I wonder what major changes and developments we might be likely to see within our lifetimes... do you have any intuitions there? If so, I wonder if there might be additional variables or situation types/probabilities that could be interesting to throw into a monte carlo simulation.
1: One of John Bogle’s concerns was that the funds were becoming so large, they would cause some systemic issues in the long run, because there are limitations to how much funds can own of these companies. This is something you can easily Google and read about on your own time, and it will produce a better response than I can regurgitate here.
But basically, in our lifetime, there will be some sort of reorganization of these funds so that they can continue to grow, I expect.
This will presumably either happen in legislation, or funds being split across some entities at some level.
My guess is, think VTSAX Fund I, and VTSAX Fund II. New clients being moved into Fund II, and Fund I being closed to new investors.
Also, just… more people invest. Period. It’s very different from the investing rages of the past. This sort of volume today is known to remove pricing at large from the stock market.
That is, Tom, Dick, and Harry are going to continue to buy into the stock market by their 401(k) contribution no matter what the price is which is staggeringly dangerous.
Because of this volume and the US still being the preeminent nation on earth to invest in (no Chinese risk, no Indian maximum retail pricing), securities may continue to be overpriced well into the near future.
I would simulate those market details by reducing potential future returns, which is current conventional knowledge. Less than 5% is frequently discussed and is certainly a safe, and even generous, as a maximum threshold for the next decade.
During the initial COVID-19 pandemic lockdowns, the crash then did nothing to bring securities back down to fair market values, so many people just didn’t buy.
If you did, you would have made out great by now, but if you did then, it wasn’t because of the price of stocks. Some people just “bought the dip” without realizing it wasn’t a dip.
A full bushel of Apples today is not worth $250.00. But if that’s all you saw for the last half-decade, and it fell to $200.00, you’d think it was a great deal until you realized the replacement value of Apple trees would generate Apples at lower prices if you just planted them now yourself.
2: I might also play around with crash and correction frequencies if you’re not already doing so, which, without thinking deeper about credit cycles, should be fine to simulate based on previously occurring frequencies.
It seems like you already have some sort of analog to this with historical performance to begin with, though.
