Stocks — Part II: The Market Always Goes Up

On what was later to be called Black Monday, in 1987, at the end of a very busy day I called my broker. Remember now, this was when we had brokers and before cell phones, personal computers, the internet and online trading.

“Hi Bob,” I said cheerfully. “How’s it going.” There was a long silent pause. “You’re kidding,” he said. “Right?” He sounded dreadful. “Kidding about what?” “Jim, we’ve just had the biggest meltdown in history. Customers have been screaming in panic at me all day. The market is down over 500 points. Over 25%.”

That was the point at which I joined the rest of the planet in being absolutely stunned. It is hard to describe just what this was like. Not even the Great Depression had seen a day like this one. Nor have we since. Truly, it looked like the end of the financial world.

As any educated investor does, I knew that the market was volatile. I knew that on its relentless march upwards there could and would be sharp drops and bear markets. I knew that the best course was to hold firm and not panic.  

But this. This was a whole ‘nother frame of reference. I held tight for three or four months. Stocks continued to drift ever lower. Finally, I lost my nerve and sold. I just wasn’t tough enough. That day, if not the absolute bottom, was close enough to it as not to matter.  

Then, of course and as always, the market began again its relentless climb. The market always goes up.

It took a year or so for me to regain my nerve and get back in. By then it had passed its pre-Black Monday high. I had managed to lock in my losses and pay a premium for a seat back at the table. It was expensive. It was stupid. It was an embarrassing failure of nerve. I just wasn’t tough enough.

But I am now. My mistake of ’87 taught me exactly how to weather all the future storms that came rolling in, including the Class 5 financial hurricane of 2008. It taught me to be tough and ultimately it made me far more money than the education cost. Here’s the thing you need to understand:

The market always goes up.

Always. Bet no one’s told you that before. But it’s true. Understand this is not to say it is a smooth ride. It’s not. It is most often a wild and rocky road. It’s not easy. Reader JTH in the comments for Part I says:

“We’ve stayed the course, with a side-dish of panic.”

Great line there JTH, and staying the course is always served with a side dish of panic. That’s why ya gotta be tough.Because the market always, and I mean always, goes up. Not each year. Not each month. Not each week and certainly not each day. But relentlessly up. Take a moment and look at this:

The Dow Jones Industrial Average 1900 – 2012

Can you find my ’87 blip? It’s there and easy to spot, but not quite so scary in context. Take a moment and let this sink in. You should notice three things:

1.  Trend is relentlessly, through disaster after disaster, up.

2.  It’s a wild ride along the way.

3.  There is a Big, Ugly Event.

Let’s talk about the good news first. We’ll tackle points 2 & 3 next time.

To understand why the market always goes up we need to look a bit more closely at what the Market actually is. The chart above represents the DJIA (Dow Jones Industrial Average). We are looking at the DJIA because it is the only group of stocks created as a proxy for the entire stock market going back this far.  

Way back in 1896 a guy named Charles Dow selected 12 stocks from leading American industries to create his Index. Today the DJIA is comprised of 30 large American companies.

But now let’s shift away from the DJIA Index, which I only introduced for its long historical perspective, to a more useful and comprehensive Index: MSCI US Broad Market

If you click on that link (removed) it will take you to a article announcing that Vanguard is using this Index in crafting the Vanguard Total Stock Market Fund (VTSAX).  (Update: As of June 3, 2013 VTSAX is now using the CRSP US Total Market Index)

The Index and VTSAX are exactly what they sound like: Groupings of every publicly traded US based company. By design they are almost precisely the same. Since we can invest in VTSAX, going forward I’ll be using it as our proxy for the Stock Market overall.

In 1976, when John Bogle invented the Index Fund he gave the world a wonderful way to invest in the entire US Stock Market. This is the single best tool we have for taking advantage of the market’s relentless climb up. VTSAX is the market and as such does the exactly the same.

OK, so now we know what the stock market actually is and we can see from the chart that it always goes up. Let’s take a moment to consider, how can this be? Two basic reasons:

1.  The Market is self cleansing.  

Take a look at the 30 DJIA stocks. Care to guess how many of the original 12 are still in it? Just one. General Electric.* In fact, most of these companies didn’t exist when Mr. Dow crafted his list. Most of the originals have come and gone or morphed into something new.

This is a key point: The market is not stagnant. Companies routinely fade away and are replaced with new blood.

*Note: As of June 26, 2018, GE has joined the rest of the originals and has been removed from the Dow. It has been replaced by Walgreens Boots.

The same is true of VTSAX. It holds virtually every publicly traded stock in the US market. A little over 3600 at last count. Now, picture all 3600 of these companies along a classic bell curve graph.

Generic Bell Curve Graph

Those few at the left will be the worst performing. Those few to the right, the best. All those between at various points of performance. Ok, looking to the left what is the worst possible performance a bad stock can deliver? It can lose 100% of its value. Then, of course, it disappears never to be heard from again.  

As new companies grow, prosper and go public they replace the dead and dying. The Market (and VTSAX as proxy) is self cleansing. Now let’s look at our top performers on the right. What is the best performance they can deliver? 100%? Certainly that’s possible. But so is 200, 300, 1000, 10000% or more. There is no upside limit. As some stars fade, new ones are on the rise.


The net result is a powerful upward bias.

But note, this only works with index funds. Once “professional management” starts trying to beat the system, all bets are off. They can, and most often do, make things much worse and they always charge more fees to do it. We’ll talk a bit more about this in a later post.

2.  Owning stocks is owning a part of living, breathing, dynamic companies, each striving to succeed. 

To appreciate why the Stock Market relentlessly rises requires an understanding of what we actually own with VTSAX. We own, quite literally, a piece of every publicly traded company in the USA. Stocks are not just little slips of traded paper.  

When you own stock you own a piece of a business. These are companies filled with people working relentlessly to expand and serve their customer base. They are competing in an unforgiving environment that rewards those who can make it happen and discards those who can’t. It is this intense dynamic that make stocks and the companies they represent the most powerful and successful investment class in history.

So, now we have this wonderful wealth building tool that relentlessly marches upward but—and this is a major but that causes many if not most people to actually lose money in the market—boy howdy it’s a wild and unsettling ride. Plus, there’s that Big, Ugly Event. We’ll talk about those next.

Disclaimer:  Like everything on this blog, this is only sharing ideas. You are solely responsible for your own choices.

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Important Resources

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  1. bluecollarworkman says

    I know this is obvious, but I have to say it anyway. I completely agree with your premise here and you’re obviously quite correct. But. If I was 50 years old in 1928 and looking to retire in a decade and had my money in the market. Well, it would be 3 decades after that crash before my money would get back to it’s 1928 value! I would be 80 by then. Or actually probably even dead.That’s pretty rough. For young investers, yeah, be bold and don’t freak the frack out, STAY IN! But for older investers, they do need to be more careful!

    • Dan says

      Hi, I actually have had this conversation with my 60 year old boss about his bad investments made in 2000 right before the crash. If you were unfortunate enough to wish to retire in 1928, and continued to dollar cost average into the market for a few more years, my guess is you would have incredible returns. That’s part of being “tough.” Also, it’s doubtful you would have chosen one day to invest ALL of your money in the stock market in 1928. Thus, most of your gains would have been paper gains anyways and the amount of capital vs. losses would be very little given how many years you would have been investing already (say since 1900).


    • Scott says

      After a casual analysis of “the Market,” there are several periods where it took more than a decade to get back to the same price, not to mention the impact of inflation, lost capital appreciation and the punishing effects of draw down during bear markets (if retired).

      I believe that the vast majority of young people should invest in the market over time and STAY invested! Don’t try to out-think it or out-smart it! I believe that many people self-sabotage their financial returns by not conquering the behavioral psychology part of investing. (Don’t ask how I am an expert in this facet of wealth accumulation!!!).

      However, if one is inclined, well-educated and can invest within reasonable well-established wealth-building rules, timing the major market moves (macro, not micro) can result in much better long-term results. The problem is that many mis-time the market and/or don’t follow their plan. (Again, don’t ask how I know about this!!!).

      For instance, here in late March of 2018, I have reduced my stock fund from 90% stock funds/10% cash, to about 30% stock funds/60% individual short term bonds/10% cash. Folks, this is market timing on purpose! For most of the last 2 decades, I’ve been 100% in stock funds, through all of the crashes, corrections and dips (mostly dollar-cost-averaging). That works well with enough time, however, during retirement, draw-down during bear markets can have a devastating effect on portfolio balance, if the capital gained during bull markets is not protected (“taking profits”). After the bear strikes, and I believe it will within 1-2 years, I will wait patiently and once-again increase stock fund exposure for the anticipated bull market (“the Market Always goes up…always”).

      Bull markets typically last 6-7 years; bear market bottoms usually take 18 months to reach the very bottom. (Corrections=20% depreciation). The astute can take advantage of this trend and add to their wealth.

      For those not inclined to study the market, or the young, just stay invested in 1 or 2 stock funds at 90% (large cap, mid cap and small cap, all in one or at most 2 funds , re-evaluating within 5 years of retirement.

      For Pete’s sake…stay away from financial planners! Their fees suck the living life out of your financial future (I was one)! There is enough info in this blog, that if followed will most likely lead to a very satisfactory financial future!

      Now that I am recently retired, my normal allocation would be about 60% stock funds and 40% individual short-term bonds (held to maturity). I am fully anticipating a major market correction and possibly a bear market within the next 2 years. In fact, I am hoping for this! I love buying stocks (or in this case, stock funds) at bargain-basement prices!

      • Scott says

        Hmmm, since I can’t seem to self-edit, I need to amend that from my experience, a market correction is 5-15%. A bear market is a sustained correction of more than 15%. The rest is just market noise, and trust me…ignore it for the purposes of investing. (And again…don’t ask how I know this!).

      • Paul says


        Can you reach out to me to discuss your strategy for reallocating your portfolio along with investing during a bear market?

        • Paul says

          On second thought, I guess I could simply ask the questions I had and let anyone reading this answer to possibly assist other readers:

          1. Scott’s comment above was “Bull markets typically last 6-7 years; bear market bottoms usually take 18 months to reach the very bottom. (Corrections=20% depreciation). The astute can take advantage of this trend and add to their wealth.” Can you please expound on how an astute investor can take advantage of this trend and add to their wealth?

          2. Scott mentioned that his allocation in retirement consists of “40% individual short-term bonds (held to maturity)”. Are these bond funds that you can purchase through a brokerage account or what exactly are “individual short-term bonds”?

          3. Let’s say my portfolio consisted of $1,000,000 and I wanted to reallocate to 40% individual short-term bonds, what would $400,000 worth of these bonds look like (a one time purchase of a $400,000 bond or 40 purchases of $10,000 bonds)?

          4. Lastly, if I held all 40% of my individual short-term bonds to maturity, wouldn’t that create a devastating tax burden in the year that they matured?

          My apologies if these are novice questions but I’m 35 and have just started to take my FIRE journey seriously over the past 2 years. I want to understand every aspect of the wealth building stage along with the wealth preservation & withdrawal stage before I make decisions now that may impact my future.

          Thanks again.

          • WanderingWhitehursts says

            Hi, Paul. I hope you find my response somewhat helpful. It’s really just my thoughts on your questions more than any sort of expert advice, as I’m no expert.

            You’re curious how to best take advantage of Scott’s assertion that “Bull markets typically last 6-7 years.” Let’s assume you agree, and why wouldn’t you, since history likely sides with Scott at the time of his posting.

            If you were using Betterment for your retirement investing, shifting your stock/bond allocation balance would be as simple as sliding a scrolling bar to the left to re-allocate your investments. And now you’re guaranteed to have outsmarted that pesky 18 month BEAR!

            Or did you?

            If using only Scott’s advice of Bulls lasting 6-7 years, you’d look back to the last bottoming of the market… April of 2009, and start counting 6-7 years from there. But… you’re savvy. If the “typical” Bull lasts 6-7 years, it’s possible this one could be a little shorter. Better to err on the side of safety, yes? So at year 5 you say “I’ve had a good run. Time to re-allocate. I’m actually so confident in this soon-to-be Bear market I’m going to ALL CASH, baby!” And so you do in June of 2014. You’ll have earned 144% during this Bull run! A staggering 19.5% per year. I’ll take it!

            And then you sit on the sidelines waiting for that market drop, the inevitable BEAR that Scott said is “typically” due by now. At year 6, you’re not too worried, since you know you were playing it safe. At year 7, still no drop. What gives? And now at year 9, the market, though volatile, still marches higher. Due to your timing strategy you’ve missed out on another (I’m amazed at the coincidence here) 144%. (No kidding, the calculator at from Apr 2009 to Apr 2014 was 144% return. Then from Apr 2009 to June 2018… and it was 288% – Exactly double!!)

            You’re kicking yourself at this point, because instead of 9 years of 15.95% annualized returns and a total return of 288%, you now have half that with no sign of recovery and your FIRE dreams are becoming more like a frustration. [To make things worse, perhaps you decide enough is enough, I can’t sit on the sidelines anymore. I’ve got to get back into the market! And inevitably the moment you do the 20% drop you were looking for happens. Doh!]

            Point is, Paul, no matter the technique to allocate funds in order to time the market, it is exceedingly difficult to do this well. I wouldn’t say it can only be done with luck, but for most people much like myself that’s what it requires. Just keep pumping money into your index funds and march, head down, right past the Bears. Don’t try to dance your way around them. They’ll reach out and swat you dead.

            Questions 2-4 I think are answered similarly. I’m not sure why you would hold actual bonds as opposed to a bond fund or ETF of some sort. I suppose there is some sort of risk aversion to increasing interest rates, but you can read numerous articles stating the falsity of engaging in such a technique. There are also Target Maturity Bond ETFs, such as “IBDQ iShares iBonds Dec 2025 Corporate ETF” that, as I understand it, hold bonds that mature on the stated date, pay interest to shareholders throughout the holding period, and then instead of reinvesting at the target date, the coupons expire and all that remains is cash, which is returned to investors. So an easy way to get the same effect? And since interest would be paid periodically throughout the holding period, you shouldn’t suffer a sudden tax burden as all the bonds reach maturity. I’d again just recommend Betterment. Slide the ticker to the left to your desired allocation, and you’re all set!

            Again, these are just my thoughts. And sorry to use Scott’s comments as a basis for my soap box, as I don’t even think he would suggest someone should market time off of just the assumption that Bulls are 6-7 years in general. But I wanted to make sure to illustrate the fallacy in market timing. He states himself that young investors shouldn’t mess with such methods. If you are honest with yourself, you could probably see yourself doing exactly as I described above if trying to time the market this past Bull run.
            Good luck in your journey to FIRE. From reading many other’s posts attempting the same, it seems the journey itself is often a big part of the joy it provides.

      • thelughsperience says

        well, if you timed the market crash 2 years from when you first posted this comment. CONGRATULATIONS SCOTT! You was pretty much RIGHT ON.

        If you would be so kind, tell me, how have your returns looked so far?

  2. Fuji says

    I love your writing – a calm oasis of steadiness amongst the grating backdrop of shrill media. Thank you for sharing your wisdom. 🙂

  3. JTH says

    Thanks. This is reassuring. As BCW says, what about the 50+ investors? When and how do they gracefully bow out of the drama? We’ve saved, diversified, and when the side-dish of panic comes along, it rocks our boat big time. (JTH not JYH …). These articles are great and understandable for us novices. Thank you. Can’t wait for next episode.

  4. matt76allen says

    I don’t entirely consider myself a “novice” investor, but I am learning from some of your writing like this post. Some of that background information on the origination of the DJIA is news to me. Glad you posted it, because I would have never taken the time to research it otherwise. Thanks.

  5. Shilpan says

    Great article Jim. I agree with you that index fund is — by far — safest way to make money. I also agree with you that markets always go up in the long run. As you’ve mentioned, many stalwarts of past have faded. So, anyone who is investing in a specific stock has to be vigilant as I do. You can’t assume that GE will last forever(although I believe it will). 🙂

  6. saoili says

    The market always goes up, but if you invested in 1929 you had to wait 30 years for it to do so. What if someone decided to get into investing in their 60s? They might not have had 30 years to wait…

    We can’t all invest in VTSAX. Any suggestions for international investors?

  7. Matt MF B says

    You may be right about markets eventually always going up but the wait can be a disaster, witness this story that came out this weekend. Tokyo broad stock market averages at the lowest point in 28yrs. You could very well die before your basket of stocks return to previous levels. If you need to have money to live on the long term (not just the short term) market trends can leave you broke. It’s a little cavalier to think that just because the past 100 years the market’s always gone up that it will continue to do so for the next 100 years. It’s also potentially a disservice to your readers. Go ask an ancient Roman if ingenuity can sustain a prosperous civilization in perpetuity.

  8. MrRob says

    Hi Jim, I’m a 29yr old UK based reader, relatively new to your blog (found it from MMM) and am currently undergoing what I call a financial revolution and what my wife calls a financial crisis.

    I appreciate you sharing your wealth of wisdom and experience here, its life enriching stuff. I have really enjoyed reading your blog and have been inspired to start this financial revolution, which basically involves having a plan and choosing to aim for financial independence.

    I’ve been incredibly lucky to have been a financial broker in some incredibly strong markets and made a decent amount of money at a young age. However, it does feel strange to know that I earned the most I ever will in my life at the age of 26 and since then it’s only been decreasing each year.

    Going forward I’m fortunate enough to be able to save a good proportion of my high salary into tax free ISAs (like your IRA Roth with maximum £22,500 per married couple per year) and have a company pension (like your 401/403 plan). I have a few years of this already squirrelled away, plus I’ve been quietly loading my company pension (I contribute 5%, the company contributes 10% of my salary). I don’t get much choice for where I invest my pension, so I choose a cheap to maintain global tracker fund (50% UK stocks and the rest spread across the globe).

    However for my ISAs I get to choose whatever I like and this is what causes most of my questions/confusion. Plus I actually have about £50k investment grade art, and £11k physical gold, a house with a mortgage (for me, my wife and my daughter) and am just embarking on investing in an apartment (mostly to help out a close friend).

    Currently my wealth building assets that I have control over are the art, the gold and the stocks and shares ISAs (worth £100k). You will cringe but currently the ISAs are invested with a stock broker in a mixture of equity funds, high yield individual stocks and I have a corporate bond too. Some of these funds cost me 5% to get into and have annual fees of 1.75%, others cheaper but in any case this causes me concern and I’m now keen to pursue cheap fees going forward. And it’s this stuff, plus my on going ISA contributions that need some consideration. I loved reading your Stocks series and have read all 12 pages probably 3 times through now.

    I think the thing I loved most is your certainty. When I live in a very uncertain world and consume lots of opinionated information to try and find the right path, you present a very simple way forward that you seem certain will produce the desired result – capital gains at some point in history. I understand some of your views but still have questions about others.

    I like Vanguard for obvious reasons, I like low cost investment, I like the self-cleansing index, I like starting early, I like compound returns over time, I like the idea of heavy lifting investments (equities) however there is something stopping me taking the plunge from my current situation (chosen by my financial advisor – graduate in a suit who talks well and convinces me that the themes we are picking make sense and should outperform in the long run – oh how you laugh). Essentially I just don’t know if I trust equities enough to go all in.

    Many times I’ve read that ‘most of the gains over the last 100 years in equities have been due to dividend reinvestment’. I think this is an interesting statement. That basically says to me that compounding is the key to wealth growth. As long as you get a yield from your investment, and start early then (not including inflation or deflation) you’ll make your money from the effect of compound growth. I happened to see an article the other day from The Sunday Telegraph by a guy called Toby Nangle (I mention these so you can Google the article if interested) that showed a graph showing real returns from UK equities from 1700 to present. Real returns being inflation adjusted without dividend reinvested. It claims that the real returns from equities were low from 1700 til 1970 and from 1980-2000 they boomed and that we can’t expect that bull run again.

    This makes me question whether stocks are actually the eternal heavy lifter that you paint them to be or whether we could retreat to decades or centuries (not that I care) of limited real returns?

    When I first read your Stocks series I was very convinced about a lot of your arguments, and I was elated that I had a found a plan to long term wealth building. After rereading, digesting, being blasted by conventional wisdom there is still a lot I like and agree with however it’s the certainty that stocks are the way forward that I find difficult. I’m not sure if I trust them long term.

    If I was ultimately convinced of this, I reckon I could go all in and buckle up for the rocky ride but currently I’m paralised in my current situation. I trust in starting early, I trust in low cost investments, I trust in tax efficient wrappers, I trust in compounding over time, however I’m not sure I trust in equities . . .

    Any comments, thoughts, advice or recommended reading material would be much appreciated. Another thing that may shape an answer and is maybe part of my distrust is that I’d rather work my socks off for 10-15 years and save 70% of my salary with a lower cost lifestyle to give us some form of financial freedom . . . rather than wait 20, 30, 40, 50 years for equities to be booming again. Apologies to all readers for such a long post.

    • jlcollinsnh says

      Sorry for the delay in responding. I just got back from South America and am just now catching up.

      Hi Mr. Rob….

      Your comment brought a smile to my face for a couple of reasons.

      1. It is always a pleasure to read the stories of young people like yourself who are so well on their way to FI. Given how far you’ve already come I can only marvel at how far you’ll go.

      2. With your comments like “You will cringe..” and “oh how you laugh” clearly you’ve read my stuff well enough to know what I’d say. 🙂 So I won’t address those issues, you already know what to do.

      You also say: “This makes me question whether stocks are actually the eternal heavy lifter that you paint them to be or whether we could retreat to decades or centuries (not that I care) of limited real returns?” My answer is in the post at the very end under point #2 in the second paragraph:

      “Stocks are not just little slips of traded paper. When you own stock you own a piece of a business. These are companies filled with people working relentlessly to expand and serve their customer base. They are competing in an unforgiving environment that rewards those who can make it happen and discards those who can’t. It is this intense dynamic that make stocks and the companies they represent the most powerful and successful investment class in history.”

      And I would add that this is happening on a global basis. Past decades and centuries long retreats were tied to the collapse of countries that had their economies far more islolated. Now, businesses simply shift operations. Unless you think the dynamic I describe in that quote will dry up, stocks will continue to be the heavy lifters.

      You say you are not sure if you can trust stocks. Of course you can’t trust them. If you are not very careful, tough and long-term focused the moment you panic they’ll cut your throat and leave you to bleed to death in the dirt. It is not about trust, it is about understanding the relentless drive upwards and the violent volatility along the way and then adjusting your own psychic toughness to ride the bucking bull.

      You say “I’m paralised in my current situation.” You’ve obviously been reading a lot about this stuff and that’s good. But you’ve also discovered conflicting information. Only you can sort thru what makes sense for you. You need to read my stuff, and others, with a critical mind asking if what is said makes sense. Before you follow my advice, or any other, be sure you fully buy into it. Otherwise, the next thing you read will pull you into yet another direction and that vacillation is a sure path to failure.

      Finally, if you implement a 70% savings strategy you are doing something far more powerful than choosing the optimal investment strategy. Do both and, well as I said, I marvel at how far you’ll go.

      Good luck and stay in touch!

      • MrRob says

        Hi Jim,

        Many thanks for your reply and affirming words. I very much agree on your closing statements about exploring more and acting on something I have conviction about. Its never good to be blown around by the latest trends and chopping/changing all the time is expensive and draining.

        A perfect analogy would be diet. About 9 months ago I became deeply convicted that there was merit in paleo-esque diets (and associated exercise) after reading a number of books including The New Evolution Diet by Art De Vany. Since then I have completely changed what I eat, am much healthier and happier about it and irrespective of what conventional wisdom I get thrown at by the world’s media or my grain loving colleagues I maintain that I will probably never deviate off this diet for the rest of my life as I believe its the right way to go.

        I need that conviction about investing and personal finance in the same way. Things I’m sure about are start early, save hard, try to avoid lifestyle inflation to ensure one can maintain saving and I’m working on my understanding of asset allocation and belief that equities and index tracking is the best road forwards from here.

        I had a long chat with ‘the graduate in a suit’ yesterday evening and he was maintaining that large advisory stockbrokers like them would not have customers if they weren’t able to pick the funds that out-perform their respective bench marks and help their customers avoid the dodgy ones.

        If we can’t trust anyone to consistently pick top quality stocks to outperform, then how can we trust anyone to pick outperforming funds over the long term? At the end of the day he has to say they are good at what they do and that by going with their advice and the funds they choose it will give the investor a better chance of making money over cheaply tracking the index alone. The think they add value, they certainly charge as if they add value but they probably (and you’d shout definitely!!!!!! don’t).

        One thing I still ultimately need clarity over is whether I believe a FTSE 100 (top 100 largest companies in UK) tracker or a FTSE Allshare tracker (top 650 companies) gives me sufficient exposure to all that is out there. I am aware that emerging markets should be growing quicker than mature ones and exposure to them might be worthwhile. Also some spout that Japan is worthwile investing in now and then of course the is US equity too that I could be completely missing.

        These are all themes under further consideration but I’m sure I’m making progress in some form or other so that is good enough for now. Once again thanks for this resource and your committment to it. Its great, keep it up.

        • jlcollinsnh says

          The comments section under Part XI of this series Working Rachel asked a similar question about adding an international fund. Here’s my response:

          “Welcome Rachel…

          ..thanks for stopping in. Great question!

          Regarding international funds you can certainly add them if you’d like. As you point out, Vanguard offers International Index Funds. They’ll serve you well.

          I don’t bother for these reasons:

          1. The US is still the dominate world economy and, in my view, will remain so for the next 100 years and counting. That dominance will shrink over time, as it has been doing since the end of WWII, but it is not ending anytime soon.

          2. VTSAX is loaded with US companies that are fully international in their operations. Indeed many generate well over half their revenue and profits overseas. So it provides exposure to expanding world markets.

          3. This trend will continue to expand as the international economies around the world continue to grow and prosper.

          4. Accounting standards and transparencies in the US remain the envy of the world. Less funny business to worry about.

          5. Direct international investing introduces currency valuations into the mix and that is a whole other level of risk that needs to be considered.

          Hope this helps!”

          While I’m not terribly familiar with what the FTSE indexes hold, my guess is it is also heavily weighted with international companies. So the same thoughts would apply.

          Oh, and large advisory brokers have been hemorrhaging customers at an accelerating pace precisely because better and less expensive options abound. If in the UK they are like those in the USA you can expect an ugly, difficult struggle prying your money back away from them. Still another reason to avoid them in the first place.

  9. Christina says

    Will a shrinking population effect this thesis? Since we are now below replacement rate there are going to be fewer and fewer young people to work in these companies and fewer families needing fewer products. For a while we’ll have a large industry for taking care of the elderly, but once they die there is going to be little to fill the void.

    • jlcollinsnh says

      Wonderful question, Christina!

      As it happens I am a member of the infamous Baby Boom generation. There are/were about 75 million of us. The bulge working its way thru the snake, if you will.

      My daughter is a member of Generation Y, those born from roughly 1985 to 2000. There are roughly 70 million of them coming up behind us and building their own lives.

      More importantly than that, most of the developing world is very young. Think China, India, South America, Africa. Large segments of these populations are rapidly improving their economic condition and moving into the middle class.

      Consider India with 1.2 billion people. 850 million of them live in poverty. But 350 million are middle class or wealthier. That is more than the entire population of the US. Same dynamic in those other places I mentioned.

      There is a HUGE and growing population of young and increasingly wealthier people coming of age all over the world. Their expectations are growing sharply. Like people everywhere they will be keenly interested in securing their financial futures.

      This changing demographic will pose considerable challenges, environmental come to mind. But for investors it is a huge and positive wave to ride.

  10. AOG says

    Hi Jim, you mentioned the stock market always goes up / always recovers because the worst thing that can happen to a company is just lose 100% of its value but there is no limit as to how much it can gain.

    But I’m just wondering why after 21 years, the Nikkei Index 225 has not recovered. 20 years is quite a long time frame for the average investor. Is the Nikkei 225 also self-cleansing?

    What are the chances that the same thing wouldn’t happen to the US market?

    • jlcollinsnh says

      Hi AOG…

      Well of course it has happened here and could again. That is the subject of Part IV.

      Setting aside the fact that there are huge differences between the US and Japanese cultures and economies, the Japanese did almost everything wrong in dealing with their crisis.

      During our own 2008 debacle we apparently learned from their experience and our own Great Depression and did most things right. I find that encouraging.

      • Jerome says

        I have to say this is a very weak counter argument Jim. I agree with the poster who said you are a doing a disservice to your readers as the stock market does NOT always go up.

  11. Matt Meiselman says

    Just because the market has trended up in the past doesn’t mean it will trend up in the future. How do you know that the market “always” goes up? Always is an infinite amount of time and things can change in the world pretty rapidly.

    • Rogier says

      I share your concerns Matt. My question: what about Japan? The 3rd largest economy in the world, after USA and China. The nineties were considered a ‘lost decade’ for Japan but the Nikkei 225 index today is still trading over 50% lower (!) then its 1989(!) peak. So much for ‘always up’?

  12. jlcollinsnh says

    To: AOG, Jerome, Matt, Rogier
    RE: Japan

    I probably should write a post about this. Japan is certainly a troubling anomaly, but it is an anomaly. Until then, here is my take on the US depression:

    The question really is whether you want to build your investing strategy based on the possibility of an exceedingly rare occurrence repeating or what we’ve seen happen here in the US since the 1800s.

    My guess is that for you the possibility of the US repeating the Japanese experience will influence your portfolio. You are not alone and the internet has no end of folks touting strategies that will serve in such an event.

    In my view, like Warren Buffett, betting on the US economy and its economic interests in the world markets will be the winning strategy. That’s what I discuss here and what I tell my daughter.

    But I’m not trying to convince you, or anyone, of anything. This blog is just my opinion and me sharing what has worked for me and what has kicked me in the ass. For those who are interested.

    You must, and will of course, chart your own course and make your own decisions.

  13. Steve B says

    Mr. Collins, no, I cannot see your 87 “blip” but I can see the triple top since 2000 where your money went nowhere except up and down in terrifying alp-like peaks and bottoms.! And am thinking about the people who’s stash dropped 50% – holding on? Sorry I cannot agree with your assessment to hold on. Perhaps that is good advice for a 20 year old, but what about those in their 60s and 70s who need stash preservation…I have been up and down these mountain peaks too many times Mr. Collins. Sorry, your premise is flawed.

    • Jone says

      Steve B, I can understand your position and relate to the need to preserve what one has saved built over several decades of working. Losses, even just on paper, hurt. But, I think the point of Mr. Collins’ article is to say that over the course of history the market goes up in value. Relentlessly. It often gets knocked down, and occasionally gets knocked completely backwards, but over the past 110 years it always recovers, dusts itself off, and continues its upward climb. The ride is not smooth. It is not steady. But, it is continuous.

      Consider: folks in their 70’s still have potentially three decades to continue investing on their own behalf, aside from any desire to pass along wealth to their heirs. Thirty more years of living off of social security and declining savings might come to feel like a very long time.

      Avoiding stocks in favor of cash or other “safe” assets carries its own risks. What did a loaf of bread cost back when Regan was president and Hustler magazine was writing about Jerry Falwell? If memory serves, about a buck a gallon. Back then, a new car cost about $8,000. Today a loaf of bread costs over three times that and a new car – not sure, but around $25k sounds close. So, in general terms “stuff” now costs roughly three times more than it did three decades ago. Assuming we have basically the same rate of inflation for the next 30 years, a loaf of bread will cost about $9.00 and a car about $72,000.

      Mr. Collins advocates a 100% allocation to stocks for folks in their 20’s. That makes sense to me too. They have lots of time on their side and can afford a substantial amount of risk. (However, he also advocates a lower allocation to stocks if one’s risk tolerance might cause them to lose their nerve.)

      I am a few decades beyond my 20’s now. I haven’t sneaked a peek at a Hustler magazine in years. Based on your comment, it sounds like you are too. You and I have transitioned from what Mr. Collins terms the “wealth acquisition stage” of life to the “wealth preservation stage” of life mentioned here:

      As Mr. Collins states in the other article, “Basically, bonds smooth the ride and stocks power the returns. The more you hold in stocks the better your results and the more gut wrenching the volatility you’ll be required to endure. The more bonds, the smoother the ride and the lighter the results. If you are going to hold stocks you need to be mentally tough enough not to panic when they plunge. And make no mistake, over the decades you own them, plunge they will. Usually at the most unexpected times.”

      One final thought – you mentioned a triple top over the course of the last 14 years. That leads me to believe you may be a technical trader looking for patterns in stock price data over some period of time. Question – What prevents you from expanding your time horizon from 14 years to 140 years and noticing the same pattern as Mr. Collins discusses above? It shows quite clearly that the market goes up – relentlessly.

      As you note, the market has seesawed a bit on its way upward over the past 14 years.

      We may now be standing at the cusp of one of the greatest bull markets in history.

      Or not. 🙂

      Good luck!

  14. Steve B says

    You made a thoughtful response there. I believe investing is a personal decision.
    Bonds as an alternative? Everyone thinks bonds are a safe alternative, but bonds fluctuate in value too, you know. Enough to lose a great deal of principle when interest rates shift. I just think this “hold for the long term” philosophy is a generally held belief by the masses and a scary and erroneous one at that. Mostly I am tired of having no control over the destiny of my investment. I won’t list the reasons here, we know them all, but the crashes I remember best were no fault of mine. The 50% destruction of my asset were caused by the idiots in government we vote in and their ignorance of economics. (Remember the “homeownership society”?) Yes, I’ve looked at Mr. Collins 114 year chart. But you know what? I won’t be around for 114 years. I need my principle in tact today…and to last for 2o. Many have benefitted from this “phony” rally in stocks. And yes it is a phony rally based on nothing more than Fed inflating the dollar and bond purchases. But this will end badly. Just like all the others and asset destruction will be the result just when so many people need their principle to live on. Over 40 years I have traded every kind of stock and option there is so I am no novice. But I will keep rolling my principle into CDs as interest rates rise, collect Soc Sec. and daytrade the futures (never holding over night) and when the next big one comes, as it inevitably will, and surprises everyone of how stupid our govt has been once again, I will sleep like a baby. – Good luck, you will need it.

    • Jone says

      I applaud your perseverance and honor your hard-won experience in the school of hard knocks. It sounds like you have, for better or worse, developed an investing plan. I have no experience in day trading futures but it sure sounds expensive. Thus, I might only suggest reconsidering the CD portion of your plan. If you think about it, there is a great deal of overlap between certificates of deposit (CDs) and bonds. CDs are basically just bonds with exceptionally low yields.

      Disclaimer: There are many types of bonds but for the discussion below I am going to stick to US Treasury bonds since they are backed by the full faith and credit of the United States of America.

      Both CDs and US Treasury bonds are both debt based, fixed-income securities. CDs are generally considered short-term, low-risk, dividend paying storage for capital. T bonds are generally considered longer-term vehicles of capital storage. Both pay a stated dividend rate on a known schedule. They are very much the same thing.

      On thing that is different is that bank CDs are “risk free” because they are usually (but not always) insured by the federal government through the FDIC up to $250k each. This means that if the bank fails, which has happened quite often in the United States financial sector, the US government will step in and pay the CD holder the face value of the CD. Thus, the CD holder avoids institutional risk (the risk of bank failure).

      No such automatic insurance exists for most bonds. If a commercial or muni bond issuer goes bankrupt you may well lose your principle. But here’s the thing: the US Government, which is the entity insuring your bank CDs, is also issuing their own US Treasury bonds – at higher dividend rate than you are currently earning on a bank’s CD (in most cases anyway).

      So here’s my question: why give the middleman (the bank selling the CD) a percentage of your rightful earnings? Why not just invest in US Treasury bonds straight from the US Treasury? It’s easy. You can do it here:

      But. You also noted that there is a “price vs yield” risk factor that is unique to bonds. Basically, this risk is that although the “rate” of a bond is usually fixed, the “price” of a bond can change based on the prevailing interest rates and market’s mood. CD’s – supposedly – don’t have that problem. But that’s wrong. Here’s why:

      Let’s say you have $500k to invest. Your highest priority is capital preservation so you decided that you will only buy CDs. You will spend only earned dividends and reinvest only the original principle. So, you purchase five one year CDs at $100k each in a five year ladder and start rolling them each year. You start earning (and spending) your dividends at the end of that month and go back to enjoying the grandkids for a while.

      In one year you get back your first $100k and roll it into the back end of the ladder. You reinvested 100% of your principle. At the end of year two you roll CD number two into the back of the ladder…..this continues for the next 10 years. At the end of year 10, as your first $100k CD matures yet again, you get ready to roll it back in…..but then you notice something.

      Your loaves of bread, gallons of gas, and other “stuff” have all increased in price. While your dividends have hopefully increased some over the last 10 years (not guaranteed though), prices for goods and services have increased much faster. It is almost an iron-clad guarantee that $500k of purchasing power today will not equal $500k in purchasing power in 2024 – due to the pervasive power of inflation. Further, CDs simply cannot keep up with inflation since they are linked to – you guessed it – the dividend rate on US Treasuries.

  15. Steve B says

    Jone: Thanks for your well written and thoughtful response.
    All investment decisions are personal, as you know. With that in mind, couple of things: 1. Trading futures is only “expensive” (a curious wording) if you don’t know what you are doing. I have studied SPX futures for years and have developed a conservative but profitable strategy.

    2. Regarding US. treasuries, aren’t you forgetting something? Treas. and bond prices fluctuate with interest rates, interest rates up PRICE OF TREASURIES (bonds) DOWN as a result, losses on treasury purchases are as possible and as probable, as are losses on stocks, depending on time of purchase. So while yes, I would be harvesting more income with Treasuries, that income can be negatively offset by the loss in the underlying investment of the Treasury. Let’s not forget that we are most certainly on the cusp of a higher rate/lower bond price period as the FED quits their easing int. rate policy.

    I see my strategy as trading SPX futures for investment return + CDs as safety and asset protection. I do not see the 2 investments as separate.

    They work together in one portfolio without having to worry about interest rate fluctuation ( and the deteriorating affect it would have on a bond portfolio when rates rise) or the insanity that I have experienced on Wall Street and from Gov’t experiment and intervention, 87, 2000, 2008, and more and I am sick of it.

    CDs will protect my long term capital, futures trading will give me the return to offset the inflation-lagging CDs and then some. Of course I could be missing something. If so I would love to hear what it is. We all need our own comfort level and level of expertise in which to grow and protect our assets. Thanks again, Steve B NYC

    PS I will add one more thought. We are all well aware of Jim’s 114 yr long term chart from which he says “You can barely see the 87 crash.” While that may true, what stands for me, at the very top of that chart is the zigzag alpine losses of the recent years, OUR investing years, distinctly different in appearance from the rest of the chart, the rest of the 114 year history of the US market. Something has clearly changed in our lifetime. I am not smart enough to know what it is (I have some educated guesses.) But what I see and read makes “it always comes back” a rather flimsy investment strategy IMO.

    • Jone says


      I am glad you have a system that works for you. As mentioned, I am not familiar with futures trading. I had a trading account with Sharebuilder some years ago and was approved for trading options and futures on margin. My idea was to use a bit of “other people’s money” and see if I could learn the commodities market. Once I started learning about trading commodities it didn’t take long for me to realize that I didn’t understand the language and definitely had no place to store tons of corn. Thankfully, I did nothing with the margin account. Sometimes the best (and hardest) thing you can do is keep yourself from doing anything.

      I called it “expensive” because, in part, messing about with something you don’t know anything about can get very expensive very quickly. Should I have proceeded to trade futures on margin and been called at the wrong time, the potential losses could have been more than my total investment.

      Further, your method seems to require a good deal of work from you to manage. As I learned during my very brief exploration, there is a whole new language to learn – puts, calls, strike price, margin, spot value, physical delivery, etc.. Further, your description of the process – that you don’t hold positions overnight – suggests you are day trading throughout the day. Time is money. How much are you earning per hour trading futures vs my hourly rate of doing nothing (aka buy-and-hold investing)?

      On the bonds, I did mention the “price vs yield” risk factor that is unique to bonds in my post above. As you correctly state, if interest rates increase, the price of the underlying bonds decrease. As a result, losses on treasury purchases are possible. Yet, the reverse is also true. That is, if interest rates fall, the price of the bonds increase.

      Happily, this latter reality has been the case all year (and for most of the past 30 years). I remember at the beginning of the year the smart folks on television were are talking about how the end was near for the bond market. Too bad for them. That said, I will agree that bonds shouldn’t necessarily be termed a profitable investment; they serve best to smooth the bumps from stock market valuation gyrations though steady dividend payments.

      On your last point, something certainly has changed in our lifetimes. Lots of things. Computers, cell phones, the color of my hair, all kinds of stuff. Our fathers, and theirs, also faced some pretty significant changes in their lifetimes. A couple of world wars, the development of the interstate highway system, and the Great Depression spring to mind. Here’s a list of just the economic crisis during Mr. Collins’ 114 year time frame above (credit to Wikipedia):

      20th century

      Panic of 1901, a U.S. economic recession that started a fight for financial control of the Northern Pacific Railway

      Panic of 1907, a U.S. economic recession with bank failures

      Wall Street Crash of 1929 and Great Depression (1929–1939) the worst depression of modern history.

      OPEC oil price shock (1973)

      Secondary banking crisis of 1973–1975 in the UK

      Japanese asset price bubble (1986–2003)

      Bank stock crisis (Israel 1983)
      Black Monday (1987)

      Savings and loan crisis of the 1980s and 1990s in the U.S.
      1991 India economic crisis
      Finnish banking crisis (1990s)
      Swedish banking crisis (1990s)
      1994 economic crisis in Mexico

      1997 Asian financial crisis
      1998 Russian financial crisis
      Argentine economic crisis (1999–2002)

      21st century

      Early 2000s recession
      Dot-com bubble
      Late-2000s Financial Crisis or the Late-2000s recession, including:
      2000s energy crisis
      Subprime mortgage crisis
      United States housing bubble and United States housing market correction
      2008–2012 Icelandic financial crisis
      2008–2010 Irish banking crisis
      Russian financial crisis of 2008–2009
      Automotive industry crisis of 2008–2010
      European sovereign debt crisis

  16. SteveB says

    Thanks for your response. Yes, every new trade/investment vehicle has a learning curve and I would put commodities and options at the very top of the list of complex instruments. I have studies them all.

    With futures I have 2 decisions: short or long.

    Of course that’s an facetious oversimplification. Because the technicals that I trade are quite complicated. However something about technical analysis and the market fascinates me and I have been studying it for years.

    I am matching wits with millions of other traders all over the world. Most far smarter than I am. It’s like a complex chess game, really. A challenge of the mind. Sometimes I win. Sometimes I lose. And sometimes it rains, as they say in baseball.

    Speaking of complicated, let’s take the Treasury Direct website. (thank you for the link BTW) I’ll leave my opinion of the website unsaid for now. For someone who has never invested in treasuries before and trying to learn, I’d say the complexity of the subject could give commodities a run for it’s money.

    As for time, yes, trading futures does take following the market all day. And time is the trade-off. Yet I still only make 1-2 trades per day. But mostly, I enjoy having complete control over my investments.

    During those “bumps” as you call them, can that be said for anyone else’s stock portfolio.?

    Did you have control over your assets when the world bid up the price of companies like “” to ridiculous levels, until one day someone yelled “fire!” everyone tried to get out the door at the same time and your entire portfolio came crashing down, even though your holdings were perfectly, reasonable profitable companies. Remember that?

    Or how about Bush, Clinton, Cuomo and almost every other pol of our time who thought it was a brilliant idea for every American to own a home and our hero Greenspan kept interest rates at zero while no one even had to show an income to get 100% financing? You were not involved in this nonsense I am sure, and yet you had to open up your statement and read a 50% reduction in value I bet. No fault of your own.

    Today our wonderful FED has implemented programs that, despite your list of above, has never been tried before in the history of finance and even they admit they do not know exactly what the outcome will be.

    Did Granny Yellen call you up to ask your advice on this since the consequences will surely affect your portfolio? Please tell me she did.

    And now that we are done with Quantitative Easing 121, whatever the number is, with rates at 0 for what – years? do you really think rates will not rise (and bonds fall?) Granny has already indicated she wants inflation. Collect income in rates. Lose it on the underlying.

    In addition, as a technician, I look at Mr. Collin’s 114 chart and I see a very different formation up top in the last crashes than can be seen in the history of the markets. More volatile. More often, more surprising, certainly just as damaging.

    That’s because when I say something has changed in our lifetimes I mean that literally. And I mean it about the stock market. There are developments in trading, black boxes, high frequency and otherwise that we have never seen before. Many non-human. And these remain untested in crashes yet.

    But if all this sounds negative, the reality is, I am not. I am perfectly optimistic.

    Because I know that all of them -Ms. Yellen, or Mr. O and him team of economic geniuses, Her Royal Majesty the next Madam President or any of the Einsteins we American people laud as rock stars and mistakenly elect as qualified, will be unable to have any affect at all on MY assets.

    That privilege belongs to the only person of whom I am absolutely positive knows a little something about economics. And that person is me.

    • Paras says

      Steve B,
      I am intrigued. What is it that you do to make sure that you have full control of your assets. You mentioned that it is a combination of CDs and futures day trading. Could you provide a simple explanation of your strategy to a layman? Perhaps with an example.

      I understand that CD protects your assets and provides inflation lagging returns. So, what remains is to explain how is the futures day trading making up for the shortfall and then some.

    • AussieFirebugFan says

      Well looking at the Nikkei in the long term. It’s literally just returned to appropriate corrected value if you look at overall growth from 1950 to now. Between 1980 to 1990 the exponential growth upwards was excessive and the initial crash only corrected it about half way, thus the ups and downs and slow recovery since. It’s only after the late 2000s that it’s actually corrected back into expected, reasonable growth.

    • jlcollinsnh says


      And me an English major.

      Ah, well. The mistake’s (note correct apostrophe usage) has only been up ~32 months… 😉

      Thanks. Correction made.

      • Dood, el Farbe says

        “Ah, well. The mistake’s (note correct apostrophe usage) has only been up ~32 months… ”

        Haha, that would have been correct apostrophe usage in “mistake’s” had you decided to forego the “has” after it.


        Very interesting post and I’ve been working my way slowly through your Stocks series.

        Thank you for taking the time to put so much information out here for us.

  17. Steve B says

    Of course I would much prefer to have my assets in better places that CDs. Like highly stable American companies that have paid dividends for years without fail, I am sure you know the names. However, this market has come too far to fast for me to purchase these names at these prices. As for futures trading, it is complex and not for everyone. I use a strategy known as market profile. you can see examples at jamesdalton trading. I know my software and my strategies intimately. and…
    As a futures trader I am in the market and out of the market the same day so I have NO exposure to all the craziness and volatility in the world or in the markets today, and am profiting everyday on MY decisions made from MY talent, skills and knowledge alone. Hope that helps.

  18. Lucas says

    Thanks for an informative and inspirational website.

    I too would like to believe that the market will go up forever, but I’m concerned that in the future, unlike in the past, the relentless upward trajectory of the market will increasingly be driven by devaluation of currency, driven by an increase in the M2 money supply (good ol fashioned inflation), rather than an increase in real productivity. Real productivity is generally linked to energy usage and population growth, and this has been the case for 200 years. However, as we know, nothing lasts forever, and changes in the economy, society, and culture are inevitable.

    Furthermore, we know that there is very little in this world that can compound forever, and the growth of the human population and the massive consumption explosion that has ensued over the last 100 years is a good example of this exponential growth.

    In my own life, here in Canada, I’m seeing signs of a slowdown, primarily due to the marginalization of the middle class. In Vancouver, a one bedroom condo of 500 square feet typically sells for almost $400k, and the average salary is around $40k. Add to this, the fact that executives are taking much larger portions of the pie for themselves than in the past, the excess no longer being distributed as dividends or being ploughed back into the company to fund growth.

    Don’t get me wrong, I like the idea of spending less than I earn, eliminating debt, investing the rest, and waiting. Indeed, this is what I’ve done. But deeper philosophical questions remain. When I look at the hockey stick graph of the world’s population growth for the last 100 years, knowing that this is a visual representation of the increase in consumption and company profits, and then ask myself if this is a sustainable trajectory – I do have a few doubts in the back of my mind.

    That said, I see little alternative but to plough money into Vanguard, live a frugal life, and hope for the best. Regardless, I was wondering what your thoughts, and the thoughts of the readers on a blog like this are, regarding exponential growth, the massive increase in wealth and capital growth the baby boomer generation has seen during this period of unprecedented human population growth and whether or not this is resulting in recency bias, the steady increase in the money supply, and the marginalization of the middle class, and the greater percentages of company profits that are going to executives rather than shareholders.

    Thanks again for an insightful website, and have a great day.

    • jlcollinsnh says

      Welcome Lucas…

      Glad you like it!

      You’ve covered quite a bit of ground in expressing your concerns about the future. Is is possible we are careening toward disaster? Sure. But it is also possible we are on the cusp of an incredibly brilliant age.

      The Dow Jones Industrial Average started the last century at 68 and ended at 11,497. That was through two world wars, a deflationary depression, bouts of high inflation and countless smaller wars and fiscal disasters. It was hardly a golden age. Imagine standing in the ashes of post war Japan or Europe. If you want to be a successful investor in this current century, you need some perspective.

      As you say, “changes in the economy, society, and culture are inevitable.” Those of the last 120 years have been gut wrenching. What history and the last half century+ I’ve been around have taught me is that there are always dark clouds on the horizon and yet we continue to muddle thru.

      Is it possible something will derail us so completely we collapse beyond repair? Sure, but then nothing you’ve invested in will matter.

      Is it possible technology is on the verge of growing at such a exponential rate that the solution to literally all human problems is at hand? Sure, but then we will all be financially free and our efforts to invest responsibly will have been a waste.

      Here’s an interesting article that lays out both possibilities:

      My guess is that the next century will fall between those extremes and will be filled with challenges. Although I sure hope we have somewhat fewer than the disastrous 20th century. 😉

      If that’s the case, I can think of no better tool to build prosperity than VTSAX for reasons I describe here:

      Good luck!

  19. Me Be says

    I haven’t read the wall of text of comments (mea culpa), so I’m not sure this has already been said, but I gotta point out that the conclusion “The net result is a powerful upward bias.” with a rocket image is based on faulty reasoning a-la Zeno’s arrow paradox.

    Nowhere is there a guarantee that the distribution is normal. All you need is for the weighted value of the high performers to be equal to the weighted value of the low performers. Fat tails and thin tails, you know.

    • Be Me says

      I’m not sure if you’re a troll or not, but giving you the benefit of the doubt, using your somewhat obtusely stated reasoning, you should actually reach the opposite conclusion. Taking the market as a whole, in order to beat the average, you need to pick the investments that do better than average, which as explained throughout the rest of this blog, is a loser’s game unless you’re the one managing other people’s money.

  20. Alex says

    I am having trouble understanding this concept. Let’s use a hypothetical example. Let’s say you are creating your own personal index fund. There are about 3000 publicly traded companies, so we will buy $100 worth of each (an equal amount, just to keep it simple). This will cost us $300,000. Some will increase more than 100%. Most of them will increase or decrease a moderate amount. Some will go to 0. These latter ones will be replaced by new companies that IPO (ex: FB in 2012, TWTR in 2013). You will want to buy $100 stakes in these companies for your fund. But to do this, you need NEW money. So you are essentially adding capital to your fund. Over the course of decades, you will have added thousands of new companies, to replaces thousands that have been taken out of the index for various reasons (they went to 0, or their market cap diminished too much). Looking back, your fund will seem to have increased a lot in value since the beginning, but you also have to factor in the amount of money that you added over the years by investing in new companies.

    Looking at the Dow Jones example from your article:
    – you would have invested $1,200 in 1896
    – $1,100 of that money would have gone to 0 (or close to it)
    – the remaining $100 that you used to buy GE with, would have increased substantially (I suppose)
    – BUT in order to own a carbon copy of the present day DOJ, you would have to have invested a lot of $100 bills over the years, and 29 of those would have survived and increased, while a lot of others would have gone down (this would be even more apparent with our hypothetical example of owning a piece of ALL the listed stocks, because we would not need to own a fixed number of companies like the DJIA. So in order to take one off the list, it would definitely have to go close to 0.)

    So basically the conclusion of my comment is this: it is true that the market goes up in the long run, but not nearly as much as it appears to be when you look at an index chart. You have to factor in all the money that you have continued to add to it.

    Can you please clarify this issue for me?
    Thank you

    PS: also, the DJIA is a very flawed instrument for gauging the stock market, but this has no relevance for the point I am making above (

    • jlcollinsnh says

      The problem you describe only occurs if you choose to, as in your hypothetical, create your own index fund.

      If, as I suggest, you use an existing index fund like VTSAX you get all the benefits without ever having to add (unless you chose to) additional funds.

      I agree the DJIA is a flawed proxy for the market, but it does have the advantage of going back to the 1800s. As I explained in the post, that’s why I used it where an as I did.

      • Alex says

        Thank you for the answer. As I mentioned in my first sentence, I am just trying to understand the concept.

        I guess the question still remains. How does VTSAX add new stocks to the portfolio (with what money)? Does it issue new shares, that it sells to new investors (wouldn’t that dilute the value of previous investors’ holdings)?

        Also, why invest in VTSAX and not it’s identical exchange traded fund VTI (Vanguard Total Stock Market)? The latter’s advantages include: no minimum investment and the ability to buy or sell it on the open market at anytime (not advising trading, just mentioning that you can get in or out of your investment the easiest). Also, while we’re at it, why not buy the most well known and liquid ETF in the world: SPY (SPDR® S&P 500® ETF Trust)?

        Thank you

  21. Joseph Kent Craig says

    I have a question about this segment of your article: “Take a look at the 30 DJIA stocks. Care to guess how many of the original 12 are still in it? Just one. General Electric. In fact, most of these companies didn’t exist when Mr. Dow crafted his list. Most of the originals have come and gone or morphed into something new. This is a key point: The market is not stagnant. Companies routinely fade away and are replaced with new blood.”

    What happens to your stock when the company dies? Say I invest for 25 years in Disney (through an Index Fund) and for some reason, the next day (extreme, i know) Disney crashes? Disappears. The company dies. No company to give returns to my investment. What happens to the 25 years of that investment? Since the index puts a little in each fund, do the profits of the other companies just take the blow for Disney? or what?

    • jlcollinsnh says


      When a company dies your investment dies with it. Usually it drops enough in value to fall off the index before the final end. Meanwhile new vigorous growing companies get added.

      I refer to this process as “self cleansing” and it is one of the beauties of index funds.

  22. brad says

    So, how do we actually know the market will continue to grow at the same rate in the long-term? Is it not possible for us to experience only, say, 4% annualized returns over the next 80 years instead of the 8-12% we’ve come to expect?

    I’ve heard the phrase “past performance is not an indicator of future performance” repeated relentlessly… how is this not true for the economy or market as a whole?

    • jlcollinsnh says

      Keep reading this series, Brad…

      …and you’ll have my take.

      Then, only you can decide if it resonates for you.

    • Lucas says

      Hello Brad,

      You may need to be satisfied with 4% for some time, if you can even get that.

      Here’s an interesting read on the subject:

      Alternatively though, where would you put your money for the long term if not in well diversified, cheap index funds?

      I try to look at things from all angles. I often ponder how economic growth is unsustainable (and it is in theory), since nothing can grow exponentially forever. Then I counter this by asking myself what the Sahara desert would look like if it was even 10% inhabited with Dubai styled, solar power driven mega-cities. While this isn’t going to happen any time soon, it is theoretically possible, and it highlights the point that human ingenuity, ambition and greed are virtually inexhaustible.

      At that point I think to myself “Maybe we have a long way to go yet”, and in a retreating market like we’re experiencing now, I buy my index funds in greater quantities than I normally would.

      Best of luck to all of us.

  23. Jerry says

    One simply needs to look at the Nikkea to see that markets dont always go up even in the long term. The Nikkea went down for 20 years following 1990.

  24. Raul Pereira says

    Hi there,

    First I’d like to say I absolutely love your article and I’m thankful for the effort you have put in the making of this website and its content.

    Second I’m no expert, nor I hold any investments of any kind apart from the investments I make in my education.

    Third, I haven’t read all the articles in this site yet, hence what I’m about to request may be off. I apologize if that’s the case.

    Now, you present a chart showing the Dow climbing in an upwards trend with, let’s say, hiccups. To me that suggests that a non active investment strategy in index funds is the most appropriate to achieve long run gains. Seeing the chart I can’t help but thinking “allocate your resources, forget about it and keep moving. Repeat.”

    But that’s not what brings me here today. What I’d like to see is the inclusion of two factors I believe are of paramount importance for successful investments, though not the only ones: Inflation and Interest Rates.

    So, my request is: I’d like to see several more charts:
    a) a chart showing the evolution of inflation for the same period of time;
    b) a chart showing the evolution of interest rates for the same period of time;
    c) a chart showing the evolution of the Dow, inflation and interest rates for the same period of time;
    d) elaborate on it.

    I’m aware this may generate a big article and you would probably need to write a book to cover all the possible readings that may derive from such a combination of data, but I think that in the end of the day the message of the article would be anchored in 3 strong pillars.

    Optional: Feel free to also include the same info for the S&P 500 and Nasdaq, or other other factors you may consider relevant like the evolution of the prices of real estate, oil, gold, silver, commodities…

    Many thanks,

    Raul Pereira

    • jlcollinsnh says

      Might you also have a couple pair of shoes I could polish right up for you, Raul? 😉

      Sorry, I don’t accept homework assignments.

      I have, however, collected a variety of calculators here:

      Among them you’ll find some that allow you to plug in variables such as inflation and interest rates and run simulations over time.

  25. Chris says

    Hi there
    I am sure it’s discussed somewhere, so sorry if I didn’t find it and double up. I just wanted to ask your take on ‘market timing’ in the context of Shiller’s PE Ratio Jim. I know you are all against timing, so just your rational would be appreciated. Shiller’s PE is around 27 at the moment, close to some of the highest peaks ever, and I read that Shiller himself has reduced his US shares considerably.
    Re ‘timing’: If one always sold over PE of x (let’s say 25) and only bought under PE of z (e.g. 20), would one not come out better than simply leaving money in the index fund?
    I find it very difficult to put a lot of money into the S & P 500 because I can’t see how it could go up much more and not crash sooner rather than later? Any thoughts?

  26. Khan says

    I definitely agree with the overall premise and point #2 regarding causes for upward bias, but not necessarily point#1 unless I misunderstand how the money is invested across the stocks. Although losses are limited to 100% and gains are theoretically unlimited, this is a function of percentages, yet the absolute value gained or lost could be the same. So if a company went up 10 fold in stock price that is a 900% gain, and if it later tanked and saw a 90% loss, overall wouldn’t that be a breakeven for the index even though the percentage gain appears greater than the loss based on initial vs subsequent value of the stock? Or would the holdings in their stock be reduced by the index after the gain (I just assumed it wouldn’t because that sounds like active management)?

  27. Alain says

    Hi JL,

    I just discovered your blog and have already read three articles in a few minutes and will continue until I’m done.

    I’m 46 years old and a total failure in terms of financial knowledge and investments. I have next to nothing amassed except a duplex valued at 620K and for which 360K is left to pay. I recently called a life insurance broker to adjust my insurances and he’s pushing for me to buy a Performax life insurance. He says that it’s a great investment vehicle : in 15 years I’ll stop paying fees and it’ll be worth whatever I invested + the profit that the managers will be able to make. And then you go to your bank and ask for a margin of that value (let’s say it’s 200K) and use it until you die, at which point the bank pays itself with the life insurance. On top of this (I’m in Canada), the government is allowing companies – until January 2017 at which time the law changes – to buy the life insurance on behalf of their owners and declare it as an expense, which makes it an even better investment (I’m not explaining well).

    What’s your opinion ? How does investing in a life insurance compare to investing in an index on the stock exchange? Maybe you have an article on this topic in your blog?

    Your new fan

    • jlcollinsnh says

      Welcome Alain…

      Glad you found your way here.

      No post about life insurance, but here is my take:

      It is insurance, not an investment. I would only buy cheap term insurance and then only if my death would lead to financial hardship for my family.

      Life insurance sold as an investment is aggressively marketed because of the high fees it generates for the company and the high commissions the sales people get pushing it.

  28. kindoflost says

    Sell high. Buy low. Don’t get greedy and don’t freak out. I am pretty good at not freaking out (sometimes too good, don’t like taking losses, have a couple of nose dives under my belt) but I have yeat to learn not to be too greedy when I am ahead. Eventually, I will go all index.

      • kindoflost says

        I know. What I don’t “like” about indexes is that, for what I know, they index based on market cap so overvalued stocks will be overweight in the index, wouldn’t they? And good buys would be overlooked. I think. Are there indexes that use other stats? Like earnings or dividends or P/E?

  29. Christian says


    i really have to say first, that i like your blog very much. So last autumn i came to the topic of fire through MMM and startet my invests.
    As i live in Germany i buy the MSCI World and MSCI EM ETF from iShares. So i feel relative save as my portfolio represents the world economy. But because of our demographic change in Germany sometimes i think here can happen the same as in Japan and have you ever looked at the chart from NIKKEI? I know my portfolio is very diversified but the thoughts stay…

    • jlcollinsnh says

      NIKKEI comes up all the time. See the comments above.

      Living in Germany as you do, your choice of MSCI World and MSCI EM ETF makes good sense to me. Just be sure you stick with it when the markets get rough. You should plan to hold forever.

  30. Xenos says

    Hey Jim,

    I already have VTSAX and VBTLX in my Roth. My strategy with retirement accounts is to buy and hold, and reinvest the dividends to buy more shares and take advantage of the power of compounding. Especially since I cannot withdraw the funds for a few decades.

    But I was wondering if it would be prudent to buy the same index funds for my taxable accounts. And if I did, would I
    1) Run the same risks of not having enough diversification?
    2) Use the same strategy of reinvesting the dividends?

    Additional question:
    1) How would I rebalance periodically (no more than once a year) without incurring tax implications?

  31. cinnie says

    If I know based on history that the stock market will always go up, why wouldn’t it be sensible to invest when it’s at a 52-week low rather than high? Wouldn’t I lose less then?

      • Dood, el Farbe says

        “when exactly will it be at the low?”

        Good point. I’ve been playing at dividend investing with a smallish account for a while now, and attempting to do something that’s a spin on cinnie’s unanswerable conundrum.

        I got info on 8 companies paying divs at relatively high yields (3.5-6% now), for which the div/earnings ratio is less than half (and this being true for the last 5+ years), marked all their recent 52-week lows, and then set “to-buy” price targets at not more than 3% higher than their relative 52-week lows.

        The plan being to wait and invest in 5 of these companies as each hit the “to-buy” price targets, which would result in dividends ranging from 5.1 to 8.1% yields and an overall 6.4% yield assuming equal amounts invested per company.

        I’m part way through the project, having bought stocks of 3 so far. The other 7 are still too far above the “to-buy” targets.

        But wouldn’t you know, in each of the three cases where I bought at the “to-buy” target, they slumped another 3-5% in the next week or so. 🙁

        I should have been reading your blog, in particular the “I can’t pick stocks and neither can you” post, a long time ago!


        • jlcollinsnh says

          Glad you found your way here, Dood.

          Don’t feel too bad. Without your experience trying to pick stocks, you might not have been able to receive the message. 😉

          • Dood, el Farbe says

            You’re probably right in that, although I was not a huge believer in picking individual growth stocks in any event.

            But this exercise has certainly hammered the point home about not being able to pick + not really being able to time the market, other than via dumb luck.

            On the other hand, since this is primarily planned as a dividend-generating account at hopefully a bit over 6%, I’m not too concerned about individual stock values unless the company goes so far into the tank that they have to reduce or halt the div.

            As an example, I had been eyeballing GE as a candidate to buy at 19 or less, which would have put its yield over 5%. This despite GE failing the <50% payout ratio threshold (I was thinking they'd get earnings up in the next 2 years and ride it out until then). But their fairly lukewarm responses to questions about dividend ("it is a top priority") a couple of months ago caused me to shy away.

  32. JE- says

    Hi James love your stuff mate really do and I’m with you however I can’t help feeling you haven’t quite shaken off the nekkei in Japan points off too well bring honest

    I appreciate this being an anomaly in your view but surely this is very possible to happen in the US and lots of people tend to think this current bull is a ‘fake’ bull where it’s being driven by governments low interest rates and overprinting of money.

    Buffett states productivity only thing gives you growth and thst growth is 2% for the US and hardly anything for me in the UK? When you see 30% growths in the market there is a massive disconnect in growth of the economy vs the stock market?

    This leads me to think the next crash could well see the US in a crash equivalent of Japan if stocks are so inflated?

    The big question is did we actually fix the problem in 2008 or just carry it on through printing money and encouraging more borrowing? If we did then I see a Japan scenario for the US thst could take decades to sort

    • jlcollinsnh says

      Hi JE…

      If your analysis leads you to believe we are headed for a multi-decade economic disaster, you will certainly want to avoid following my approach.

      However, such things are “Black Swans,” that is, exceedingly rare events. However, there is nothing rare about people claiming to be able to predict them.

      The question you must ask yourself is, Do I want to structure my investments for a 1% chance event or the other 99% of the time? And if so, what exactly do you plan to invest in?

      Because if you invest for a Black Swan and it doesn’t come, you run the risk of being being very much worse off.

      • JE- says

        Thanks for the swift reply James

        I think those people who like to predict these crashes put major doubts in minds who are learning this stuff just like me

        I often have to go listen to buffett to keep me from worrying about these japan type conversations and read your positive spin on the markets to keep me from having these doubts

        What are your thoughts on how much of your spare monthly savings should you put into these indexes? All of it once pensions etc are taking into account?

        I want to retire as early as possible and only the market can deliver strong compounding returns like you state

      • JE- says

        Thanks for the swift reply James much appreciated.

        Yes I notice there are lots of negatives to markets and economy issues in general which does have an effect on my positive outlook on this as a newbie learner hence why I asked the questions I did above.

        I do feel my best chance to get the returns over the next 10-15 years is the stock market and once I’m finally able to go at it full force I probably will go all I’m stocks for that time period hoping I have caught up on one of those 20% average growths for a 15 year period 🙂

        Do you recommend putting all your spare savings into stocks or should you put 75% in and leave 25% in cash to grow every month and assess your confidence levels are once a year on what to do with that 25%?

        I’m just thinking when a crash does come along you will want the safety of some cash there in case you get effected by the crash personally or you want to take advantage of it?

    • Kora says

      Hey JE,

      I agree that JLC has been giving some lousy counter-arguments to the what-if Japan stock market argument. I agree that retiring in 1990 would have been heart-attack inducing and that that nest-egg would look pretty sad right now if you decided to take 4% and never readjusted (likely only lasting until the early-mid 2000s since it would be about 8% of assets annually).
      However, I think we need to consider that the Nikkei 225 does have a ~1% dividend and that today’s inflation level in Japan is about equal to its 1999 inflation level (1999-2013 saw steady deflation) which is only about 15% more than what it was in 1990. Meanwhile, negative interest rates meant that mattress cash outperformed savings accounts! I think in that situation, the best investment would have probably been to leave Japan.

      For perspective, the US inflation level has doubled since 1990, our stock market has done considerably better (10x value since 1990 + ~2% dividends), and our population is still increasing.

  33. Krista says

    I bought your book and am thoroughly enjoying it. One thing is nagging at me is that I don’t understand how “the market always goes up.” The reasons provided in the book don’t make sense to me – I get that the poor performers will eventually go out and replaced with winners and that more companies will be formed, but theoretically how is this money going to keep being created/spent in the economy forever? Where are all these dollars coming from? Is it coming from printing more money and debt? So inflation and GDP? Can it keep increasing forever?

    • jlcollinsnh says

      Hi Krista…

      Yours is a complex question, but let me try to give you a simple, introductory answer.

      Dollars (or any currency) can certainly be created simply by printing more. Too much of this and the result is hyper-inflation and a destroyed economy. So there is a definite limit.

      But dollars are only a measuring stick, not the thing being measured.

      What can be created endlessly is wealth/value.

      Let’s say you have a grove of trees. You sell some of the trees to a lumber company which harvests them. The lumber company sells them on to the sawmill which processes them into boards. A builder buys the boards and builds a house.

      At each stage, new wealth is created. But more than that, it is multiplied. The builder takes the money from the house he built and pays his workers and buys tools and equipment to build more houses. The sawmill takes the money from the boards she made and pays her workers and buys tools and equipment to expand to meet the demand from the builder now building more houses. The lumber company takes the money from the logs…

      ..well, you get the idea.

      Through their energy and creativity, humans create wealth and value where none existed before. They will do so as long as they live and work within a set of laws that allows them to benefit from their efforts.

      Hope that helps!

  34. Giff says

    Hi and thanks for the great insights, I loved your book.

    But I wonder: isnt’ it a bit of a bold statement to say that “the market goes always up”?

    Yes, it always went up in the past >100 years, but this was a rather special period of human civilization, during which we have enjoyed huge leaps forward in technology, low energy costs due to fossil fuels, ever increasing number of people on the planet.

    This ever-growing period might not continue during the next decades: population growth will likely halt, fossil fuels will become rarer and expensive to extract, climate change might impact the lives of hundreds of millions, AI will take many jobs away, etc etc.

    Will the market still be going up in the next 20/30 years? I would not bet all my savings on it.

    • jlcollinsnh says

      Hi Giff…

      We might also see two world wars that kill 10s of millions of people, maybe with a worldwide great depression between them. After those, we might invent a whole new class of weapons that can destroy civilization in a matter of hours. We might engage in a decades long “cold war” with those weapons on a hair trigger. The US might get bogged down in multiple expensive regional wars that drag on for decades. We might go off the Gold Standard. We might see an ugly combination of skyrocketing inflation along with a stagnate economy that we’d have to create a brand new term for: Stagflation. The market might plunge almost 25% in a single day. Maybe we’ll call that “Black Monday.” We might see bubbles in the tech sector and in housing grow and burst within a decade of each other, each time causing major market collapses.

      Oh, wait. That was the last 100 years. 😉

      Sadly, we can expect the next 100 years to be tumultuous, although we can hope not as terrible as the last 100. The point is, the market doesn’t need a golden era to “always go up”. My approach is a bet on civilization continuing and the US continuing to be a major player on the world’s economic stage.

      And, while bad things will certainly happen, there is also the possibly that wonderful new leaps in technology are pending, the price and use of fossil fuels will plunge as renewables replace them and that a stable population will lead to growth thru greater prosperity for the currently impoverished billions, a trend already underway.

      That’s my take, for what it is worth.

      Given your take, I am curious. Where are you betting your savings?

      Thanks for reading my book. Glad you liked it! 🙂

  35. Al Hamilton says

    Good day JL. I watched your Google Talk and it was very very good. Thank you for sharing. I follow all of what you say and I am in total agreement. I even practice the things you discuss as I am a huge fan of Warren Buffett, Charlie Munger and Jack Bogle.
    My question relates to Cryptocurrencies and the future of blockchain. Many older and wiser investors steer clear of crypto and Bitcoin as they do not understand it. I am a pretty smart guy and I do not fully understand all of it either, however, I do see future potential in the blockchain and specifically spaces like Ethereum and IOTA. These platforms make sense to me and the people behind them seem to be very smart and focused on achieving success. That being said, are you involved at all in the crypto space?

  36. Philip says

    Hello JL,
    Thank you for the greatest stocks series!
    Is it possible that I translate some of the articles into Russian and publish them onto my website with the links to your original texts?

    • jlcollinsnh says

      Thanks Philip…

      …glad you like it.

      Sure, as long as you link back to my site and give credit, translate away. I hope your readers enjoy and benefit from the posts.

      • Ro Capitalist says

        I want to do the same for romanian. Will provide links back to each article. Hope that is OK!

        • jlcollinsnh says

          Sure, as long as you link back to my site and give credit, translate away. I hope your readers enjoy and benefit from the posts.

  37. secondcor521 says

    I’m not sure if you wish to continue to update these blog posts. There is a point in this post where you mention that GE is the only one still in the Dow, but as I am sure you are well aware, GE is no longer in the DJIA.

    • jlcollinsnh says


      I always appreciate my eagle eye readers catching and pointing out factual errors and changes like this.

      You are, of course, correct. As of June 26, 2018 GE has fallen from the Dow and has been replaced by Walgreens Boots. I’ll make a note in the post.

  38. Harald says

    What do you think of gearing of investments?
    In my country Norway, you got this possibility to loan money in your brokerage account to 1,69% rent.
    For example: You got 100.000 $ invested in VTSX. Then you loan 100.000 $ and also place this in index funds. Total loan payment is 1690 $. But if you expect the investments to grow 7% per year, you will now have 212.310 $ (200.000 x 1,07) – 1690). This is 212.310 – 100.000 $ = 12.310 $ profit, instead of 7000 $ profit. 5310 $ for free by using money that you don’t own. Gearing is a well known strategy for investors, but because of the risk I don’t know if I want to try for myself.

    • jlcollinsnh says

      Sounds like gearing is what we call using leverage here in the US. That is, borrowing money to buy stocks or funds.

      This is, in my opinion, a very bad idea. Using leverage is how people got completely wiped out in the Great Depression and why the market lost 90% of its value at the bottom.

      Without leverage, no matter how bad the decline, you still have your shares and will benefit when the recovery comes. If the market drops 50% you just hold on until it rises again.

      With leverage, you can be forced to sell your shares to meet the “margin call” which is the demand you pay the debt because the shares that secure it are worth less. If you own half your shares with borrowed money, if the market drops 50% you are done.

      The appeal, of course, is that when prices rise leverage magnifies your gains. But since it expose you to magnified losses and the potential of being wiped out, it is a foolish play.

      • David Wendelken says

        Leverage like that is a lot like playing Russian Roulette for money. Sure, you can win and the odds are in your favor, but if you lose…

  39. chris says

    Hi Jim
    Thanks for your great blog from a new UK reader. I just wish I’d found it when I first retired seven years ago.
    Since then I’ve been managing a (for me) quite large pot alongside a government and job pension. I’ve tried to pick a few stocks and some fund managers and also a few index funds (including Vanguard). I have had the usual successes and failures. I have also made the mistake of selling funds when the market had fallen because I thought it had further to go. Instead it went up.
    I’m currently around 50% equities, 20% bonds and 30% cash and am tempted to move all my equities to cash, at least for the time being. Most of my equities are down around 10% over the last month but I feel they may have some more way to fall. I may buy in later or stay in cash (I know my head and your blog say this may not be sensible).
    Over the last seven years my fund investments have achieved around 6% a year compared with 3% cash. The issue I am slowly getting to is that in the long-term markets do always go up, but we can’t always time when we take money out. Over the next 10 years my cash might increase by 30% and my investments at say 60% (both as over the last seven years). But that 60% could fluctuate from say 15% to 100% depending on the market cycle and on when I take money out I know that asset allocation can help and I could have say 40:60 equities bonds to help smooth things (I do have some Vanguard Life Strategy 40:60), but it is still riskier than cash in absolute terms. I guess in the end it is down to one’s risk appetite and whether one can sleep at night (the last month has been difficult).

  40. Christine says

    I’ve started investing heavily into VTSAX since last June 2018, and by Jan 2019, I have a -17% return, losing a significant chunk of my investment so far. Is this typical? How long should I expect to wait to see the market pick back up again? I feel it would have to go significant up to break even, and then to gain that 7% return, I feel that would not happen within the year, and so right now I’m just continually investing on the “sale” happening…

    Meanwhile, I invested in S&P ETF Canadian equivalent (VFV – Vanguard) for my mom, and put 60/40 allocation with 40% in ZAG (broad bond ETF), and within the minute, my mom’s portfolio increased over $1000k! It’s still up in the green, so curious why there’s such a discrepancy when VTSAX is very similar to VFV.

    Newbie and scared but willing to ride it out – just need some assurance,

    Thank you!

    • David N Wendelken says


      You made this comment, “losing a significant chunk of my investment so far”.

      Your investment was to buy stock. You still own that stock. It was stock when you bought it and it’s still stock. So you haven’t “lost your investment.”

      I say that because it’s really important to understand this. You didn’t buy dollar bills and then lose 17% of them. You bought stock.

      A down market just means that — for the moment — other people aren’t willing to pay as much (or more) for that stock as you did. If you don’t need to sell that stock NOW, and you don’t panic and sell, you won’t lose anything.

      In fact, stocks are now on sale at reduced prices. That’s the time to (excuse the pun) stock up on them. It’s a wonderful opportunity if you’re just starting out to have stocks go on sale.

      Relax and enjoy!

      (And go back and re-read this excellent series again. You’ll find that events like this are totally expected. We know they will happen, it’s no big deal.)

    • Nice joy says

      If you have a long investment span then 17% is like drop in the ocean. When you see 2008 like situation you can expect to see upto 50% drop. But you are not taking all your money out at the bottom ( may be a small portion) . Bolger GCC said. “ we buy more shoes when they are on sale but when stock go on sale we buy more Xanax”

  41. Jean-Pierre François says

    Dear jlcollins,

    Big fan of yours here.

    This guy wrote a post criticizing the idea that the Nikkei example debunked the claim that “the stock market always goes up”:

    Actually someone starting his career at the peak of the boom in 1990, investing regularly in the Nikkei, would have realized annually 4.2%. Not crazy, but better than a lot of alternatives. And his wealth would have gone up.

  42. Lokesh says

    Hello again !

    what are your thoughts on writing covered calls by pledging your ETF portfolio.

    as you may know, covered calls are written far off from the underlying Index price.

    this will help get you a little bit more (%age) from your investments.

    I won’t deem this as active investment – as we are not trying to time the market OR even attempting to predict the direction. we just have to manually write calls, montyly – weekly – or even write LEAP (if you don’t want too much trades).

    let me know your thoughts.


  43. Yogesh says

    Hello Jim
    I came across your google talk and went thru some of your stock series blogs so far. Perfect timing! as i am looking to adjust my investments. I am based out of India, 44 years old and have 75% of my portfolio in MFs and 25% in stocks. MFs have given average return on 12% annually so far. Although I am convinced of ETF strategy, i am afraid of pulling out my savings over last 10 years and switch them to single ETF. So i have some specific questions
    1) My fear of sudden switch comes from fact that it has taken me 10 years to accumulate these funds. So any wise words would help strengthen my decision.
    2) In India we have ETFs tied to Sensex (30 stocks) & NIFTY (50 stocks), but we have no broad based index like the one you recommend. So given that these are ETFs, they have a self cleansing property. Question is it OK to buy top 50 NIFTY ETF instead?
    3) We do have have access to a single NASDAQ 100 ETF as well but nothing with S&P 500. Is NASDAQ100 is also comparable to your strategy. Expense ratio is 0.54%
    As fyi i am also exploring VTSAX investment via international trading account, it seems doable but figuring out fees, exchange rate issues & tax implications on foreign holdings. (e.g. Dividends earned in US are taxable at highest rates in India)

    • jlcollinsnh says

      Hi Yogesh…

      You are right to be cautious, about my approach or any other.

      1. Before making any moves, be sure to read this Stock Series and the related posts and/or my book. Be sure you understand the risks as well has the potential rewards.

      2. The US is the only market dominate enough to be the only choice. For my international readers, I suggest a World Fund. Indeed, the time will come when I recommend that for my US readers as well.

      3. A NASDAQ 100 fund is too narrowly focused to work well with my approach.

      • Yogesh Kulkarni says

        Thanks very much for your reply. Will go thru your blog & book and will post back when I am able to make a firm decision.

    • Edwin McQ says

      I just had a look at the link you posted. It makes me (21y/o hard working and educated young man) rethink is investing into stocks really worth it???

      And I’m pretty sure a lot of people are unaware of the inflation vs stock market growth numbers. I know for a fact all the “boomers” have no idea about it. so for me to read that article and analyse the graphs leaves one question… Why the heck is it worth investing in stocks or anyhting if you cant beat the banks or inflation? for a measly 2% return since the 70s or whenever it was, I might as well keep my money in the bank and forget about it and not worry about loosing money.
      Am I correct in thinking this way?

      • FS says

        Two points about that chart:
        1) It’s a logarithmic scale. Look closely at the y-axis.
        2) As they point out in the text, this does NOT include dividend reinvestment, which is a major source of the return from stocks.

        Remember JLC’s original point with this series: it was for his (then college-age) daughter, who presumably has a roughly 40-year career ahead of her. She doesn’t need to live off the dividends for a long time; she’s in wealth-building mode.

        If you’re close to retirement, you’re in JLC’s “wealth-preservation mode” instead, and this particular page may be the best advice for your situation.

  44. Brad says

    Saying the market will always go up in the future because it’s gone up in the past is speculation. If you can’t reasonably project a return on investment, it’s not an investment. Too many variables to project a total market. The path laid out is simple and I agree it’s the most logical way to do it in a completely passive way, but it’s not guaranteed.

    • Scott l says

      With this thinking, can anything be considered an investment? Very rare that you will know exactly the return that you will get, but can reasonably predict within a small range over a 30 year period.

      There is now over a century of historical data. It’s kind of like saying that it’s speculation that the sun will come up tomorrow just because it has come up every day in the past.

      • Brad says

        I don’t think there’s very many variables to determine that the sun will come up in 100o years. That’s physics.

        Investment projections are closer in shorter time horizons. Is it likely I’ll have a renter in 2 years? That’s a lot easier to determine and have influence on than asking 30 years in the future. Zero is the number of people on Earth who can make broad market predictions over decades. I’m not saying investing in the US economy is a bad idea. Saying it always goes up and will always go up is a stretch. Taking a longer than a century view, leading countries tend to always go into decline at some point.

  45. Julian says

    Hi jlc,
    I like your blog. Interesting aspects around indexing.
    One thought wrt ‘the market is self cleansing’. I agree that new companies replace the dead and dying and this leads to a growing market. But index investors also have to take the depreciation of the index since a dying company lets the index tank before it leaves the index.
    Would be interested in your thoughts on this.
    Best, Julian

  46. DianaM says

    Hello JL (and followers),

    I’m in my late 30s and my husband is 52 and we are wanting out of the rat race. We are both in well paid jobs, stressed out, with not enough quality time to spend with our kids and friends and each other. I have only just recently came across information and books on FI and started to seriously think and take action (paying off debt, review the retirement investment) about our finances and the future. The whole finance “stuff” is a bit of hard work for my brain, I don’t understand much about bonds or the other myriad of “things” to invest in. I do understand the principle of index funds and the low fees and about compound interest.

    Your book and work was recommended to me by the HappySaver from NZ.

    I’ve listened to a couple of your podcasts and am starting to make my way through this series while waiting for your book to be shipped. And I’m eager to start building a portfolio for ourselves.

    For a family like ours, with young kids still at home, where should we start with the investing in terms of the allocation? We would ideally like to be able to retire in maximum 15 years, with this in mind do we still go for Index Funding investment?

    Many thanks.

  47. Jim Bringley says

    OK, Love your site. I can’t get the wife interested in reading it but at least one of us is watching the store.
    Here is a question that has always bugged me.
    The 4% “guideline …
    1st year you take 4% of the portfolio. Next year do you take 4% of the current portfolio (in other words you would be taking more $ if the portfolio made significant $ over the year)… (and likewise less $ if you had a down year where your investments declined)? So if you measure it yearly you really never will be taking out the same amount of Money.
    Do you take out the same (in other words, You set what 4% is in year one and you run with that in good years and in bad years hoping it all evens out)?
    I can’t find anyone that talks about that. I would like to hear your thoughts.
    If this is a repeat question please forgive me.
    Jim B.

  48. Arshid Mahmood says


    I am on my journey to be a lifetime index investor. But I have one concern and I would be grateful JL for yours or anyone else’s comments on this issue. I wasn’t able to find you being asked this question before.

    Based on my research, there is a clear correlation between quantitative easing and stock prices. If there is more paper money in circulation, then that means there is more money to invest in stocks, hence the “always going up theory”. But if inflation rises and the public get extremely frustrated and the government consequently abandon quantitative easing forever: then that will mean that there is FOREVER less paper money in circulation. This could mean that now is the all-time high in stock market?

    I look forward to hearing from you.

    Kind regards

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