How much are these estimates influenced by a hindsight bias; by a knowledge that during the last century the American economy was able to provide this growth, but many other countries’ economies were ruined at some moment. -- What would happen if someone tried this early retirement idea 100 ago by investing half of their income into Russian market and taking away only 4% per year? How about Germany?
Even if I believe that within the next 50 years some markets will safely provide 4% annual growth, what is the probability that USA will be in that set, and how would you derive this probability from an outside view?
It is not a hindsight bias; it is based using an analysis of historical returns to anticipate future returns, which is a distinction. But you make a good point on comparing the American economy to foreign economy. If someone invested in the Russian economy 100 years ago, they would have lost everything in the Communist Revolution, likewise if they invested in Germany, they would have lost it in WWI, WWII and the partition of East and West Germany. However if you invested in either country 30 years ago, you would have made bank on the fall of Communism.
Generally, if is difficult to hedge against political risks in your own country. If WWIII happens, then pretty much nothing is guaranteed. Investments, property, careers and lives are in uncertain flux, and all may be lost. Barring such catastrophic events, I may hedge the risk of American underperforming the rest of the work by investing in foreign companies, or trans-national companies. This is not something I will be doing right now (I have more faith in America’s economy then the rest of the world) but it is something to consider for the future.
Historically would you in fact have lost everything in a longterm position in the German stock market in World War I and II? Not necessarily. It certainly wasn’t a good place to invest, but there are companies such as Daimler that predate World War I and still exist today. Personal risk, of course, might depend on citizenship and ethnicity. I’m not sure if foreign investors (neutral, allied, or axis) were treated differently. E.g. I don’t know whether a young German/Swiss/British citizen who bought and held shares in Daimler in 1910 would still have owned them in 1960 absent an explicit sale or not. But I suspect at least some subset of hypothetical 1910 shareholders would not have lost everything over the ensuing 50 years.
How much are these estimates influenced by a hindsight bias; by a knowledge that during the last century the American economy was able to provide this growth, but many other countries’ economies were ruined at some moment. -- What would happen if someone tried this early retirement idea 100 ago by investing half of their income into Russian market and taking away only 4% per year? How about Germany?
Even if I believe that within the next 50 years some markets will safely provide 4% annual growth, what is the probability that USA will be in that set, and how would you derive this probability from an outside view?
It is not a hindsight bias; it is based using an analysis of historical returns to anticipate future returns, which is a distinction. But you make a good point on comparing the American economy to foreign economy. If someone invested in the Russian economy 100 years ago, they would have lost everything in the Communist Revolution, likewise if they invested in Germany, they would have lost it in WWI, WWII and the partition of East and West Germany. However if you invested in either country 30 years ago, you would have made bank on the fall of Communism.
Generally, if is difficult to hedge against political risks in your own country. If WWIII happens, then pretty much nothing is guaranteed. Investments, property, careers and lives are in uncertain flux, and all may be lost. Barring such catastrophic events, I may hedge the risk of American underperforming the rest of the work by investing in foreign companies, or trans-national companies. This is not something I will be doing right now (I have more faith in America’s economy then the rest of the world) but it is something to consider for the future.
Amusingly, they wouldn’t’ve lost everything: http://lesswrong.com/lw/h5p/what_rate_of_return_should_you_expect/8pvq
Try historical returns in Argentina.
Historically would you in fact have lost everything in a longterm position in the German stock market in World War I and II? Not necessarily. It certainly wasn’t a good place to invest, but there are companies such as Daimler that predate World War I and still exist today. Personal risk, of course, might depend on citizenship and ethnicity. I’m not sure if foreign investors (neutral, allied, or axis) were treated differently. E.g. I don’t know whether a young German/Swiss/British citizen who bought and held shares in Daimler in 1910 would still have owned them in 1960 absent an explicit sale or not. But I suspect at least some subset of hypothetical 1910 shareholders would not have lost everything over the ensuing 50 years.