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Re: Three Possible Outcomes for Future Investment Returns

Not that it changes the premise or the conclusions of the original post, though. Sure it does. The S&P 500 line is practically flat and the others are much reduced. Plus, this is a totally cherry picked time period beginning at the top of a long stock and bond bull market. It's not the historic...
by Simplegift
Wed Oct 22, 2014 11:32 pm
 
Forum: Investing - Theory, News & General
Topic: Three Possible Outcomes for Future Investment Returns
Replies: 17
Views: 1074

Re: Three Possible Outcomes for Future Investment Returns

If some mean reversion of asset yields is in our future, this is how much today's current yields are below their average of the last 30 years (all nominal): ………………….………Current.…Average..…DIFF S&P 500 Yield……..……2.0%…....2.4%…..…(18%) 10-year Treasury………2.3%…….5.4%….….(58%) Equity REIT Index…...…...
by Simplegift
Wed Oct 22, 2014 7:39 pm
 
Forum: Investing - Theory, News & General
Topic: Three Possible Outcomes for Future Investment Returns
Replies: 17
Views: 1074

Re: Three Possible Outcomes for Future Investment Returns

I'd like to see that plot with real returns, instead of nominal. Ask and you shall receive — sorry, I was too lazy to deduct the annual inflation rate from the asset yields in the original chart. Not that it changes the premise or the conclusions of the original post, though. http://i.imgur.com/iXT...
by Simplegift
Wed Oct 22, 2014 3:25 pm
 
Forum: Investing - Theory, News & General
Topic: Three Possible Outcomes for Future Investment Returns
Replies: 17
Views: 1074

Three Possible Outcomes for Future Investment Returns

For a visual picture of the low-return world in which we now find ourselves, below is a chart of yields for three major asset classes over the last 30 years — the S&P 500 Index, the 10-year Treasury and the REIT Index. Seeing these declining yields converge together on one chart brings home just...
by Simplegift
Wed Oct 22, 2014 2:00 pm
 
Forum: Investing - Theory, News & General
Topic: Three Possible Outcomes for Future Investment Returns
Replies: 17
Views: 1074

Re: Why include International Index in AA?

So I suppose my main question is, wouldn't investing in an International Index increase risk and/or concentration associated with foreign markets? Looking at the total global market cap (chart below), U.S. companies dominate in the "new economy" fields of computers, biotechnology, softwar...
by Simplegift
Tue Oct 21, 2014 7:04 pm
 
Forum: Investing - Theory, News & General
Topic: Why include International Index in AA?
Replies: 31
Views: 1701

Re: Valuations and the AA decision

Interesting as I tried to do just that using some data mining comparing earning yield of Sp500 index vs. 10 yr. treasury yield since 1972. One problem might be that the S&P 500 earnings yield is considered a real rate, while the 10-year Treasury yield is obviously a nominal rate. Your method so...
by Simplegift
Tue Oct 21, 2014 6:49 pm
 
Forum: Investing - Theory, News & General
Topic: Valuations and the AA decision
Replies: 8
Views: 896

Re: How does one hedge against deflation?

The underlined sentence can only make sense if the principal may be adjusted below its original value, in the face of deflation. This is the explanation from the Treasury Direct website : What happens to TIPS if deflation occurs? The principal is adjusted downward, and your interest payments are le...
by Simplegift
Tue Oct 21, 2014 12:40 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: How does one hedge against deflation?

Would a TIPS fund have a capital gain in deflation but continue to pay interest at a lower rate? Not sure. My understanding is that there's three ways a TIPS fund would be affected be prolonged deflation: • The semi-annual interest payments of the TIPS bonds in the fund would be adjusted downward b...
by Simplegift
Tue Oct 21, 2014 11:52 am
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: Vanguard rides wave of success

Compared with its rivals over the last 20 years, it's instructive to see Vanguard's growth of market share for all U.S. mutual funds and ETFs (chart below). There can't be much doubt that Vanguard's steady growth is driven by the much lower cost of its offerings. These are the industry's asset-weigh...
by Simplegift
Tue Oct 21, 2014 11:22 am
 
Forum: Investing - Theory, News & General
Topic: Vanguard rides wave of success
Replies: 3
Views: 1116

Re: How does one hedge against deflation?

No one has mentioned TIPS as a deflation hedge — and since they have a more complicated response to deflation than nominal Treasuries, I'll give it a go (and bond experts, please chime in if I go astray!). Backed by the full faith and credit of the U.S. government, TIPS of any maturity should do wel...
by Simplegift
Mon Oct 20, 2014 8:19 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: How does one hedge against deflation?

But it *is* a contradiction to say there could be prolonged deflation and no impairment of government debt quality, also starting with today's high debt load and already slow growth... With Japan's decades-long struggle with deflation and many large European countries poised on the brink of deflati...
by Simplegift
Mon Oct 20, 2014 2:06 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: Why do people use age instead of life expectancy?

One interesting aspect of life expectancy is that it appears to be becoming a bit more predictable over time — in other words, the statistical distribution of "age at death" is getting narrower and narrower (chart below). For one, more folks are surviving childhood and living to an older a...
by Simplegift
Mon Oct 20, 2014 12:52 pm
 
Forum: Investing - Theory, News & General
Topic: Why do people use age instead of life expectancy?
Replies: 43
Views: 2901

Re: Why do people use age instead of life expectancy?

So the question is why not use life expectancy directly ? (I agree it carries with it uncertainty, but no more than using age) and certainly you can use specific personal information to alter the number. When we both turned 65 recently, we looked into life expectancy calculations to help inform our...
by Simplegift
Sun Oct 19, 2014 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: Why do people use age instead of life expectancy?
Replies: 43
Views: 2901

Re: How does one hedge against deflation?

Though there aren't many empirical studies of deflationary shocks in the U.S. economy, the table below summarizes asset returns during the six deflationary periods since 1900. Surprisingly, even 3-month Treasury bills and 10-year Treasury bonds proved to be decent deflation hedges — so holding 30-ye...
by Simplegift
Sun Oct 19, 2014 4:15 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: How to think about expected returns--continuing discussi

And there is simply no way IMO to build a plan without making assumptions about returns, so you use the best tools you have (even if not perfect, and understand their limitations). I'll just add that one of the beauties of these simple forecasting tools is that they are easily accessible to the ave...
by Simplegift
Sun Oct 19, 2014 12:15 pm
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 64
Views: 4660

Re: How to think about expected returns--continuing discussi

Now I am starting to better understand where your 50%/50% logic is coming from though. Seems quite ad hoc, but the 'overly fundamental' view of the (div yield + growth) Gordon equation combined with the 'overly speculative' view of the E/P (CAPE10) logic might very well not be far from the truth. T...
by Simplegift
Sun Oct 19, 2014 11:25 am
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 64
Views: 4660

Re: The Final, Definitive Thread on Rebalancing

Great post, stlutz . In addition, an obscure Forum member will post an inscrutable chart, showing how NOT re-balancing has increased an investor's average portfolio risk (standard deviation) by a huge 1.3% over the last twenty years! http://i.imgur.com/7Os1nRa.jpg Source: Fidelity Investments Then n...
by Simplegift
Sat Oct 18, 2014 10:08 pm
 
Forum: Investing - Theory, News & General
Topic: The Final, Definitive Thread on Rebalancing
Replies: 24
Views: 1829

Re: How does one hedge against deflation?

On the consumer level, deflation might seem attractive, since wages go farther as prices get lower — but on the macro-economic scale, prolonged deflation in today's global economy could have devastating effects, such as: • The smothering of demand and GDP growth, leading to the kind of decades-long ...
by Simplegift
Sat Oct 18, 2014 8:43 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: How does one hedge against deflation?

In their portfolio design, many investors discount the probability of deflation, perhaps because the U.S. hasn't had a significant deflation episode since the 1930s. However, the U.S. economy came close during the 2008-2009 financial crisis and we have the example of Japan's "lost decade" ...
by Simplegift
Sat Oct 18, 2014 6:02 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: How does one hedge against deflation?

High-quality bonds, preferably Treasuries. For a good discussion on deflation hedging, see this thread from 2012: In Defense of (Some) Treasuries in the Portfolio In a nutshell, in a deflationary environment with drastically falling prices, investors flee to the perceived safe haven of government de...
by Simplegift
Sat Oct 18, 2014 4:57 pm
 
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 3723

Re: Thoughts on Paul Merriman's Portfolio

Personally, I wish I'd kept things simpler early in my investing career. I think just the opposite. When you are younger to can handle more things at a time. As I'm getting older I'm starting to simplify. The portfolio use to be similar to Paul's suggestion. However as I age, and the % equity decre...
by Simplegift
Sat Oct 18, 2014 4:27 pm
 
Forum: Investing - Theory, News & General
Topic: Thoughts on Paul Merriman's Portfolio
Replies: 38
Views: 2242

Re: Thoughts on Paul Merriman's Portfolio

I agree that it is more complicated than the 3 fund portfolio, his study shows a far greater return as well. You're missing an important disclaimer made in Merriman's fine print (quoted below). His study is simply illustrating the hypothetical effects of adding these less-than-perfectly correlated ...
by Simplegift
Sat Oct 18, 2014 2:32 pm
 
Forum: Investing - Theory, News & General
Topic: Thoughts on Paul Merriman's Portfolio
Replies: 38
Views: 2242

Re: Thoughts on Paul Merriman's Portfolio

The most important decision that an investor makes in their lifetime is the basic stock/bond split. This one decision will ultimately determine one's long-term portfolio returns and risk profile. For many investors, this is enough! A simple portfolio of broadly diversified stocks and high-quality bo...
by Simplegift
Sat Oct 18, 2014 2:06 pm
 
Forum: Investing - Theory, News & General
Topic: Thoughts on Paul Merriman's Portfolio
Replies: 38
Views: 2242

Re: How to think about expected returns--continuing discussi

...currently we use the CAPE 10 and the Gordon Model, weighting each 50%. In forecasting returns, I'm beginning to see the advantage of averaging these two methods — since the CAPE earnings yield (inverse of the price-earnings ratio) is so strongly influenced by price, while the Gordon Equation is ...
by Simplegift
Sat Oct 18, 2014 12:20 pm
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 64
Views: 4660

Re: Long term return forecast

I guess his own firm has finally refuted it? Your long-term predictions may prove true, nisiprius , but I suspect you're reading too much into Arnott's forecast of expected returns for small cap stocks: U.S. Small Cap: 1.3% yield + 2.0% growth - 3.3% valuation = 0.0% total return U.S. Large Cap: 1....
by Simplegift
Sat Oct 18, 2014 11:41 am
 
Forum: Investing - Theory, News & General
Topic: Long term return forecast [Research Affil. Expected returns]
Replies: 27
Views: 1740

Re: Long term return forecast

Thanks for the link. Interesting to see that Research Affiliates' forecast of real returns for U.S. Large Cap stocks is less than 1% real over the next 10 years (1.8% yield + 1.3% growth - 2.4% valuation = 0.7% total return). This is where their estimate fits into the current range of other forecast...
by Simplegift
Sat Oct 18, 2014 4:18 am
 
Forum: Investing - Theory, News & General
Topic: Long term return forecast [Research Affil. Expected returns]
Replies: 27
Views: 1740

Re: Vanguard REIT Index and P/E

I see that Vanguard REIT Index P/E is 50+, but the dividend yield is no bad, >1%. Is this P/E normal for real estate or is it too high? For the REIT market as a whole (such as Vanguard's REIT Index), William Bernstein shows that the dividend yield is a fairly good predictor of future returns, espec...
by Simplegift
Thu Oct 16, 2014 9:40 pm
 
Forum: Investing - Help with Personal Investments
Topic: Vanguard REIT Index and P/E
Replies: 4
Views: 638

Re: Dealing with Volatility

One of the reasons that the recent market volatility is perhaps affecting investors and garnering so much attention is that we've had it so good for so long (chart below). In fact, over the last year, we've been experiencing the most calm, steady and easygoing financial markets of the last five year...
by Simplegift
Thu Oct 16, 2014 7:38 pm
 
Forum: Investing - Theory, News & General
Topic: Dealing with Volatility
Replies: 14
Views: 1112

Re: The Role of Life Expectancy

Was curious as to how much you rely on life expectancy data in planning for your retirement future. We don't necessarily rely on life expectancy for financial planning, but since we've both turned 65, we've at least looked at the survival probability chart (below). It appears at least one or both o...
by Simplegift
Thu Oct 16, 2014 5:49 pm
 
Forum: Investing - Theory, News & General
Topic: The Role of Life Expectancy
Replies: 25
Views: 1652

Re: Why Are Expected Investment Returns So Low?

I'm not saying this is all hooey, I'm just cautioning that some deep thought is needed and even then this, like everything else in economics and finance is on fairly shaky ground and some level of skepticism is warranted. Fair enough — but the story seems to be a fairly simple one about the global ...
by Simplegift
Wed Oct 15, 2014 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: Why Are Expected Investment Returns So Low?
Replies: 13
Views: 1631

Re: Why Are Expected Investment Returns So Low?

...In short, our future portfolio returns appear to be squarely dependent upon the fate of the developing economies. ...as if there will be no growth or innovation from the rest of the world. It may just be the contrarian in me coming out, but the idea that the developed world is currently at some ...
by Simplegift
Wed Oct 15, 2014 10:23 am
 
Forum: Investing - Theory, News & General
Topic: Why Are Expected Investment Returns So Low?
Replies: 13
Views: 1631

Why Are Expected Investment Returns So Low?

In a recent thread , we explored the centuries-long downward trend in bond yields and expected stock returns due to greater global macro-economic stability (in a nutshell, greater stability = less risk = lower returns). In this post, we'll dig a little deeper into the economic trends of the last few...
by Simplegift
Wed Oct 15, 2014 1:55 am
 
Forum: Investing - Theory, News & General
Topic: Why Are Expected Investment Returns So Low?
Replies: 13
Views: 1631

Re: [unofficial Fed announcements make bond prices predictab

The Fed controls the very short term and has considerable influence beyond it, but its setting of rates is less than seems to meet many eyes. To further PJW's point, it's instructive to see how little influence the Fed has actually had on longer-term interest rates over the last 25 years, beyond th...
by Simplegift
Tue Oct 14, 2014 2:58 pm
 
Forum: Investing - Theory, News & General
Topic: [unofficial Fed announcements make bond prices predictable?]
Replies: 25
Views: 917

Re: Gains and Losses from Periodic Investments

Here's a long-term view. $1,000 each month starting in June 1980. Nice, grayfox . It's interesting to see that "time in the market" strongly trumps even the perfect timing of stock investments during bear markets. In other words, even perfectly-timed investments at the market bottoms in 1...
by Simplegift
Tue Oct 14, 2014 2:32 pm
 
Forum: Investing - Theory, News & General
Topic: Gains and Losses from Periodic Investments
Replies: 10
Views: 901

Re: Gains and Losses from Periodic Investments

Thanks, grayfox . Though your analysis doesn't consider portfolio rebalancing, your chart suggests the significant benefits to accumulating investors of consistently rebalancing from bonds to stocks during market meltdowns. Yes, it takes nerves of steel to stick with one's financial plan and rebalan...
by Simplegift
Sat Oct 11, 2014 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Gains and Losses from Periodic Investments
Replies: 10
Views: 901

Re: is anything 'cheap' out there?

Unless investors want to seek out cheaper, exceptionally risky assets (Russian equities, oil service stocks, etc.), today's high asset values all across the board point to lower expected portfolio returns for at least the next decade — and perhaps beyond. Whether planning for retirement or in retire...
by Simplegift
Fri Oct 10, 2014 2:33 pm
 
Forum: Investing - Theory, News & General
Topic: is anything 'cheap' out there?
Replies: 54
Views: 5480

Re: Is a fall in portfolio value "only on paper"?

However, another poster has also pointed out that assets in the market are not money. Assets in the market are shares. Part of the conundrum lies in the fact that one has lost "value" but one has not lost shares. The ownership of a share is what links the investor to playing the result ou...
by Simplegift
Fri Oct 10, 2014 11:57 am
 
Forum: Investing - Theory, News & General
Topic: Is a fall in portfolio value "only on paper"?
Replies: 86
Views: 3613

Re: "Safe withdrawal rate" for 100% Treasury bills: 2.18%

Interesting work, Nisi. It brings to mind a quote from Robert Arnott: "In investing, what is comfortable is rarely profitable."
by Simplegift
Thu Oct 09, 2014 8:14 pm
 
Forum: Investing - Theory, News & General
Topic: "Safe withdrawal rate" for 100% Treasury bills: 2.18%
Replies: 6
Views: 820

Re: Invested Windfall and Now Market Is Down

I guess I don't really have a question, just looking for reassurance for someone not used to this roller coaster. When we're experiencing market corrections, I've found this chart reassuring. Nearly every year, the market drops anywhere from 5% to 20% or more (in red) — yet the calendar year return...
by Simplegift
Thu Oct 09, 2014 6:45 pm
 
Forum: Investing - Help with Personal Investments
Topic: Invested Windfall and Now Market Is Down
Replies: 34
Views: 4905

Re: Hold the Line

If you look at the chart though you can see the formula right up in the upper left corner, slope is about 60 right now (for every dollar of dividends the price should rise about 60 points.) A few musings about the implications of your chart for "rational" expected stock returns: • Your ch...
by Simplegift
Thu Oct 09, 2014 4:03 pm
 
Forum: Investing - Theory, News & General
Topic: Hold the Line
Replies: 11
Views: 1416

Re: Hold the Line

People have been talking a lot about buybacks, are they included, and if not what would be the likely effect of including them? My understanding, Nisi, is that the x-axis on the chart is cash dividends-per-share . Since net buybacks reduce the number of shares outstanding, the per-share figures alr...
by Simplegift
Thu Oct 09, 2014 2:15 pm
 
Forum: Investing - Theory, News & General
Topic: Hold the Line
Replies: 11
Views: 1416

Re: Hold the Line

The Schiller dividend data has been updated and the market is still rational within it's current trend (08/01/11 to present): Nice chart, Clearly_Irrational , thanks for posting it. If I understand your chart correctly, you're plotting cash dividends for the S&P 500 on the x-axis against a cons...
by Simplegift
Thu Oct 09, 2014 1:19 pm
 
Forum: Investing - Theory, News & General
Topic: Hold the Line
Replies: 11
Views: 1416

Re: Is a fall in portfolio value "only on paper"?

And yes, this is actionable, because it means that jurisdictional diversification may be a good idea. Good point. Even the prospectus for Vanguard's Emerging Markets Stock Index alludes to "greater political, social, and economic instability" and "political upheaval" in the list...
by Simplegift
Thu Oct 09, 2014 12:16 pm
 
Forum: Investing - Theory, News & General
Topic: Is a fall in portfolio value "only on paper"?
Replies: 86
Views: 3613

Re: Is a fall in portfolio value "only on paper"?

Yes, it takes something like the end of the world for all businesses in a country to be worthless, but it takes much less for their shares to be worthless to you. Your point is that there could be a global confiscation of assets akin to the Russian revolution? Really? I consider that possibly so ex...
by Simplegift
Thu Oct 09, 2014 10:02 am
 
Forum: Investing - Theory, News & General
Topic: Is a fall in portfolio value "only on paper"?
Replies: 86
Views: 3613

Re: Is a fall in portfolio value "only on paper"?

During the Bolshevik Revolution in russia, the russian stock market went to zero. During the 2008 financial crisis, there was talk going around that America may not be immune from such an event. What if that wasn't just fearmongering hogwash? What if it really was a real risk and we just got lucky?...
by Simplegift
Thu Oct 09, 2014 9:31 am
 
Forum: Investing - Theory, News & General
Topic: Is a fall in portfolio value "only on paper"?
Replies: 86
Views: 3613

Re: In what conditions could the market stall?

What types of things would need to happen to stop the market from growing? Do we have any examples of long term periods of no growth? The long-term fundamental driver of any stock market's growth is the growth of earnings of its constituent companies. While the century-long growth trend of real ear...
by Simplegift
Thu Oct 09, 2014 1:41 am
 
Forum: Investing - Theory, News & General
Topic: In what conditions could the market stall?
Replies: 2
Views: 350

Re: Why Wouldn't You Tilt To Small Value?

If you don't tilt, why not? There are several sound reasons, I believe, for an investor NOT to tilt toward small-cap value: 1. You have an average or lower-than-average risk tolerance. 2. You don't like underperforming the broader market indexes for long periods. 3. You prefer portfolio simplicity....
by Simplegift
Wed Oct 08, 2014 1:17 pm
 
Forum: Investing - Theory, News & General
Topic: Why Wouldn't You Tilt To Small Value?
Replies: 52
Views: 2906

Re: Correlation Data for Total Bond, TIPS, & Total INTL Bond

I ask because the VG Planner suggested a change from current IPS policy of 50:50 Bond Allocation of Total Bond Market:ST TIPS to 80:20 Bond Allocation of Total Bond Market:Total INTL Bond Market. I'd be reluctant to make this tradeoff, personally. As pointed out by nisiprius upthread, the added div...
by Simplegift
Wed Oct 08, 2014 12:48 pm
 
Forum: Investing - Theory, News & General
Topic: Correlation Data for Total Bond, TIPS, & Total INTL Bond ?
Replies: 13
Views: 980

Re: Correlation Data for Total Bond, TIPS, & Total INTL Bond

Vanguard Financial Planner gave me a nice Correlation Graph that I would like to post here for us all to share but I am having a hard time figuring out how to post a 1 page pdf file. Any help is appreciated. This correlation chart is posted on behalf of Fat-Tailed Contagion (the OP), who wished to ...
by Simplegift
Wed Oct 08, 2014 12:42 am
 
Forum: Investing - Theory, News & General
Topic: Correlation Data for Total Bond, TIPS, & Total INTL Bond ?
Replies: 13
Views: 980

Re: Correlation Data for Total Bond, TIPS, & Total INTL Bond

Vanguard Financial Planner gave me a nice Correlation Graph that I would like to post here for us all to share but I am having a hard time figuring out how to post a 1 page pdf file. The Bogleheads Wiki has an explanation here of how to copy a chart or image and then post it. If you'd prefer to avo...
by Simplegift
Tue Oct 07, 2014 2:31 pm
 
Forum: Investing - Theory, News & General
Topic: Correlation Data for Total Bond, TIPS, & Total INTL Bond ?
Replies: 13
Views: 980
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