Expected returns for 80/20 stock bond for next 10 years.

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Silk McCue
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Silk McCue » Fri Jul 06, 2018 10:07 am

tennisplyr wrote:
Fri Jul 06, 2018 9:51 am
Rick Ferri wrote:
Tue Jul 03, 2018 9:11 am
I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
He's talking 80% equities, do you know that?
Yes he does. This is the fourth page on this thread. Probably best to read through all of it. By doing so you would find this post by Rick here on page 3.

viewtopic.php?f=1&t=253037&start=100#p4002490

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Grt2bOutdoors » Fri Jul 06, 2018 5:08 pm

tennisplyr wrote:
Fri Jul 06, 2018 9:51 am
Rick Ferri wrote:
Tue Jul 03, 2018 9:11 am
I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
He's talking 80% equities, do you know that?
He knows. This is Rick you’re asking, “the” author who wrote the book on my shelf - All About Asset Allocation. Yep, he knows. :wink:
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by tennisplyr » Fri Jul 06, 2018 7:19 pm

Grt2bOutdoors wrote:
Fri Jul 06, 2018 5:08 pm
tennisplyr wrote:
Fri Jul 06, 2018 9:51 am
Rick Ferri wrote:
Tue Jul 03, 2018 9:11 am
I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
He's talking 80% equities, do you know that?
He knows. This is Rick you’re asking, “the” author who wrote the book on my shelf - All About Asset Allocation. Yep, he knows. :wink:
In my world using words like "likely", "might" and "assumes" do not imply certainty.
Those who move forward with a happy spirit will find that things always work out.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Silk McCue » Fri Jul 06, 2018 8:22 pm

tennisplyr wrote:
Fri Jul 06, 2018 7:19 pm
In my world using words like "likely", "might" and "assumes" do not imply certainty.
I haven’t seen anyone claiming any certainty in this thread. I personally learned a few things. Rick’s perspective and knowledge was particularly beneficial.

Cheers

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Grt2bOutdoors » Sat Jul 07, 2018 1:00 pm

tennisplyr wrote:
Fri Jul 06, 2018 7:19 pm
Grt2bOutdoors wrote:
Fri Jul 06, 2018 5:08 pm
tennisplyr wrote:
Fri Jul 06, 2018 9:51 am
Rick Ferri wrote:
Tue Jul 03, 2018 9:11 am
I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
He's talking 80% equities, do you know that?
He knows. This is Rick you’re asking, “the” author who wrote the book on my shelf - All About Asset Allocation. Yep, he knows. :wink:
In my world using words like "likely", "might" and "assumes" do not imply certainty.
Point me to the advisor, expert, charlatan that implies “certainty”, I’ll be sure to stay far, far away from them.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Sun Jul 08, 2018 3:29 pm

I can say with 100% certainty that if you invest in U.S. zero-coupon STRIPS and hold until maturity you will earn the following returns:

WSJ US zero-coupon STRIPS as of 3 PM on Friday July 6, 2018.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Northern Flicker » Sun Jul 08, 2018 11:08 pm

Rick Ferri wrote:
Tue Jul 03, 2018 9:11 am
I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
Risk premiums are random variables with some unknown probability distribution. Expected risk premiums are the means of those probability distributions. It doesn't make it more deterministic to model the returns as premiums in excess of a 10-year zero coupon treasury vs absolute returns of the asset class.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 09, 2018 9:57 am

A statement constantly made on this forum is that future returns cannot be known in advance. That is false. We know with certainty what a US zero-coupon STRIP will return out to 30 years.

That’s the starting place for predicting returns on all other asset classes. Risk premiums can be tracked back hundreds if not thousands of years. For example the risk premium for equity over enterprise borrowing cost is about 3% with a pretty tight range around that number.

Everyone who invests in stocks believes they will earn this fair premium. If you don’t believe it, you would not invest in stocks. Pretty simple.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Northern Flicker » Mon Jul 09, 2018 1:45 pm

Not sure what you think an expected return actually is, but by definition it is the expected value or mean of the probability distribution of return. Even if you do have a way of knowing this mean, it is just a weighted average of all possible outcomes, weighted by their probability of occurring. The expected return as an outcome may not even be the most probable outcome, but it certainly is not a guaranteed outcome. What was the expected 30-year return for Russian stocks in 1900?

If the equity risk premium for US stocks did not decrease significantly with the creation of the Federal Reserve and FDIC insurance (reducing the risk of bank and credit panics), passage of the Securities Act of 1940 etc, then US investors in say 1920 were getting fleeced because stocks unquestionably were riskier then.

Here are some calculated implied equity premiums in backtested data going back to 1960 computed using a dividend discount model and using a free cash flow model:

http://pages.stern.nyu.edu/~adamodar/Ne ... mplpr.html

Certainly not a tight band around 3%, whether or not the mean of the distribution was changing during this period.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 09, 2018 2:47 pm

The EXPECTATION of an equity risk premium is known and measurable. There is an expected PREMIUM because there is RISK in the number. If the actual future return of equities was known like it is for zero-coupon bonds, then there would be no expectation of a premium.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Northern Flicker » Mon Jul 09, 2018 3:29 pm

The New York Fed doesn’t believe the equity risk premium is a near-constant (narrow band around 3%) that can be applied to a treasury yield:

https://www.newyorkfed.org/medialibrary ... /sr714.pdf

In fact they concluded in that article that the ERP was considerably elevated (around 12%) in 2012 because treasury yields were very low.

They also acknowledge that there is enough disagreement in how to estimate the ERP that they used an average of estimates from no fewer than 20 different models as their estimate.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 09, 2018 4:39 pm

The New York Fed doesn’t believe the equity risk premium is a near-constant (narrow band around 3%) that can be applied to a treasury yield.
The paper you cited is looking at a "one-year-ahead ERP" and I am talking about a 10-30 year ERP. Slight difference.

When the Fed pushes rates low, it adds significant liquidity to the economy. That liquidity has to go somewhere, and it often gets pumped into stock prices and other assets like real estate prices. The wealth effect caused by higher asset prices cause people to feel good and spend more, this causes corporate earnings to increase, causes the unemployment rate to fall, and justifies even higher stock prices.

It's all very good for stock investors until the Fed takes the punch bowl away.

And guess what? They're taking the punch bowl away! So, it was be a mistake to invest under the belief that we'll see an 12% ERP.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Northern Flicker » Mon Jul 09, 2018 5:16 pm

If interest rates fall during a bear market, stocks being low increases their expected return relative to right before the bear market started while simultaneously the rate on the 30-year strip is falling. I would think this is what happened in the bear markets of 2000-2002 and 2008-2009. Falling treasury rates simultaneous with rising expected return on stocks is not consistent with an ERP excess of long-term treasuries that is close to constant.

The yield of the 30-year strip plus 3 percentage points may be as reasonable an estimate as any for 30-year return of stocks, but you haven’t offered any convincing evidence that this would be accurate or that there would be low variance around that estimate.

If the fed taking away the punch bowl has the effect often touted then treasury rates would rise and stocks would fall, lowering the premium relative to treasury rates, again not a source of dampening variance in the ERP at different points in time.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by jeffh19 » Mon Jul 09, 2018 7:28 pm

Nobody knows, as everyone else says. Keep in mind most don't expect high returns, but nobody knows. I heard last week how the market may have a big dip this week things are so delicate blah blah, the market has been doing outstanding the last few days.

One of my favorite quotes I saw here went something like this- Market Analysts have correctly predicted the last 73 of the last 4 market crashes.

Just keep throwing money in asap, if it has a big drop, find some extra money to throw in. Keep investing, stay the course.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Northern Flicker » Mon Jul 09, 2018 11:09 pm

https://www.globalfinancialdata.com/GFD/Article/the-equality-risk-premium wrote: At the end of 2001, the equity risk premium was 4.85% if the holding period was from 1900 to 2001, 5.07% if the holding period was from 1925 to 2001, 5.74% if the holding period was from 1950 to 2001, 3.26% if the holding period was from 1971 to 2001, but 4.96% if the holding period was from 1991 to 2001.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Call_Me_Op » Tue Jul 10, 2018 8:02 am

averagedude wrote:
Tue Jul 03, 2018 1:16 pm
I can't believe Rick Ferri and all of you bogleheads saying to expect 5% nominal returns in the future. I guess i will have to sell my holdings and contact a SmartVestor Pro. Dave Ramsey says i should get 12%.
Not only that, but you'll get to work with someone who has the heart of a teacher.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Call_Me_Op » Tue Jul 10, 2018 8:04 am

FIREchief wrote:
Tue Jul 03, 2018 11:48 pm
[Exactly. A: stay the course, B: nobody knows nothing
That would mean that everybody knows something.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Silk McCue » Tue Jul 10, 2018 8:27 am

Call_Me_Op wrote:
Tue Jul 10, 2018 8:04 am
FIREchief wrote:
Tue Jul 03, 2018 11:48 pm
[Exactly. A: stay the course, B: nobody knows nothing
That would mean that everybody knows something.
This phrase has been in our lexicon for longer than I have been alive. We all understand exactly what it means.

Cheers

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by FIREchief » Tue Jul 10, 2018 10:53 am

Silk McCue wrote:
Tue Jul 10, 2018 8:27 am
Call_Me_Op wrote:
Tue Jul 10, 2018 8:04 am
FIREchief wrote:
Tue Jul 03, 2018 11:48 pm
[Exactly. A: stay the course, B: nobody knows nothing
That would mean that everybody knows something.
This phrase has been in our lexicon for longer than I have been alive. We all understand exactly what it means.

Cheers
Exactly!! :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by CnC » Tue Jul 10, 2018 11:02 am

Rick Ferri wrote:
Mon Jul 02, 2018 8:10 pm
Nope. 2% inflation is included in the 5% estimate. So, 3% real return, before tax.

Don’t like it?

Central Banks around the world will be trying to normalize policy after a decade of negative real interest rates and that means regression to the mean for asset prices - my opinion, of course.

I’m giving you a realistic estimate to work with over the next 10 years. If returns are higher, great! If not, you won’t be disappointed.
Well I say 13% with absolutely as much confidence as your 3% real return...


People are quoting a "great" 10 years. You are cherry picking numbers. What about our return for the past 12 or 18 years or 22 years ago?

In 1996 the sp500 was 614.42 cagr of 7.1
In 2000 the sp500 was 1425.29 cagr of 3.8
In 2006 the sp500 was 1278.73 cagr of 6.7

As you see a person can look at completely valid data randomly chosen and see that we are not on that "great" of a run.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by owenmia » Fri Jun 28, 2019 10:20 am

Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
Digging through old posts, but if this is the case there is no reason top be in stocks. 3% is not worth the risk of losing money. you are better off in bonds.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by owenmia » Fri Jun 28, 2019 10:29 am

jbranx wrote:
Mon Jul 02, 2018 8:54 pm
Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true
Then investment is a waste of money.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by BogleBoogie » Fri Jun 28, 2019 10:37 am

Rick Ferri wrote:
Mon Jul 02, 2018 8:56 pm
I understand. Recency bias is very real in financial expectations. It’s common for investors to expect high returns after a ten year period of high returns.
With Timelord's question on using the VG data from 1926-2017 average return, how does that relate to recency bias? That seems like it would be the opposite since it is taking into account all data, every year. What am I missing on that?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by randomguy » Fri Jun 28, 2019 10:48 am

owenmia wrote:
Fri Jun 28, 2019 10:20 am
Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
Digging through old posts, but if this is the case there is no reason top be in stocks. 3% is not worth the risk of losing money. you are better off in bonds.
Making 3% real is bad but it is a heck of a lot better than making .5%.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by rascott » Fri Jun 28, 2019 12:00 pm

If we return 5% nominal over the next ten years in equities.....that would make for what....roughly a 5% return over a 30 year period?

Yuck.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Chadnudj » Fri Jun 28, 2019 12:07 pm

FWIW, this thread started almost a year ago (July 2, 2018).

Vanguard's LifeStrategy Growth Fund (essentially an 80-20 stock-bond split) returned 0.37% between May 31, 2018 and May 31, 2019, per Vanguard.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by tooluser » Fri Jun 28, 2019 12:38 pm

Silk McCue wrote:
Fri Jul 06, 2018 8:22 pm
tennisplyr wrote:
Fri Jul 06, 2018 7:19 pm
In my world using words like "likely", "might" and "assumes" do not imply certainty.
I haven’t seen anyone claiming any certainty in this thread. I personally learned a few things. Rick’s perspective and knowledge was particularly beneficial.

Cheers
This may help: A scholarly paper on the words used to describe estimative uncertainty:
https://www.cia.gov/library/center-for- ... words.html

"Estimative Uncertainty: ... a judgment or estimate. It describes something which is knowable in terms of the human understanding but not precisely known by the man who is talking about it."

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by randomguy » Fri Jun 28, 2019 12:48 pm

rascott wrote:
Fri Jun 28, 2019 12:00 pm
If we return 5% nominal over the next ten years in equities.....that would make for what....roughly a 5% return over a 30 year period?

Yuck.
A little bit higher since we are talking 80/20 where the bonds are returning like 2% or so. But yeah we will have lived through one of the worst nominal 30 year stock market periods ever. Aren't we lucky:) Of course even if we get like 12%, we would still be looking at a below average period. A lost decade is rough on returns.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Luckywon » Sat Jun 29, 2019 10:37 am

Chadnudj wrote:
Fri Jun 28, 2019 12:07 pm
FWIW, this thread started almost a year ago (July 2, 2018).

Vanguard's LifeStrategy Growth Fund (essentially an 80-20 stock-bond split) returned 0.37% between May 31, 2018 and May 31, 2019, per Vanguard.
The one year return of this fund is now 6.14 % (June 30, 2018 through Jun 30, 2019). What a difference a month makes!

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Chadnudj » Mon Jul 08, 2019 8:44 am

Luckywon wrote:
Sat Jun 29, 2019 10:37 am
Chadnudj wrote:
Fri Jun 28, 2019 12:07 pm
FWIW, this thread started almost a year ago (July 2, 2018).

Vanguard's LifeStrategy Growth Fund (essentially an 80-20 stock-bond split) returned 0.37% between May 31, 2018 and May 31, 2019, per Vanguard.
The one year return of this fund is now 6.14 % (June 30, 2018 through Jun 30, 2019). What a difference a month makes!
I knew I should have waited until the June data came in to post!

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Bacchus01 » Mon Jul 08, 2019 11:29 am

AlohaJoe wrote:
Mon Jul 02, 2018 10:02 pm
vineviz wrote:
Mon Jul 02, 2018 9:00 pm
jbranx wrote:
Mon Jul 02, 2018 8:54 pm
Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true
Virtually every other brokerage firm has a similar outlook as far as I can tell. Real returns for stocks of 2-4%, real returns for bonds of 1-2%, are pretty typical expectations for the next ten years.
To show this....(all returns are real for US equities)
  • GMO says -4.7%
  • Research Affiliates says 0.13%
  • Robeco says 3.75%
  • JP Morgan says 3.25%
  • BNY Mellon (2017) says 4.3%
  • Callan (2017) says 4.35%
  • Blackrock (2017) says 1.85% (I think; they said 4.1% but it wasn't clear whether they meant real or nominal; I assumed that was nominal and they also forecast inflation of 2.25%)
  • AQR 4%
  • Schwab 4.5%
GMO and (to a lesser extent) RA are the clear pessimistic outliers. Everyone else seems to be saying 3.25%-4.5% real returns for US equities over the next decade.

However, I disagree about the real returns for bonds of 1-2%. I don't see anyone forecasting that high.
  • RA 0.88%
  • Robeco -3%
  • JP Morgan 0.75%
  • BNY Mellon 0.1%
  • Callan 0.5%
  • Blackrock -0.45%
  • GMO -1%
  • AQR 0.4%
  • Schwab 0.9%
No one is really forecasting 1% real return for bonds; everyone seems to come in quite a bit under that. Though admittedly there will be some variation between Treasuries, total bond market, corporates, etc. But I don't think anyone is forecasting any kind of investment grade US debt to be 2% real return.
Why do people believe these? Have they ever projected correctly? Serious question.

Return is about risk. Did the risk profile of equities change dramatically all of the sudden? Why would it be so different in the future than it was in the past? Are there significant less riskier yet equally high returns available somewhere we don't know about?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by CnC » Mon Jul 08, 2019 4:20 pm

Bacchus01 wrote:
Mon Jul 08, 2019 11:29 am
AlohaJoe wrote:
Mon Jul 02, 2018 10:02 pm
vineviz wrote:
Mon Jul 02, 2018 9:00 pm
jbranx wrote:
Mon Jul 02, 2018 8:54 pm
Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true
Virtually every other brokerage firm has a similar outlook as far as I can tell. Real returns for stocks of 2-4%, real returns for bonds of 1-2%, are pretty typical expectations for the next ten years.
To show this....(all returns are real for US equities)
  • GMO says -4.7%
  • Research Affiliates says 0.13%
  • Robeco says 3.75%
  • JP Morgan says 3.25%
  • BNY Mellon (2017) says 4.3%
  • Callan (2017) says 4.35%
  • Blackrock (2017) says 1.85% (I think; they said 4.1% but it wasn't clear whether they meant real or nominal; I assumed that was nominal and they also forecast inflation of 2.25%)
  • AQR 4%
  • Schwab 4.5%
GMO and (to a lesser extent) RA are the clear pessimistic outliers. Everyone else seems to be saying 3.25%-4.5% real returns for US equities over the next decade.

However, I disagree about the real returns for bonds of 1-2%. I don't see anyone forecasting that high.
  • RA 0.88%
  • Robeco -3%
  • JP Morgan 0.75%
  • BNY Mellon 0.1%
  • Callan 0.5%
  • Blackrock -0.45%
  • GMO -1%
  • AQR 0.4%
  • Schwab 0.9%
No one is really forecasting 1% real return for bonds; everyone seems to come in quite a bit under that. Though admittedly there will be some variation between Treasuries, total bond market, corporates, etc. But I don't think anyone is forecasting any kind of investment grade US debt to be 2% real return.
Why do people believe these? Have they ever projected correctly? Serious question.

Return is about risk. Did the risk profile of equities change dramatically all of the sudden? Why would it be so different in the future than it was in the past? Are there significant less riskier yet equally high returns available somewhere we don't know about?
Well we are 1 year in from when this thread was posted and thus far we are destroying their predicted returns.

You forget someone can miss 90 out of 100 calls but when they are eventually right they will said I told you so.

Ask any pessimist who predicted 2% real returns what about the last year and they will just ignore it and say "well the 'next' 10 years will be even worse.

They have been saying this at least since 16 when I started paying attention.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by GAAP » Tue Jul 09, 2019 12:20 pm

CnC wrote:
Mon Jul 08, 2019 4:20 pm
Bacchus01 wrote:
Mon Jul 08, 2019 11:29 am
AlohaJoe wrote:
Mon Jul 02, 2018 10:02 pm
vineviz wrote:
Mon Jul 02, 2018 9:00 pm
jbranx wrote:
Mon Jul 02, 2018 8:54 pm
Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true
Virtually every other brokerage firm has a similar outlook as far as I can tell. Real returns for stocks of 2-4%, real returns for bonds of 1-2%, are pretty typical expectations for the next ten years.
To show this....(all returns are real for US equities)
  • GMO says -4.7%
  • Research Affiliates says 0.13%
  • Robeco says 3.75%
  • JP Morgan says 3.25%
  • BNY Mellon (2017) says 4.3%
  • Callan (2017) says 4.35%
  • Blackrock (2017) says 1.85% (I think; they said 4.1% but it wasn't clear whether they meant real or nominal; I assumed that was nominal and they also forecast inflation of 2.25%)
  • AQR 4%
  • Schwab 4.5%
GMO and (to a lesser extent) RA are the clear pessimistic outliers. Everyone else seems to be saying 3.25%-4.5% real returns for US equities over the next decade.

However, I disagree about the real returns for bonds of 1-2%. I don't see anyone forecasting that high.
  • RA 0.88%
  • Robeco -3%
  • JP Morgan 0.75%
  • BNY Mellon 0.1%
  • Callan 0.5%
  • Blackrock -0.45%
  • GMO -1%
  • AQR 0.4%
  • Schwab 0.9%
No one is really forecasting 1% real return for bonds; everyone seems to come in quite a bit under that. Though admittedly there will be some variation between Treasuries, total bond market, corporates, etc. But I don't think anyone is forecasting any kind of investment grade US debt to be 2% real return.
Why do people believe these? Have they ever projected correctly? Serious question.

Return is about risk. Did the risk profile of equities change dramatically all of the sudden? Why would it be so different in the future than it was in the past? Are there significant less riskier yet equally high returns available somewhere we don't know about?
Well we are 1 year in from when this thread was posted and thus far we are destroying their predicted returns.

You forget someone can miss 90 out of 100 calls but when they are eventually right they will said I told you so.

Ask any pessimist who predicted 2% real returns what about the last year and they will just ignore it and say "well the 'next' 10 years will be even worse.

They have been saying this at least since 16 when I started paying attention.
That Vanguard document says:
Nominal returns, particularly here in the United States, on the equity side, [are] likely to be very muted. When I say muted, we’re talking about a central tendency of around 3% to 5%, compared with a historic average of closer to 9% to 11% on an annualized basis. Right, and that’s over the next ten years
.

Note that the Vanguard folks and AlohaJoe are talking about a longer term average in the 3-5% range, NOT every year. The usual equity volatility would still apply -- meaning any one year period (or even 3 -year period) is not a good overall indication.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

CnC
Posts: 840
Joined: Thu May 11, 2017 12:41 pm

Re: Expected returns for 80/20 stock bond for next 10 years.

Post by CnC » Tue Jul 09, 2019 11:12 pm

GAAP wrote:
Tue Jul 09, 2019 12:20 pm


Note that the Vanguard folks and AlohaJoe are talking about a longer term average in the 3-5% range, NOT every year. The usual equity volatility would still apply -- meaning any one year period (or even 3 -year period) is not a good overall indication.

Just how long are we talking? They have been preaching poor returns for at least the last 5 years. Yet it's been a 51% return without dividends.

This is yet another case of predicting rain everyday and when the sun shines they simply say the rain is pushed back to tomorrow.

Face it they do not have a clue what the market will do.

We have had very poor returns over the last 20 years. Why are we "due" for another 20 years of below average returns? Please show any time in the us stock history that we had 40 years of below average returns? I don't even know if it's possible to torture the data by cherry picking absolute highs and absolute crash floors to find 40 years with average real returns like the Vanguard folks and AlohaJoe are talking about.


FYI returns july 1999- July 2019

Total S&P 500 Return
41.472%
Annualized S&P 500 Return
1.750%
Total S&P 500 Return (Dividends Reinvested)
104.494%
Annualized S&P 500 Return (Dividends Reinvested)
3.642%
Inflation Adjusted (CPI)?
Yes

So once again please let me know why after 20 years of annualized sp500 returns of 3.6% we are due for another terrible 20 years?

The previous 20 years yielded over 13% annualized indexed for inflation. 1979-1999

The 20 years before that yielded over 1.7% annualized indexed for inflation. 1959-1979

The 20 years before that yielded over 10.2% annualized indexed for inflation. 1939-1959

The 20 years before that yielded 8% annualized indexed for inflation. 1919-1939

If history is any guide at all we are more likely to have a good next 20 years than a poor next 20.

visualguy
Posts: 1599
Joined: Thu Jan 30, 2014 1:32 am

Re: Expected returns for 80/20 stock bond for next 10 years.

Post by visualguy » Tue Jul 09, 2019 11:26 pm

The problem is that the US economy has grown only an average of 2.3% a year since the current expansion began in 6/2009. The average growth rate of the 10 previous economic expansions since WWII was 4.3%, which is almost double. In other words, we don't have the economic growth needed to justify good returns over the next decade on top of what we've had over the last decade, particularly since we're likely to be at the tail end of this very long (but shallow) expansion.

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