$ "Everybody Ought to be Rich" - John Raskob and long-term stockmarket investing

[Pepsi-Cola]

Help a brainlet out finance gurus

Anybody who's done any research into long-term stockmarket investing is probably familiar with John J. Raskob's 15$ a month thesis in an article he wrote called "Everybody Ought to be Rich". The gist of it is that, in 1929, Raskob theorized that if the average salary man put 15$ a month in common stocks, and reinvested all his dividends, within 20 years he would see his money turn into 80000$. Now obviously an annualized rate of return of 26% is pretty ridiculous, and The Intelligent Investor basically debunked Raskob's theory, but you still see optimists cite the seemingly magic growth of compound interest.

Is putting a significant slice of your paycheck every month into common stocks the true patrician form of investing? And do you think a growth like that is possible in the current day if you were to say invest more capital?

 

[Dialtone]

Spoiler: No

 

[twozero]

Dollar cost averaging over time still seems like the comfy choice tbh.

Particularly for the non-trader, trying to play the market imo is a big gamble in terms of losing your investment. If you lose your 95% of your money with a ill-timed trade, you have to gain 1900% to break even. Maintaining the discipline for regular investments is already quite tricky, especially with the market in its current state. If you want to trade, use a small proportion and treat it more as a gamble so that you're not wiped out if you lose big.

Arguably the amount of your paycheck that you're using to DCA over time shouldn't matter as long as it's relatively steady and you're not adjusting it too frequently. Essentially you want to be an intelligent investor as Graham defines, and avoid emotionally trying to chase/predict the market. I can't see % returns as prescribed by Raskob being possible via cost-averaging tbh, though when prescribed it would've still been a return of ~$8500 for the $3500 input over 20yrs.

Spoiler: No

Spoiler: he bought?

 

[melty]

You can use compound interest calculators for this - for sure 26% is ridiculous but a lot of people will just use index funds which I think are 7-8% yearly.
I find a lot of "magic of compound interest~” articles also make overly optimistic predictions like you are going to get 10% compounding interest from a savings account which doesn't exist lol. Yeah it would be a lot of money but you're basically describing a cool math problem, in the real world savings accounts offer 2% at best.

 

[inception_state]

It's the safest option, but a lot of it still comes down to luck of the timing. The New York Times has a neat chart that shows how well you'd do based on time invested and time withdrawn. It assumes a lump sum though, I'm not sure if there's an equivalent out there for performance of a fixed sum per year.

 

[Salubrious]

TL;DR - I'm pretty sure hyperinflation would take place before everyone became rich.

 

[LullerDerbyRollin]

I think if everyone became rich, the richer people who own businesses would just price jack everything. We'd be back at square one.

 

[mindlessobserver]

You won't get rich doing this, but you won't be swimming in poverty when it comes time to retire either. Setting aside 200 dollars a month (or past pre-inflation amount) into a modest gain investment retirement fund has for the most part been the best way to go about it. If you start when you are 26 and do it for 40 years and assuming 8% compounding interest you will have invested 96,000 dollars and gotten 648,000 dollars out when you turn 66. If you Also combine that with accrued value in real property by a mortgage, for a house worth, lets say, 250,000 dollars when you bought it that has also increased with property values to 350,000 dollars in the 30 years you have it, then boom. You got a million dollars in stock and property in your old age. Assuming you live another 30 years to 96, that gives you you 20,000 dollars per year, which if you have paid off your home loan and now own the property is more then enough for utilities, food and taxes. Especially if supplemented by Social Security which in a perfect world will still be a thing.

Also needs to pointed out that the 648,000 dollars won't be sitting still. It should continue to grow even if you aren't putting anything into it anymore. You could also sell your house at that point, which would add another 12,000 dollars per year to your income, on top of what will on average be roughly 20,000 dollars year from SSN, so your final retirement income per year should "in theory" be 52,000 dollars per year for the last 30 years of your life. Are you rolling in the Benjamin's? No, but you don't have to work either. And this is something even a poor person should be able to do. Someone with more means can obviously invest more and see bigger returns.

Its a good idea to have this as the fall back plan, though I have said "in theory" alot. Who knows, society may burn to the ground in the next 20 years so yeah.

 

[reptile baht spaniard rid]

There are a number of factors - one is - if you're saving, you're spending less than you make. As Charlie Dick said, "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Another factor is that you don't have to "win" - it's not like "if you hit $1m you are saved, but $999,999 you're fucked".

However, for the average fucker, who won't even take the FREE MONEY from 401(k) matching, you have to really simplify it.

 

[Strange Wilderness]

i think the one dollar bill should be changed to the one million dollar bill. That way no one would be poor and we'd all be millionaires.

 

[Sweet and Savoury]

With the advent of ETF's anyone can make decent gains in investments.

The question is not if you can make money in the long term but rather can you actually continually save money to invest. Most people are "poor" because they think short term pleasure and not long term gains.

ie: I'd rather go on that nice vacation now and worry about my retirement when I'm 45. Then they hit 45-50ish and have a freaking panic attack when they realize they need 1000000% returns to have enough funds to last them through their retirement.

For most folks I'd advise against investing in the stock market, rather invest in a nice .45 colt for that day instead.

 

[Maxliam]

i think the one dollar bill should be changed to the one million dollar bill. That way no one would be poor and we'd all be millionaires.

Malcolm in the Middle, a man of culture.

 

[Hot Dawg]

With the advent of ETF's anyone can make decent gains in investments.

The question is not if you can make money in the long term but rather can you actually continually save money to invest. Most people are "poor" because they think short term pleasure and not long term gains.

ie: I'd rather go on that nice vacation now and worry about my retirement when I'm 45. Then they hit 45-50ish and have a freaking panic attack when they realize they need 1000000% returns to have enough funds to last them through their retirement.

For most folks I'd advise against investing in the stock market, rather invest in a nice .45 colt for that day instead.

Consistency and discipline are all that is required to make it financially. But everyone wants everything RIGHT NOW so they either live paycheck to paycheck or outright drown in debt. Public education really should make finance a mandatory class in high school, if not in any college if you are going to one at this point for the right reasons (contributing member of society and not gender studies or bullshit). Capitalism works just fine if you aren't an idiot.

 

[RumblyTumbly]

View attachment 1363384

TL;DR - I'm pretty sure hyperinflation would take place before everyone became rich.

Beat me too it.

If everybody has a million dollars, then nobody is rich because that dollar amount is no longer valuable or worth obtaining.

There was an episode of the old Duck Tales that I feel should be shown in every school in America because is appropriately details the value of currency. Gyro invents a duplicator device that automatically duplicates inanimate items and sure enough, the device gets used to duplicate money. As more and more money gets replicated, prices skyrocket and the economy of Duckburg collapses because the currency has been rendered worthless.

Now this isn't a perfect outlining since the duplicate money is essentially counterfeit and shouldn't be worth anything and anyone using Gyro's device should be arrested for producing illegal currency, but ignoring that part of it and focusing on the high influx on money, the episode outlined pretty well what would happen if everybody had wealth comparable to Scrooge McDuck, and ultimately, it means that nobody would be rich.

It also talks about the value of a dollar earned rather than a dollar taken, which would probably be seen as problematic today, but whatever.

 

[Agent Abe Caprine]

i think the one dollar bill should be changed to the one million dollar bill. That way no one would be poor and we'd all be millionaires.

Worked for Zimbabwe.