RetireJapan

I was doing some thinking, over a coffee and a donut… like ya do. And Dave Ramsey et al go on about how we can all make 10% if we invest in say the S&P500.
These figures have always made me think it’s rather dubious because, as they always say past performance is no guarantee of future performance but at the same time they point the s&p 500 history at growing 10%. Over the long term. Seems like a contradiction. Otherwise every single fund would be wiser and smarter to make every thing a passive fund.

Well, I came across a term I never heard of and that was dividend yields and the average. And the “average” dividend yield is about 2%.annually.

So if the average dividend is 2%, where in the world is he getting the 10% or am I comparing apples and oranges… even though they’re fruits.LoL.
Or is it just like a pyramid,,, the shares must go up, to get the other 8%, and the dividends aren’t really that much.

My personal take on Dave Ramsay (and to be fair, I have only read a couple of his books) is that his mental models for thinking about money are much better than his specific financial advice.

Fortunately habits and psychology are more important than investing for most people, so his advice has worked for a lot of people.

But I use 4% in my future financial projections spreadsheet, because I would rather be pleasantly surprised than disappointed.

And yes, he's probably referring to total return as in dividends + capital gains (and if he were being honest he should be subtracting inflation too).

RetireJapan wrote: ↑Fri Oct 08, 2021 8:34 am My personal take on Dave Ramsay (and to be fair, I have only read a couple of his books) is that his mental models for thinking about money are much better than his specific financial advice.

Fortunately habits and psychology are more important than investing for most people, so his advice has worked for a lot of people.

But I use 4% in my future financial projections spreadsheet, because I would rather be pleasantly surprised than disappointed.

And yes, he's probably referring to total return as in dividends + capital gains (and if he were being honest he should be subtracting inflation too).

Thank you for your input there.

I have only read a few snippets of his books, but do pop into his YouTube channel now and then,. I’ve never liked the numbers he, or even the internet throw out, as it reminds me of figures given by most financial services but then rarely meet those targets, way back in the 80s 90s.(giving my age away there) LoL
Your spot on about the returns as he makes it look all roses, and I suppose he is also a salesman.(of himself)
So for him it’s probably better not to tell people not to about the inflation, even though he does in his head.

So if the dividends are only averaging two percent, the rest must just come from the stock prices going up?

Or is it just as more people buy the stock which pushes up the price, which is going to lead me to a stupid question.

Is it “loosely similar” to a pyramid scheme? It needs more people to come underneath to push the prices further and further up, by buying the stock? I suppose ceos doe this with share but backs.
and then when people pull the plug and take their money out, the pyramid crashes or in this case the stock price crashes and we then go around getting people to reinvest, building the pyramid again.
And as governments force their populations to invest in the stock market… it just keeps pushing the prices up.

I really should get a book on this, but it’s just got me thinking.
Anyway the only stupid question is the question that’s never asked.(imho)

It’s far from a stupid question (as I don’t know the answer ). I did read an economist of doom once who believed that predicating future wealth on the stock market continuing to rise was problematic as there has to be people willing to buy the assets that older generations are selling to fund their retirement and that was far from guaranteed to happen, not least due to them needing to spend more of their earnings on housing. Obviously it was far more detailed than that…

Stock prices in theory are based on the value of the company.

There are many ways of calculating this.

But rising stock prices in the long run are based on companies growing their profits. We don't know which companies will be successful so we buy an index and ensure we own the winners.

Its not a pyramid scheme because the value of the stock is not just in the scarcity and the number of people buying into the company. Its also the actual value of the company, assets, capital, earnings potential etc. Pyramids (or for example crypto) don't produce value and it relies on people joining at the bottom to push the people on top.

Read this article recently which is related to your 'pyramid scheme' question:

https://monevator.com/is-investing-a-zero-sum-game/

zeroshiki wrote: ↑Fri Oct 08, 2021 5:00 pm Its not a pyramid scheme because the value of the stock is not just in the scarcity and the number of people buying into the company. Its also the actual value of the company, assets, capital, earnings potential etc. Pyramids (or for example crypto) don't produce value and it relies on people joining at the bottom to push the people on top.

Well, yes! That’s the way most people explain it, but that doesn’t account for the companies that never ever pay a dividend. They say they use it to grow profits, but there is no point growing profits if, we as individuals never receive anything.
Consider Facebook.profits galore, no real product, and yet no dividends. It relies on people buying into and joining the Facebook product to add value to its company. We
Amazon again, massive profits, very few taxes payed and yet 0% dividend, and instead of building a big penis looking rocket, so Captain Kirk can go up, I’d rather he payed us a dividend, because what goes up will come down. Eventuality! Blue origin might need to blue pill to re- inflate itself. LoL
Google, again no dividend, and how dominant is that company.
Netflix, again no dividend.
PayPal 0%

So the idea that “we” own a bit of the company is a bit like smoke and mirrors. Let’s just say for instance all these companies price crashes, we’ll we’ve only inflated the price but never received a single $€£ in return.
If I bought a house , rented it out, made a ton of cash( as we can do) and never payed the bank it’s dividend/ interest, surely as a share holder the bank would be rather upset at the housing company not paying out, because I said wait 30 years and you’ll get a profit when I decide to sell it. Reminds me of an endowment scheme. LoL
Anyway it just made me think and thinking about what’s happening in our funds, especially the FANGS of the world.
So I wonder, if more legislation comes down the line if we will be bitten by the FANG et al at some point.
A bit like the dot com bubble.
Consider this for the s&p nearly 20% never pay a dividend.
I bet Ramsey et al never tell anyone that.
https://www.google.co.jp/amp/s/www.barr ... 1573233301

I don't think I've read any dave ramsey, but from the comments here I'd guess that this motley fool article says about the same thing: (perhaps a different twist on how the data is crunched/presented)

https://www.fool.com/investing/2020/11/ ... you-money/

Another thing worth noting is that stock ownership is pretty skewed, with the top 1% (to grab a number) owning the most--and I'm not going to dig up numbers, but I think that 1% actually owns a very very large majority of all shares. And after this group, there are institutional investors, such as pension funds, insurance companies, even foreigners and foreign governments, and so on.

Those folks/institutions aren't going to be selling soon. So to paraphrase it, the idea that "all these older people (aging US baby boomers) are now going to be retiring and selling their shares" and so the overall market (share prices) will go down--this is inaccurate (IMO). The cohort of retirees (how much stock they own) is dwarfed by those other things.

captainspoke wrote: ↑Sat Oct 09, 2021 3:57 am I don't think I've read any dave ramsey, but from the comments here I'd guess that this motley fool article says about the same thing: (perhaps a different twist on how the data is crunched/presented)

https://www.fool.com/investing/2020/11/ ... you-money/

Another thing worth noting is that stock ownership is pretty skewed, with the top 1% (to grab a number) owning the most--and I'm not going to dig up numbers, but I think that 1% actually owns a very very large majority of all shares. And after this group, there are institutional investors, such as pension funds, insurance companies, even foreigners and foreign governments, and so on.

Those folks/institutions aren't going to be selling soon. So to paraphrase it, the idea that "all these older people (aging US baby boomers) are now going to be retiring and selling their shares" and so the overall market (share prices) will go down--this is inaccurate (IMO). The cohort of retirees (how much stock they own) is dwarfed by those other things.

I agree that the idea that the baby boomers or an older population will cause the markets to go down as other countries get richer and push their populations to invest in the stock markets too. Especially with the opt in as the default.(nudge theory)
But things are skewed.
A company that doesn’t pay any dividends, but then says we’ll buy back our own shares, which then push the prices higher. Or similar to Trumps policy, massive tax breaks to certain companies, who then decided to to…… buy their own shares back, when in reality, nothing fundamentally changed. No extra profits, no new products, or new investments. But still the stocks rose.
But I do have a dodgy eye on them as ceos often get paid in stocks and bonuses are related to stock price. Not just profits.