The advantage of cheap assets

[john12ax7]

Edit : Original post deleted

No need to overly complicate things. Things like housing to income, S&P 500 to income, have increased over the years. Real bond yields are low to negative. It should be obvious that it is an advantage to buy assets cheap, returns are higher and you gain more wealth by compounding at a higher rate.

 

[AnalogPackrat]

I decided to crudely quantify how when you are born can affect your ability to accumulate wealth in the US. Data is from 1972-2022 since it was readily available.

Suppose a worker decides to invest 1000 per month into a traditional 60/40 stock bond portfolio using US stocks and 10 year treasuries. What do they have after 30 years?

Worker 1 invests 1972-2002 and ends up with 2.86 million
Worker 2 invests 1982-2012 and ends up with 1.98 million
Worker 3 invests 1992-2022 and ends up with 1.33 million

The tailwind of being able to accumulate cheap assets should be obvious. Younger generations don't have this luxury. Decades of funny money financial engineering has transferred wealth from non-asset owners to asset owners, poor to rich, young to old.

You completely ignored inflation and pay rate increases over your 50 year span. Your average employee was not making enough money in the 70s and 80s to save 1k/month. In 1972 my parents were about 30 and together might have earned $8-10k per year before taxes which is less than your savings figure. And they had good white collar jobs.

Now I want you to analyze my grandparents, both born in 1923, both lost a parent before they were two years old, both grew up in the rural South during the depression. When they married less than three weeks after Pearl Harbor they had $12 between them. Yet through hard work, sacrifice, savings, and careful investment they raised three children, put them through college, owned their home on 22 acres, and were able to retire in their mid-sixties. They tithed 10% their whole lives, too. As we say in the South, "can't never could."

 

[AnalogPackrat]

Also, why would anyone in their 20s and 30s be 40% into bonds? Blue chips or dividend stocks (with reinvestment), maybe, but not 40% bonds.

 

[JohnRoberts]

Also, why would anyone in their 20s and 30s be 40% into bonds? Blue chips or dividend stocks (with reinvestment), maybe, but not 40% bonds.

I still can't force myself to buy bonds despite popular advice. The two year treasuries are looking interesting at > 4%.
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+1 inflation matters to such comparisons.

JR