Conspiracy theory or legitimate explanation?

grumiofoundation

CreditCardChris said:

What craziness is this we're living in? Don't even get me started on property because it's the same !!!!!!. I know there are many boomers on this forum who will disagree with this and come up with some silly excuse like "there are more opportunities now than in 1950" but the bottom line is the amount of money we're being paid has much lower buying power than previous generations. How the !!!!!! are we meant to save for retirement when the cost of retirement is 10.7 times more expensive!

As a millennial there clearly are "more opportunities now than in 1950" thats not even worth discussing. 

As on other threads you seem to work on the assumption the stock market is all that matters. 

Lets assume for now the money we have has a lower buying power than previous generations (whether it does or not) look at what you can spend this on now.  Do you live the same lifestyle as someone did in 1950? If you did do you think you would be better able to afford a house or retirement. 

P. S. retirement does not cost 10.7 times more in real terms. 

CreditCardChris

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

I have bought an index fund. As of a few weeks ago I've started investing a regular sum every month in the Vnaguard FTSE Global All Cap Index Fund. That currently has a p/e of 14.8. I'm not knowledgeable at all about company financials or anything like that and it's for that reason I have gone with an index fund. 

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

eskbanker

CreditCardChris said:
I have bought an index fund. As of a few weeks ago I've started investing a regular sum every month in the Vnaguard FTSE Global All Cap Index Fund. That currently has a p/e of 14.8. I'm not knowledgeable at all about company financials or anything like that and it's for that reason I have gone with an index fund.

Good luck with doing that in 1950!

Thrugelmir

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

CreditCardChris

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

Has there ever been a place? You can't honestly believe this can you? 

What about 6%+ interest rate savings accounts? What about bonds? These two are no long options for the younger generation because the interest is effectively 0%.

grumiofoundation

CreditCardChris said:

What about 6%+ interest rate savings accounts? What about bonds? These two are no long options for the younger generation because the interest is effectively 0%.

https://www.investopedia.com/terms/i/inflation.asp

Thrugelmir

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

What about 6%+ interest rate savings accounts? 

Which ones in particular? 

CreditCardChris

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

What about 6%+ interest rate savings accounts? 

Which ones in particular? 

You can just Google it, the bank of england base rate was bouncing between 6% and 16% between 1955 and 1991. No look at it, 0.1% it's pathetic! 

Notepad_Phil

CreditCardChris said:
You can just Google it, the bank of england base rate was bouncing between 6% and 16% between 1955 and 1991. No look at it, 0.1% it's pathetic! 

But you would also need to consider what the rates of inflation were at during those times too.

I've got more than the average amount of cash and I'm getting well above 0.1% on it with current rates ranging from 1% to 5%.

Now it may get a lot harder to get those kinds of rates, but whilst inflation is low you don't need to get the high rates that were typical in the past.

grumiofoundation

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Thrugelmir said:

CreditCardChris said:

Prism said:

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.

This thread was mostly to discuss what the former Goldman Sachs fund manager thinks is going on, basically the younger generation don't have many places to put their money to make any meaningful return aside from equity markets that are at / near record highs. I just wanted to see what other peoples thoughts were.

Has there ever been a place?  Generally people are far less risk adverse than in the past. Previous generations were more cautious with their money. 

What about 6%+ interest rate savings accounts? 

Which ones in particular? 

You can just Google it, the bank of england base rate was bouncing between 6% and 16% between 1955 and 1991. No look at it, 0.1% it's pathetic! 

Inflation in 1990 - 9.46% 

Since you are so concerned/angry about how difficult it is for millennials to buy property - have you thought how much more difficult it would be if interest rates were at 6%?