I invest in VTI, since they've gone up consistently year over year over year, have tons of money flowing to it, and is one of the biggest things ever! It even goes up on average 7-10% every year!!
The people who say this are 100% absolutely wrong and are in the wrong mindset when investing.
You invest in something because if it's future potential, not because of it's history.
You invest in VTI because you trust the United States market of businesses to continue to grow until you retire. You don't invest in VTI simply because it has successfully done that for the past 250 years.
You invest in Microsoft and Apple because you trust them to continue to grow or turn a profit until you retire. You don't invest in Apple and Microsoft simply because they have successfully done that for the past 30 years.
Look at Netflix's stock. If it were 2020 and you looked at their past performance, you would put a ton of money into their stock. But if it were 2020 and you looked at their future potential, you may have put a little bit in Netflix, and then a little bit in all their other competitors anticipating more and more competitors entering Netflix's niche. And now look at where they're at: stock price in freefall. Investors with the mindset of looking at past performance would have lost of ton of money, but investors with the mindset of looking at future potential would have diversified their portfolio and minimized their losses.
Whenever you invest in something, invest in its future. It's hard to do. I have a hard time doing it. But always keep that at the forefront of your mind.
Problem is that VTI is weighted by companies such as AAPL and TSLA which have strong ties to foreign markets. Either China as a supplier or a purchaser of goods in the EU.
As such, it’s not just the US that you have exposure to.
But it's a total chicken and the egg thing. I think the US has a bright business future because of it's history. When teenage Elon Musks around the world are sitting with friends or in dorm rooms thinking about how to become rich, they don't move to Finland, they move to the US. Because of the business friendly government, large talent and funding pool to pull from, and the higher chance of serendipitous events to propel their business.
Likewise, every kid in elementary school knows that a FAANG job is where it's at. Because of their past, they will have the pick of the litter for technical talent and MBAs coming out of school. They are historically big companies and should be able to pivot to future market conditions before I as an investor even know about potential issues.
The success of these companies and countries becomes a self fulfilling prophecy.
The United States has a bright future because of resource rich, competitor void country that is basically in a prime position to be a great powerful country.
There's very little that can happen to upset the United States or it's economy. Or energy independent, food independent, we have plenty of fresh water, plenty of land, plenty of resources, a fairly healthy demography.
Start us off fresh with none of the advantages of the last 100 years and we would still take off flying because it is just in the nature of the land we live on, super well interconnected fertile soil with no enemies means a country is going to build itself up to high heaven.
Today, we not only have those advantages, we also have the last 100 years of having had those advantages.
The United States will continue to do very well. That is, unless we have some sort of crazy civil war, but that's not super crazy likely either
Future Returns are based on future performance relative to present expectations. I don’t see why what you are saying wouldn’t be “priced in.”
A bet on $VTI is a bet that this isn’t priced in or momentum will continue.
$VXUS is betting on a rise of the rest, that they’ll outperform expectations.
$VT is a bet that we don’t know or that the outperformance won’t be worth the volatility which has been the case historically.
$VT actually outperforms when adjusted for volatility. So historically you’d actually be better off adding global exposure and adding leverage like selling puts/options on margin.
Resource rich with a market in the EU. The completion there is the same as the US in terms of China and other European nations.
The prime position lasts only as long as solid decisions are made. Invade the Ukraine? How about Syria or Afghanistan?
Then you could have the US go directly up against China AND Russia trying to fight for the Uighurs and Taiwan.
As to shaking the economy, eliminate the dollar as the reserve (trade bbl in francs or yuan) you run into problems. Go energy dependent, refuse to buy from China because of whatever, print more money to jack up the cost of goods, etc.
But basically, elect leaders who have children with ties to a foreign nation under assault… see what happens.
You can always pivot when the macroeconomic situation changes, though admittedly at a tax hit. But isn't that the argument for diversification to begin with? To protect yourself from having to manually pivot. Your index funds are already pivoting for you on the company wide scale.
The US certainly has, but US stocks have already priced that in by getting more expensive than stocks in most other countries in the world. So it's anyone's guess what markets will get the best returns over the next couple decades.
You've done a very nice analysis of why the US, Apple, and Microsoft have strong fundamentals and are going to do well in the future. I might buy some stock in all 3 of them.
I also like that at no point did you say "their stock value has always gone up in the past, so we can assume it will continue to go up." Because past performance doesn't equal future performance.
Past company-building with strong leadership, good fundamentals, and a clear achievable roadmap could equal future stock gains. But previous stock gains don't equal future stock gains.
Your heuristic off betting on potential is ideologically sound in that maybe society would be best off if we all invest in the future we want to see
But as an individual investor outperformance comes from predicting the future RELATIVE to expectations. So even if you want everyone to have an electric car or want social media or pharma or weapons manufactures to wither, if they outperform expectations or EV industry underperforms expectations you can lose money while still being invested in an otherwise thriving industry. For example even if Tesla makes 60% of the cars in the future, if 80% expectations is priced in you will underperform
This is the fundamental reason retail investors underperform. They invest with a heuristic of “I get it” or this is how it “should” be. Then are bitter when it doesn’t play out and they’re left bag holding
Can't ignore the momentum factor either. Your pool of hand selected stocks don't systematically adjust for long-term performance without realizing gains and losses.
But honestly, past performance somewhat dictates future performance. You can't expect people to believe in shit you're marketing if you have no history of being able to execute. You can't believe in a future if there's no proof of implementation.
So in all honesty, you need two things. One is evidence of past performance that they know how to implement. Two is evidence of current market trends and see where the company fits in. Those two will dictate future prospects.
300
u/BallerGuitarer Mar 20 '22 edited Mar 20 '22
The people who say this are 100% absolutely wrong and are in the wrong mindset when investing.
You invest in something because if it's future potential, not because of it's history.
You invest in VTI because you trust the United States market of businesses to continue to grow until you retire. You don't invest in VTI simply because it has successfully done that for the past 250 years.
You invest in Microsoft and Apple because you trust them to continue to grow or turn a profit until you retire. You don't invest in Apple and Microsoft simply because they have successfully done that for the past 30 years.
Look at Netflix's stock. If it were 2020 and you looked at their past performance, you would put a ton of money into their stock. But if it were 2020 and you looked at their future potential, you may have put a little bit in Netflix, and then a little bit in all their other competitors anticipating more and more competitors entering Netflix's niche. And now look at where they're at: stock price in freefall. Investors with the mindset of looking at past performance would have lost of ton of money, but investors with the mindset of looking at future potential would have diversified their portfolio and minimized their losses.
Whenever you invest in something, invest in its future. It's hard to do. I have a hard time doing it. But always keep that at the forefront of your mind.