debt, but in reality, they are all secretly balancing their budget by covertly cutting expenses, just dig up some GDP information and look for change in "government expenditure" column over the past 7/8 years. The reason why the debt over GDP ratio is not going down is because GDP itself is not growing. In fact, any attempt to cut debt will result in worst economy which yield less tax as it reduce government expenditure and reduce consumption by taking money away from people.

Ontario (and Quebec), and Greece have structural issue with their government and economy. Both place have lost most of its industry (which hire a lot of people) as they are less competitive compare with developing country, unlike the German that have very high-tech industrial bases which require very skill mechanics where education and years of experiences is difficult to replicate, both place where more or less focus on things that are low tech and can be more cheaply produce elsewhere. Furthermore, government generally have difficulty taxing the few wealthy that benefit from service sector as they can essentially move else where tax is low as they don't require big and bulky equipment. Make it worst, Greece (and ON & QC to some extend) have very inefficient government in terms of spending while Greece also face severe tax eviction issue. Make it worst for Greece, they just pour whole bunch of money 11 years ago in the Olympic game; no wonder the Greek screw up badly. However, the lesson to learn here is that the best way to reduce government debt is to promote growth in economy by building a new leading industry, I don't see any candidates/parties in ON or QC or even Canada use that as their platform.

Loonie, believe or not, we are actually closer to a world war than ever before. As the old order is collapsing slowly and replace by the new order. Just like what happen before WWI when the old order (UK) is being challenge by the new power (Germany). If you put WW1 in today's context, you will see US as UK, EU as France, China as German Empire and Russia as Austrian Hungarian Empire.

Anyway, we need a new thread here

Loonie, only thing I am hoping for is the fact that leaders are rational enough to not destroy our civilization, but consider people are only rational in the long run, but we only have limited time for making decision, that may be a bit difficult.....

I think we have overstretch our ability to spend in the last few decades and we end up spend to the point that we have huge debt burden (which reduced current consumption). But the interesting thing is, when everybody try to cut debt (include cooperate), nobody will be successful as what everybody spend is what everybody gets in the end and we will end up facing long term over-capacity because economic system only get use to our old spending habit, which is what happen right now. (However, as proven by WW2, it appears a effective way to stimulate growth again is by a war as it destroy whole bunch of excessive capacity and the rebuild process force people to spend money, but I am sure nobody want a war because of that)

One way we can make sure a sustainable future is the factor in the cost of destroying the environment and people's health via a special type of tax call Pigovian tax, but just like all other tax. People hate it

Added later:
Congratulation for the 1000 post Loonie !

Loonie said
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Still, though, absolute disaster has befallen some countries and ruined their economies. Do we really have the right to think we are perpetually exempt? I would not want to be a Greek right now. I remember traipsing around Europe as a young adult and arriving in Italy and carrying around bundles of 1000s of Lira which were worth only a few dollars because of devaluation. I would not have wanted to be an Italian then.
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I don't think we are exempt. I just think we will trip, fall, recover, and continue. Things here are not the same as in Greece and Italy. Illegal tax evasion is not a national pastime here. We enjoy hockey instead.

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It's not clear to me that we have fully recovered from 2008, especially with these scary high debt levels. "Recovery" is still fragile. There is the risk of relapse and longterm seriously bad news. WW1 was set off by a single unexpected incident although the conditions were ripe. Are we not in a similar situation economically? If the deck of cards on which the economy is built (unsecured debt) starts to collapse, we are all in very deep doo-doo. The major argument I can see against this is that none of the players can yet afford to push this button, but they might in my lifetime as other economies strengthen.
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We have debt. But, not as serious as Greece or Italy. That people are voicing concern with what debt we do have is a good sign that we won't end up like Greece or Italy.

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But, to be honest, I can't afford another 10-15 years like the ones you have outlined in the chart covering the Great Depression and 2008. It would be interesting to see dividend charts from these periods if such exist. Perhaps that's a more reliable route?
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That's the risk one is taking on in return for the kinds of returns that come from equity investing. I think those numbers are total returns, including dividends. I'll see if there are separate numbers for just dividends.

Much to ponder. I appreciate that it may indeed be a case of assessing the odds. I think one of the big problems is that most of us are very poorly educated in matters of finance and international finance in particular. I have lots of years of formal education behind me from some very distinguished institutions, but never did anyone insist that I learn anything about this. And it seems that even the people who did learn this don't have the answers.
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Having the answers would be good. The next best thing is being able to figure out the answers when the time comes. I think to date we have been able to pull the latter off.

Bill said
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Anyone know if I've CDIC coverage for these amounts? CDIC site does not list, for example, CIBC Investor's Edge.

(Sorry for reviving this old thread but it's never been obvious on this site how to start new threads, at least to me, something I only do infrequently anyway.)

I wrote answer in new topic Insurance of cash balances in discount broker accounts.