69

It's not pretending to be bulletproof advice. You'll certainly lose money some of the time. That's just how it is in the stock market. "Don't try to time the market" is advice that an average Joe can't possibly consistently know how the market will do and always make the right decision. If you buy consistently, sometimes you will be buying high and sometimes ...


42

An important point that is easy to miss: the chart you're showing appears to be a price index, this excludes dividends that were paid out over time. Look at the Nikkei-225 total return index (N225TR) to see the actual returns you would have made just by being in the market. In the long term timing really isn't that important.


30

Time in the market beats timing the market. The following graphics (from personalfinanceclub, found on reddit) do a great deal in explaining why this works well when you are only planning on saving, rather than making tons of money:


24

The Japanese economy has had a unique history, with a huge bubble in the 1980s and a long unwinding afterward. I don't see why that would result in a market that appears to have brief periods of growth. If anything, I'd expect their recent economic history to produce a market that goes straight down, rather than inconsistently hovering back up. Apart ...


24

The tail absolutely wags the dog in the equities markets. For a long time and this has been an active area of discussion. More pragmatically, market microstructure - such as an index or even hedging against an index in the options market - can drive market direction in periods of low liquidity, as in when there are not larger counteracting forces such as a ...


20

Here is, from Yahoo Finance, the S&P 500 over the last ~60 years (logarithmic scale): The behavior since ~2000 has been weird, by historical standards. And it's very easy, looking at that graph, to say "yes! I would have made so much money had I invested in March '09!". Of course, back in March '09, it wasn't so clear that was the bottom. But, yes, ...


19

Do you see how VOO and SPY don't have the same price? Say you and I both start an S&P index ETF. For sake of easy paperwork, and to discourage small customers, you sell shares at a starting value of $10,000. But, I like the little guy and start at $10. Your dividends per share will be 1000 times mine. But, if my customer hold 1000 shares, and you have ...


15

The currently accepted answer is incorrect. Vanguard is quoting the 1-year return as of 9/30/2019. This is calculated from the close of 9/28/2018 (the last trading day of September 2018) to the close of 9/30/2019. It is important to get the exact dates right because stock indices can easily rise or fall 1% or more in a day. Stock price fluctuations are ...


13

As Ross says, SPX is the index itself. This carries no overheads. It is defined as a capitalization-weighted mixture of the stocks of (about) 500 companies. SPY is an index fund that tries to match the performance of SPX. As an index fund it has several differences from the index: It is NOT the index in that it cannot acquire 100% of the share capital of ...


13

You can’t determine the beginning of a bear market at the time — if you could then it would immediately become a crash, as everyone would try to sell. It can only be determined retroactively, after the fact.


12

"In other words, to a first-order approximation, the S&P 500 is always at an all-time high." I'm going to run with this observation a bit. The crash of '87 was remarkable. It was a drop of 1/3 in a short time, yet, when one looked at the year, the Dow was up nearly 5% with dividends included. A one-year Rip Van Winkler would have woken up thinking it an ...


12

The S&P 500 index is a float-adjusted market-cap weighted index. It’s calculated by taking the sum of the adjusted market capitalization of all S&P 500 stocks and then dividing it with an index divisor (8332.84 as of 3/31/19), which is a proprietary figure developed by Standard & Poor's. The Investopedia article What Does the S&P 500 Index ...


12

MSCI is an "index provider". MSCI makes money from licensing its indexes. ETFs pay MSCI licensing fees based on the assets under management (AUM) and trading volumes of the fund. It seems to me that I can just look up the list of stocks on the Internet. Yes, but is the information enough for you to build an ETF that replicates the index? Is it ...


12

I even tried getting rid of the obvious massive tech winners and just relying on stocks like McDonald’s, Coca-Cola, Costco, j&j and GE You used survivor bias to pick your stocks. You picked Costco, but didn't pick Toys R Us, Sears, Radio Shack, or JCP. You did pick GE, which has had a tough decade but also didn't pick airline stocks. Energy companies ...


12

The index is an average of the stocks in the index. A very simplistic index consisting of 3 stocks might be calculated as: (share 1 price + share 2 price + share 3 price) / 3 = index price In practice the calculation will be more complicated, but the principle stands that you put in a set of share prices and get out an index price. By that definition, the ...


11

This kind of information can always be found in the Key Information Document (KID) The KID states: The Fund seeks to provide returns consistent with the performance of the Bloomberg Barclays GBP Non-Government 1-5 Year 200MM Float Adjusted Bond Index (the “Index”).


10

FTSE is an index catering to the London stock exchange. It is a Capitalization-Weighted Index of 100 companies listed on the London Stock Exchange with the highest market capitalization . When somebody says FTSE closed at 6440, it basically means at the end of the day, the index calculated using the day end market capitalization of the companies, included ...


10

From Wikipedia - To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 ...


10

Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was ...


10

Repost of comment as an answer (as per Chirlu's suggestion). The index does not take into account the dividends paid by the stocks in the index; the ETF does. So the ETF's return outperforms the return of the index.


10

From Investopedia: Although figures vary, a downturn of 20% or more from a peak in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over a two-month period is considered an entry into a bear market.


10

The prices of each individual stock are 100$ (A), 10$ (B) and 1$ (C). The index weights at this moment are 60% (A), 30% (B), 10% (C). In other words, for every 6 shares of A (initially worth $600), the fund will hold 30 shares of B (worth $300), and 100 shares of C (worth $100). In other words, the initial ratio of shares A:B:C is 6:30:100. In the following ...


10

In theory it is possible, but very impractical. So much so that it approaches the impossible. Also this does not make much sense. Assuming that it takes 100 hours to do proper fundamental analysis on a company the DJIA would take 3000 hours, the S&P 50,000 hours. That seems like an impractical amount of time given the short estimate of 100 hours. ...


9

Stock market indexes are generally based on market capitalization, which is not the same as GDP. GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations. Thus the ratio between countries' GDPs may not be the same as the ratio of ...


9

Google's numbers: 10/01/18 $268.04 09/27/19 $271.26 That's a gain of 1.20% which is far less than the actual return because Google did not account for dividends. During that period you would have received $5.43 in dividends so the Total Return with dividends reinvested would have been 3.34%. You can verify these numbers with a DRIP calculator or with ...


8

I emailed Dr. Varian, the chief economist at Google (formerly a Berkeley economist) to ask; he responded that the GPI was never intended to be a public project, data source, etc. It was simply a project internal to Google that got hyped up by the press. In my opinion (unconfirmed by Dr. Varian) Google, like virtually every other company, probably uses the ...


8

The S&P 500 is an index. This refers to a specific collection of securities which is held in perfect proportion. The dollar value of an index is scaled arbitrarily and is based off of an arbitrary starting price. (Side note: this is why an index never has a "split"). Assumptions Lets look at what assumptions are included in the pricing of an ...


8

OP asked a great question! People've been using US stock market to justify auto-investment over market timing, passive funds over active management, etc. Well, not all markets are like this. Inspired by that cute infographic, I downloaded Nikkei 225 (total returns), and set up a monthly 200 yen auto investment, and another one simply auto deposit 200 into ...


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