http://www.etf.com/sections/features-an ... our-plan-0Bill Bernstein: Well, I would say that the expected return of a balanced portfolio is the lowest it’s been in financial history. We’re looking at 3 or 4 percent on stocks, and we’re looking at zero percent on bonds. Those are real inflation-adjusted figures.
ETF.com: And when you aggregate those two?
Bernstein: Two percent—I think net of expenses, you’re going to be very lucky to get 2 percent over the next 20 years.
Bernstein: 2% investment returns over next 20 years
Bernstein: 2% investment returns over next 20 years
Has the 6-year bull market in stocks hocked your investment returns for the next 20 years? Here's Dr. Bernstein's view:
We don't know where we are, or where we're going -- but we're making good time.
- Aptenodytes
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Re: Bernstein: 2% investment returns over next 20 years
Do you think he is too high or too low? Those numbers are what what I use in my planning spreadsheet, and seem consistent with most of the prevailing wisdom I come across.
Funny that the ETF.com reporter was unable to calculate the average in their head.
Funny that the ETF.com reporter was unable to calculate the average in their head.
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Re: Bernstein: 2% investment returns over next 20 years
I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
Re: Bernstein: 2% investment returns over next 20 years
Yah that's a real bummer. I've read his books and I believe him based on the data he presents. I don't know if there's anything to do about it other than be depressed if you're just starting the accumulation phase like some of us. Maybe we'll get lucky and it turns out not to be an accurate prediction.
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Re: Bernstein: 2% investment returns over next 20 years
Does he mean 2% real return or nominal?
Erwin
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Re: Bernstein: 2% investment returns over next 20 years
The answer is in the OP.
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Re: Bernstein: 2% investment returns over next 20 years
He says "Real Inflation-adjusted".mpt follower wrote:Does he mean 2% real return or nominal?
I'm not sure if he's right or wrong, and would definitely trust him more than I trust myself to make that prediction. However, as someone early in the accumulation phase still, I'm holding out hope that returns are higher than 2% real.
"The problem with diversification is that it works, whether or not we want it to"
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Re: Bernstein: 2% investment returns over next 20 years
But GDP doesn't track stock market returns very closely. Look at this scatter plot -- there is a correlation, but lots of dispersion. And the correlation is heavily shaped by the extremes -- if your best guess is that we are in for GDP growth rates between 0 and 8%, my eyeballs tell me that's a range where the stock market is completely uncorrelated with growth.Hunky-dory wrote:I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
Source
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Re: Bernstein: 2% investment returns over next 20 years
I love Dr. Bernstein, but his ability to predict is no better then anyone else's crystal ball.
As most know Vanguard did a study on valuation metrics to predict future equity returns and the BEST as PE10 a whole 0.41 or so. So nothing nor anyone has been better. I don't remember his predictions making the cut either.
That being said at the current yield of short term rates I don't see how fixed income will deliver much especially if there is no impetus for the FED to raise prime rates, i.e. inflation. So his guess on fixed income which has a HIGH correlation to current yields is likely to pretty close, but A LOT can happen from here to 20 years.
Did anyone 1995 (20 yrs. ago) predict interest rates this low or stocks this high in the present.
Good luck.
As most know Vanguard did a study on valuation metrics to predict future equity returns and the BEST as PE10 a whole 0.41 or so. So nothing nor anyone has been better. I don't remember his predictions making the cut either.
That being said at the current yield of short term rates I don't see how fixed income will deliver much especially if there is no impetus for the FED to raise prime rates, i.e. inflation. So his guess on fixed income which has a HIGH correlation to current yields is likely to pretty close, but A LOT can happen from here to 20 years.
Did anyone 1995 (20 yrs. ago) predict interest rates this low or stocks this high in the present.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
Re: Bernstein: 2% investment returns over next 20 years
Everybdy has an opinion,,,,,,Did anyone express the opinion in 2009 that the S&P would increase over 3 fold in the next 6 years?
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Bernstein: 2% investment returns over next 20 years
This is a terrific, all too brief, interview - in spite of the interviewer. In my view, OP has latched onto the least important aspect of the piece.
Re: Bernstein: 2% investment returns over next 20 years
The article says 0% real on bonds-- I wonder if he means short Treasuries, which IIRC is what he generally recommends? Maybe if we all play nice he'll join us on this thread!
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
Re: Bernstein: 2% investment returns over next 20 years
If you're early in accumulation, low prices is exactly what you want (assuming markets return to historical returns in the future).JonnyDVM wrote:Yah that's a real bummer. I've read his books and I believe him based on the data he presents. I don't know if there's anything to go about it other than be depressed if you're just starting the accumulation phase like some of us. Maybe we'll get lucky it turns out not to be an accurate prediction.
Re: Bernstein: 2% investment returns over next 20 years
I guess it's about time for a good crash.
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Re: Bernstein: 2% investment returns over next 20 years
In what years did GDP rise more than 10%? Amazed at that. 1941 I could believe (war buildup). But others. Real GDP?Aptenodytes wrote:But GDP doesn't track stock market returns very closely. Look at this scatter plot -- there is a correlation, but lots of dispersion. And the correlation is heavily shaped by the extremes -- if your best guess is that we are in for GDP growth rates between 0 and 8%, my eyeballs tell me that's a range where the stock market is completely uncorrelated with growth.Hunky-dory wrote:I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
Source
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Re: Bernstein: 2% investment returns over next 20 years
US Companies have very large overseas exposure.Hunky-dory wrote:I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
What matters for returns more than anything is your starting valuation. For equity markets that is high if not 2000 high (the all time high since 1929).
Re: Bernstein: 2% investment returns over next 20 years
This isn't what I want to read when I start my morning but the estimate is realistic. I am by nature an optimist and my advice is to keep saving and keep investing. Those FDIC Insured Certificates of Deposit look better and better.
A fool and his money are good for business.
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Re: Bernstein: 2% investment returns over next 20 years
I don't disagree, but higher growth generally supports higher valuations. I don't think GDP is a great measure of year to year performance (see past several years), but I also think that in general an extended period of robust growth will support higher interest rates on bonds and greater returns on equities. My point is that I am slightly more optimistic than others for various reasons, and part of my optimism ties to improving (from an investor's perspective) demographic factors.Valuethinker wrote:US Companies have very large overseas exposure.Hunky-dory wrote:I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
What matters for returns more than anything is your starting valuation. For equity markets that is high if not 2000 high (the all time high since 1929).
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Re: Bernstein: 2% investment returns over next 20 years
Well I provided the source, so I should make you do the clicking for yourself, but:Valuethinker wrote:In what years did GDP rise more than 10%? Amazed at that. 1941 I could believe (war buildup). But others. Real GDP?
1879
1881
1895
1898
1905
1916
1923
1934
1936
1941
1942
1943
Don't forget that we were once an emerging economy.
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Re: Bernstein: 2% investment returns over next 20 years
That looks like a chart showing correlation on an annual basis. A BH knows better than to measure on such short time periods. I would wager that a broader measure would be more favorable to the relationship but happy to be proven wrong. Of course, there will be a timing difference so it would not help with timing markets but I would be surprised if there really was no relationship.Aptenodytes wrote:But GDP doesn't track stock market returns very closely. Look at this scatter plot -- there is a correlation, but lots of dispersion. And the correlation is heavily shaped by the extremes -- if your best guess is that we are in for GDP growth rates between 0 and 8%, my eyeballs tell me that's a range where the stock market is completely uncorrelated with growth.Hunky-dory wrote:I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
Source
Re: Bernstein: 2% investment returns over next 20 years
The Source takes you to the website where the graph was included in an article. It appears however that the data used to create the graph was pulled from this website. Nice site! Thanks Aptenodytes.Valuethinker wrote:In what years did GDP rise more than 10%? Amazed at that. 1941 I could believe (war buildup). But others. Real GDP?
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Re: Bernstein: 2% investment returns over next 20 years
Mr. Bernstein's expected returns are also in line with those of Research Affiliates, who looked at past history (chart below). Current bond yields have proven to be an excellent predictor of future 10-year bond returns (R^2 = 0.80) — however there is a lot more variation when predicting equity returns based on current dividend and earnings yield (R^2 = 0.32). In any case, expected returns for both bonds and stocks are at the lower end of their historical range.
Source: Research Affiliates
Re: Bernstein: 2% investment returns over next 20 years
If you put VWELX in @ Yahoo you can see what has happened to a 65/35 mix since 1929. I also think it is very good to use low estimates in financial planning. After the 29 crash, it was 1950 before things leveled out again so we can go 20 years of nothing for sure. With that said, it is laughable to give serious consideration to your planning from a 20 year projection, with all due respect to Mr. Bernstein. It is very much like debating how much a 30 year treasury bond will decline with a 1% rate increase since everything is fluid, it never comes out like you think, there are just two many moving parts. STAY THE COURSE!
Re: Bernstein: 2% investment returns over next 20 years
He's smart and informed, but has the same predictive powers as every other expert. Which is hit and miss.Hunky-dory wrote:I hate to disagree with Bernstein as he has been on the money more often than not in his writings, but I am in the camp that broad economic growth will accelerate towards the end of this decade into the 2020's as millennials reach their high earning (and high consuming years). Time will tell. If anything this is a call to save more aggressively, not abandon all hope.
I heard him say at the last Bogleheads conference that he's been wrong about bonds for seven years. (I love the man, but if Dr. Bernstein can be incorrect about interest rates for the better part of a decade, he can be wrong about the earning rates of stocks and bonds going forward.)
Never forget the axiom: financial experts were put on earth to make gypsy fortune-tellers look good.
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Re: Bernstein: 2% investment returns over next 20 years
No one knows the future. We cannot count on anyone to predict the next 20 years with reliable accuracy. Dr. Bernstein's projections are very low by historical standards. He is an accomplished and experienced student of the market and he has plenty of astute company (Grantham, Asness, Gross, among others) who believe likewise. It would be a mistake to ignore his message simply because we don't want to hear it.
What to do? Work longer, save and investment more, spend less--those things are not sexy or appealing but they do work. If you plan for low investment returns and they don't happen, it's easy to loosen the reins, spend more, and retire earlier. If on the other hand you plan for a rosy investing future and it doesn't happen you wind up in a difficult place with no choices left but poverty.
Garland Whizzer
What to do? Work longer, save and investment more, spend less--those things are not sexy or appealing but they do work. If you plan for low investment returns and they don't happen, it's easy to loosen the reins, spend more, and retire earlier. If on the other hand you plan for a rosy investing future and it doesn't happen you wind up in a difficult place with no choices left but poverty.
Garland Whizzer
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Re: Bernstein: 2% investment returns over next 20 years
I use 3 projections in calculating future value of portfolio, 4%, 5% and 6% nominal. My 4% conservative view is even more pessimistic than Bernstein's but not by much. The other two projections are based on a more optimistic view - I would not want to bank on it though. The economy is in a very slow grind, GDP is not growing as it was in past economic rebounds by any stretch of the imagination. The one think I've noticed recently is the growth in costs for home-building products from wood and nails up the chain. Inflation is alive and well, so either we will have muted construction until those costs moderate or look for CPI to go up higher than you would like, energy not included just yet though I expect that to eventually rebound in price as well.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Bernstein: 2% investment returns over next 20 years
This is a difficult topic as we are not supposed to address economic issues here though I will note that some economists, like Thomas Picketty, argue that returns to capital are accelerating so, regardless of how GDP looks, market returns may continue to be relatively high going forward. He may be incorrect or correct, but if Picketty is correct then we can't depend on mid to late 20th century norms to predict future returns. If Larry Summers' re-formulated secular stagnation is correct then we may see a bumpy ride as he contends that economic growth in a low demand world can only be achieved via bubbles created by central banks and governmental fiscal stimulus. Who knows who's correct? All we can do, if we're passive investors, is keep going and minimize fees as we already do.
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Re: Bernstein: 2% investment returns over next 20 years
These numbers are in line with inverted P/E ratios.
IIRC, the r^2 of inverted ratios to forward returns is ~0.4, which is one of our best meterics and that's pretty poor.
So, Dr. Bernstein's prediction is about as good as it gets and realistic. I would add we should expect a lot of noise.
The 20-year rolling SD of the S&P500 is 2.9% (1989-2014). Assuming historical volatility, we can expect returns invested today to average 3.7% real, with a range of 2.5 to 4.9% (95% confidence interval). This means our doubling time (rule of 72) will range from 28 to 14 years. The market noise will be very important.
IIRC, the r^2 of inverted ratios to forward returns is ~0.4, which is one of our best meterics and that's pretty poor.
So, Dr. Bernstein's prediction is about as good as it gets and realistic. I would add we should expect a lot of noise.
The 20-year rolling SD of the S&P500 is 2.9% (1989-2014). Assuming historical volatility, we can expect returns invested today to average 3.7% real, with a range of 2.5 to 4.9% (95% confidence interval). This means our doubling time (rule of 72) will range from 28 to 14 years. The market noise will be very important.
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Re: Bernstein: 2% investment returns over next 20 years
In order to plan, you have to make some sort of a guess on what real returns you're anticipated. You can't just say, "I don't care, I'll take what I get," because you won't know how much to save and return expectations ultimately are one of the factors that go into deciding on your asset allocation.
I had been using 2.5% real return for a few years and then scaled back to 2% real return as I've scaled back on equities. I got quite a bit of resistance on this forum for suggesting that return but I've not changed my mind. If you make more, fantastic.
I had been using 2.5% real return for a few years and then scaled back to 2% real return as I've scaled back on equities. I got quite a bit of resistance on this forum for suggesting that return but I've not changed my mind. If you make more, fantastic.
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Re: Bernstein: 2% investment returns over next 20 years
Tune out the noise.
Re: Bernstein: 2% investment returns over next 20 years
Exactly, Dr Hussman made a very similar prediction for 1.8% returns for 10 years and showed his calculations and he was literally run out of here. Yeah I know, he left the market too early and has himself in a pickle but it seems that someones philosophy makes a difference, even if they give the same message. The other side of it as Hussman points out, if there is a large decline that increases the potential returns for later. Either way, we must march forward with our plan.Trader Joe wrote:Tune out the noise.
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Re: Bernstein: 2% investment returns over next 20 years
Interesting, sobbering, but what can you do about it? What do we have control over? Save more, invest according to IPS, live below your means, keep costs down. FWIW, just a worker bee in the trenches.
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Re: Bernstein: 2% investment returns over next 20 years
Save lots. Always plan for low returns. Be happy when you're wrong.
Re: Bernstein: 2% investment returns over next 20 years
Well, you can get 0.55% real guaranteed with 20 year TIPS right now. That's better than zero real on bonds for the next 20 years.
Time is what we want most, but what we use worst. William Penn
Re: Bernstein: 2% investment returns over next 20 years
Am I the only one that would be ecstatic with real returns of 2% over the next 20 years?
Re: Bernstein: 2% investment returns over next 20 years
Ecstatic seems a strong word... but I'd certainly be OK if stocks returned 4% over the next 20 since I pull less than 4%. As such my money would never run outkeystone wrote:Am I the only one that would be ecstatic with real returns of 2% over the next 20 years?
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Re: Bernstein: 2% investment returns over next 20 years
Dr. Bernstein is a well respected author and intelligent individual. He has made a prediction about the real returns of stocks and bonds going forward in his opinion.
Why should his prediction carry any more weight than that of another person making a stock market prediction? I am certain he made his prediction based on his research, but how many times has research based on XYZ, led one to believe the market would do X but ended up doing Y.
Dr. Bernstein is well respected on this board, some posters have agreed with him and that's fine were all entitled to our opinions. However, it should resonate loud and clear that it's just that, an opinion.
We will all know in time if he's correct but we shouldn't changed our investment strategy. I think this is especially important to the newbies who could alter their allocations, based on an opinion.
We all know it's best to tune out ALL of the noise and stick to the plan that best suits your need, ability and willingness to take risk.
Why should his prediction carry any more weight than that of another person making a stock market prediction? I am certain he made his prediction based on his research, but how many times has research based on XYZ, led one to believe the market would do X but ended up doing Y.
Dr. Bernstein is well respected on this board, some posters have agreed with him and that's fine were all entitled to our opinions. However, it should resonate loud and clear that it's just that, an opinion.
We will all know in time if he's correct but we shouldn't changed our investment strategy. I think this is especially important to the newbies who could alter their allocations, based on an opinion.
We all know it's best to tune out ALL of the noise and stick to the plan that best suits your need, ability and willingness to take risk.
Re: Bernstein: 2% investment returns over next 20 years
Beware sequence of returnssperry8 wrote:Ecstatic seems a strong word... but I'd certainly be OK if stocks returned 4% over the next 20 since I pull less than 4%. As such my money would never run outkeystone wrote:Am I the only one that would be ecstatic with real returns of 2% over the next 20 years?
Re: Bernstein: 2% investment returns over next 20 years
Wow.I never knew anyone could predict both stock and bond returns even for 1 year much less 20......pretty amazing.
K.I.S.S........so easy to say so difficult to do.
Re: Bernstein: 2% investment returns over next 20 years
That's not a correct reading of Picketty. His book "Capital in the 21st Century" attracted attention for positing that wealth inequality naturally increases in stable capitalist economies because 'r-g>0', return on capital naturally exceeds the economic growth rate unless there's upheaval, historically. And he also showed data that wealth inequality has widened recently as well as widening and narrowing in various previous periods. But he never said 'r' was accelerating now and definitely not r just on publicly traded securities, which is what we're typically concerned with here (a lot of return is on private capital). Also various data in the book have been questioned by people as serious as Piketty, and the author himself in a new paper criticizes some of the current-policy-oriented conclusions fans of the book have drawn, cautioning to view it mainly as a work on economic history. But while about an economist and his book, your comment was relevant to investing, as is my response. There's no sensible way to completely separate those two topics.lloydbraun wrote:This is a difficult topic as we are not supposed to address economic issues here though I will note that some economists, like Thomas Picketty, argue that returns to capital are accelerating so, regardless of how GDP looks, market returns may continue to be relatively high going forward. He may be incorrect or correct, but if Picketty is correct then we can't depend on mid to late 20th century norms to predict future returns. If Larry Summers' re-formulated secular stagnation is correct then we may see a bumpy ride as he contends that economic growth in a low demand world can only be achieved via bubbles created by central banks and governmental fiscal stimulus. Who knows who's correct? All we can do, if we're passive investors, is keep going and minimize fees as we already do.
But no authoritative commentator actually is making the argument that rates of return (on stocks and bonds) are accelerating AFAIK. And on the bond side of a balanced portfolio Bernstein's point is pretty much self evident. Bonds at zero-ish real yields, even medium to long term ones now are, simply can't give the returns to maturity bond investors became accustomed to in the long secular fall of inflation and long term US yields from the double digits in 1980's. They can only provide modest additional capital gains by falling to unprecedentedly low yields and/or with long term deflation, which it's difficult to imagine would accompany robust stock returns. OTOH stocks in the US are quite richly valued based on historical metrics. It's a straightforward inference to say expected returns are relatively low by historical standards.
And that's what Bernstein is talking about, *EXPECTED* return, the estimated midpoint of the distribution of future unknown *REALIZED* returns. Bernstein isn't saying he knows the future realized return, so 'crystal ball' is not an appropriate metaphor nor comparison to market commentators who try to guess the future realized return over relatively short periods. He's stating the obvious about bonds, and something fairly apparent about US stocks, though somewhat less apparent for foreign stocks. Expected returns are lower than historical realized returns on those assets, plan accordingly. Such a conclusion doesn't imply a recommendation in favor of market timing.
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Re: Bernstein: 2% investment returns over next 20 years
Nobody knows nuthin'. Interesting financial porn (yes, it's from a well-respected Bogleheadish author, but it's still financial porn), but that's about it.
Retirement investing is a marathon.
Re: Bernstein: 2% investment returns over next 20 years
This isn't noise. Noise is Jim Cramer screaming to buy hot stock X and sell cold stock Y. This is a very intelligent economist, and BTW a steadfast believer in indexing and controlling costs. He presents a very well researched, very well thought out forecast. It's worth absorbing the message and pondering what this potentially means to those of us who will be accumulating for the next 20 years. Unfortunately, there isn't much we can do about it other than laughing at those who suggest 10% or 12% returns long term in the market. No boglehead was calculating that kind of return anyway. I've always used 5% since finding this forum.VPP wrote:Exactly, Dr Hussman made a very similar prediction for 1.8% returns for 10 years and showed his calculations and he was literally run out of here. Yeah I know, he left the market too early and has himself in a pickle but it seems that someones philosophy makes a difference, even if they give the same message. The other side of it as Hussman points out, if there is a large decline that increases the potential returns for later. Either way, we must march forward with our plan.Trader Joe wrote:Tune out the noise.
I’d trade it all for a little more |
-C Montgomery Burns
Re: Bernstein: 2% investment returns over next 20 years
The current models and theory are much better at predicting long-term capital market returns than 1-year returns for stock markets. Check the data.hoops777 wrote:Wow.I never knew anyone could predict both stock and bond returns even for 1 year much less 20......pretty amazing.
For what it's worth, the distinction is between something like "mostly bad" being much better than "you almost may as well flip a coin." There's still a lot of noise and unexplained factors for the long-term results.
People get really, really, really hung up on the word "expected." That is just a statistical average of some kind of model. There is no guarantee that actual results will be all that close to what is supposed to happen. It depends on the other assumptions about the distribution, but 2% expected really just means that you should keep in mind that somebody's analysis says that 2% is more likely than say 4% or 0%, and that something like 10% and -6% are both pretty unlikely (though maybe not equally unlikely, and again "pretty unlikely" is loose because really you need more than just a point estimate to talk about how fat the tails are). It tells you that if your savings rate will allow you to reach your goals if you get 5% but not if you get 2%, you really ought to consider saving more or revising those goals.
Of course, it's possible that there are flaws in the analysis and assumptions for any number of reasons, that "this time it's different" (for real).
Re: Bernstein: 2% investment returns over next 20 years
The quote said 2% real "net of expenses" but what average expenses was Bill Bernstein presuming in making that prediction? Not everyone is a pure Boglehead directly owning only very low cost funds. And even Wade Pfau's paper last year (questioning 4% SWR) posited 1% wrap fee. If it's going to be 2% real going forward for those who want to pay someone a third of their annual gains, but nearly 3% for the rest of us, that's quite a different proposition.
Re: Bernstein: 2% investment returns over next 20 years
I'm sure Dr. Bernstein would be the first to point out that the key word is "expected" return. He's not predicting the actual return, which some people seem to think. The actual return might be higher or it might be lower. But it's pretty hard to navigate without some expectation of where you might end up. Using dead reckoning and hope usually turn out as badly as looking in the rearview mirror. If a 2% real return isn't going to float your boat, then you need to be thinking about Plan B.the expected return of a balanced portfolio is the lowest it’s been in financial history
We don't know where we are, or where we're going -- but we're making good time.
Re: Bernstein: 2% investment returns over next 20 years
Just a factoid: Dr. Bernstein is a neurologist, not an economist, AFAIK-- unless he's picked up a doctorate recently! He writes very knowledgably on economic and financial topics, with a special emphasis on financial history. I believe he also manages money. I'm still waiting for him to write the definitive book on behavioral finance, which given his background, ought to be a blockbuster.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
Re: Bernstein: 2% investment returns over next 20 years
1% expenses is indeed high for people capable of implementing a BH-ish strategy on their own, or even with use of a fee only advisor to set the ball rolling, agreed. However given who Bernstein is, a guy spending a good deal of his effort writing about how people should invest basically BH'ishly emphasizing index funds at low expense, we might reasonably doubt he's assuming expenses as high as 1%.freebeer wrote:The quote said 2% real "net of expenses" but what average expenses was Bill Bernstein presuming in making that prediction? Not everyone is a pure Boglehead directly owning only very low cost funds. And even Wade Pfau's paper last year (questioning 4% SWR) posited 1% wrap fee. If it's going to be 2% real going forward for those who want to pay someone a third of their annual gains, but nearly 3% for the rest of us, that's quite a different proposition.
Then there's also taxes on investment returns. Not everyone can use just tax deferred vehicles for all their investing depending on their means, goals and which of those structures they qualify for.
I agree that at 2% real, even fractional % if/buts are a significant proportional difference. But look at the thread, a lot of responses are along the lines 'you can't predict' as if that means there's no such thing as an expected return. That's a more fundamental problem than parsing/modifying Bernstein's (quite reasonable statement about EXPECTED return) to adapt it to low expenses (unfortunately it probably already is) or taxes (unfortunately it probably isn't, it probably assumes IRA/401k return on pretax money).
Re: Bernstein: 2% investment returns over next 20 years
Continuing on about my previous point on single points not telling the whole story... one thing I like about Vanguard's take is that they depict the range of outcomes in terms of probabilities, so they're not just giving that single average point. Their outlook is also somewhat rosier than Dr. Bernstein's, for better or worse.
At least as of September 2014, see here:
http://www.vanguard.com/pdf/ISGVEMO.pdf
Here are the graphs from the above paper for projected 10-year returns on fixed income and equities, linked and not embedded to save space here:
http://i.imgur.com/5RbwRNJ.png
http://i.imgur.com/KaTIhKM.png
That's nominal returns, with an inflation expectation of a hair under 2%, so adjust everything down that much for real terms. The longer the period of observation, the more you expect the range of annualized returns to narrow (the dispersion of actual dollars at the end increases).
At least as of September 2014, see here:
http://www.vanguard.com/pdf/ISGVEMO.pdf
Here are the graphs from the above paper for projected 10-year returns on fixed income and equities, linked and not embedded to save space here:
http://i.imgur.com/5RbwRNJ.png
http://i.imgur.com/KaTIhKM.png
That's nominal returns, with an inflation expectation of a hair under 2%, so adjust everything down that much for real terms. The longer the period of observation, the more you expect the range of annualized returns to narrow (the dispersion of actual dollars at the end increases).
Re: Bernstein: 2% investment returns over next 20 years
It is easier to make accurate market predictions over 20 year periods than over one year periods.hoops777 wrote:Wow.I never knew anyone could predict both stock and bond returns even for 1 year much less 20......pretty amazing.
Re: Bernstein: 2% investment returns over next 20 years
Wow, surprised to see the piling on to bash Bernstein. I think it is important to draw a distinction here between a prediction and expectations. Sounds like many are speaking about the futility of predictions. But what is wrong with expectations? Certainly should help with planning, I mean, with real bond yields pretty much at 0 right now, how could one justify any expectation other than 0 for bonds?
But I do take issue with the following quote:
But I do take issue with the following quote:
Why "very lucky" to get this? I think this overstates things a bit. Is 2% real an expectation or not, and if it is an expectation, I'm not sure luck is the appropriate characterization.Two percent—I think net of expenses, you’re going to be very lucky to get 2 percent over the next 20 years.