Lower Return Decade Says Jack: Thoughts?

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randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Thu Sep 13, 2018 8:30 pm

Thesaints wrote:
Thu Sep 13, 2018 8:13 pm
protagonist wrote:
Thu Sep 13, 2018 8:09 pm
Look at his predictions ten years ago and see how well they match reality for this decade.
Ten years ago, after the crash depressed market valuations, the theory forecasted returns more likely to be above the historical average than below it.
The theory was correct.
Care to point out anyone who in 2009 predicted above average historical returns. I can find a lot of 2009 and 2010 doom and gloomers. Not many bulls. For example here is Jack in 2009 and he was one of the more optimistic people
https://www.forbes.com/2009/01/09/intel ... 0db0265ef0 has him predicting 10% returns.

Predicated 10%. Real number is over 15% with 4 months left. Do you really think this predication is any more accurate?

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Thu Sep 13, 2018 8:34 pm

Ron Scott wrote:
Sun Sep 09, 2018 3:09 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Bingo.

Why count on investment growth above inflation to sleep at night during your retirement?
Because working an extra decade to get enough money (and shorter retirement) in order to not count on conservative (i.e. things that have happenned 99% in US history) isn't very appealing.

visualguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by visualguy » Thu Sep 13, 2018 8:54 pm

randomguy wrote:
Thu Sep 13, 2018 8:34 pm
Ron Scott wrote:
Sun Sep 09, 2018 3:09 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Bingo.

Why count on investment growth above inflation to sleep at night during your retirement?
Because working an extra decade to get enough money (and shorter retirement) in order to not count on conservative (i.e. things that have happenned 99% in US history) isn't very appealing.
That actually depends on what you do for a living and how much you like or dislike it...

JBTX
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Re: Lower Return Decade Says Jack: Thoughts?

Post by JBTX » Thu Sep 13, 2018 9:02 pm

We have been at this level of cape10 3 times in the past, give or take. All 3 times the next 10 years were either negative or very low single digits.

It took a long time to recover after 1929.

10 years after 2000 crash was probably negative.

10 years after 2006/2007 was probably about flat.

18 years after 2000 to now, even at today's levels, has been about 3-4% nominal.

Of course anything is possible. Maybe we go Japan style mega bubble with PES in the 60s or higher. But it will take something close to that to get to historical 10% returns. That seems highly unlikely. It has never happened before.

Bogle is saying expected returns will be about 4% nominal give or take. The key word is expected. He is basically setting expectations. If you are in the market now you need to be prepared for low single digit returns (or worse) If it goes higher than that, consider it gravy.

protagonist
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Re: Lower Return Decade Says Jack: Thoughts?

Post by protagonist » Thu Sep 13, 2018 10:23 pm

Thesaints wrote:
Thu Sep 13, 2018 8:13 pm
protagonist wrote:
Thu Sep 13, 2018 8:09 pm
Look at his predictions ten years ago and see how well they match reality for this decade.
Ten years ago, after the crash depressed market valuations, the theory forecasted returns more likely to be above the historical average than below it.
The theory was correct.
"theory"?
That's a 50-50 chance.

Lesson one from Jack Bogle, Jan 8, 2009: "Beware of market forecasts, even by experts." https://www.wsj.com/articles/SB123137479520962869
Good advice, Jack.
Last edited by protagonist on Thu Sep 13, 2018 11:21 pm, edited 1 time in total.

AlphaLess
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Re: Lower Return Decade Says Jack: Thoughts?

Post by AlphaLess » Thu Sep 13, 2018 10:25 pm

midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Unfortunately, that plan is to unrealistic for most people.
"You can get more with a kind word and a gun than with just a kind word." George Washington

CarpeDiem22
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Re: Lower Return Decade Says Jack: Thoughts?

Post by CarpeDiem22 » Thu Sep 13, 2018 11:50 pm

randomguy wrote:
Thu Sep 13, 2018 1:19 pm
CarpeDiem22 wrote:
Mon Sep 10, 2018 2:51 am
HomerJ wrote:
Sun Sep 09, 2018 6:45 pm
EnjoyIt wrote:
Sun Sep 09, 2018 1:31 pm
JustWantToGetItRight wrote:
Sun Sep 09, 2018 11:07 am
Just read Jack Bogle's book (edited in 2017) and was a little discouraged about his comments that we should all expect lower returns in the next decade.

For a 60/40 balanced fund it could be as low as 6% and even 4% in some circumstances. Am I misreading? Because if not, Id rather be in CDs and take a small hit on inflation then incur the risk for a few more percentage points.

Please clear this up for me.

Thanks
So far to my knowledge there has never been a single person who has been able to correctly predict market returns. Jack Bogle is a hero for investors but even he does not posses a crystal ball. Either way you only have 1 of two options: Do nothing, or do something. I am choosing to do nothing which I think was another one of Mr. Bogles recommendations.
This. I love Mr. Bogle, but he's an idiot when he predicts returns. Nobody knows enough to predict returns acurrately. He needs to stop doing that. Many "experts" predicted 4.5% real returns back in 2011... Instead, we've gotten like 12%-13% real returns... That's not just a little bit off. That tells you the "experts" can't predict returns.

That said, I say plan for low returns... 3%-4%... and then be pleasantly surprised 95% of the time. And when someone runs in here and predicts "only 4% returns going forward", you don't have to change a thing.
Wow, did I just read this on a forum dedicated to Jack Bogle? :P He is not "predicting" returns, he is setting expectations which is a big part of decision making and avoiding recklessness when it comes to finances. The stock returns come from the underlying businesses and nothing else, and there is no way that the two can become uncorrelated in the long term (10-year is not long term for a business btw, in my opinion).
Here is jack in Jan 2011 https://money.cnn.com/2010/12/31/pf/inv ... /index.htm predicting 7-8% which as was pointed out was almost half of what we got so far. Maybe we will have a 50% correction over the next 2 years to bring things in line. Maybe not. None of this should be considered a personal criticism of Bogle. It is a criticism of ALL market predication schemes. I could sit here and predict 9%+ returns for the next decade AND if I did it for the next 30 years, I would be right more often than not. But it isn't remotely useful.

Planning for low returns is not free. You sacrifice spending now and end up with way too much money in the future. Not the worst problem but far from optimal.
Markets remained irrational for years after Greenspan's "irrational exuberance" comment. Doesn't mean that we can let the Fed Chair remain empty and just raise our hands saying "nobody know nothing". The important question Jack is trying to answer is how much to expect rationally, and unlike most people in the industry, he is being honest about it. Also, as the saying goes in maths, ALL predictions are wrong.

jclear
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Re: Lower Return Decade Says Jack: Thoughts?

Post by jclear » Thu Sep 13, 2018 11:59 pm

randomguy wrote:
Thu Sep 13, 2018 8:30 pm
Care to point out anyone who in 2009 predicted above average historical returns. I can find a lot of 2009 and 2010 doom and gloomers. Not many bulls. For example here is Jack in 2009 and he was one of the more optimistic people
https://www.forbes.com/2009/01/09/intel ... 0db0265ef0 has him predicting 10% returns.

Predicated 10%. Real number is over 15% with 4 months left. Do you really think this predication is any more accurate?
In 2009 there was talk of “the stimulus should have been larger”. But there were people in late 2008 and early 2009 talking about a “buying opportunity of a lifetime”. Even Warren Buffett had an editorial in late 2008 saying that people were foolish for holding cash because stocks were going to blow cash away over the next decade.

mariezzz
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Re: Lower Return Decade Says Jack: Thoughts?

Post by mariezzz » Fri Sep 14, 2018 12:09 am

As Taylor says, 'stay the course'. But did you carefully consider your risk tolerance to be sure you understand yours? It sounds like you may be somewhat risk averse - are you more so than your Asset Allocation suggests. Do you have an IPS? If yes, read it. Is there any legitimate reason outside of apprehension/fear to change it?

Educate yourself about historic trends - things go up in some years, things go down in other. In 2008, many many people said 'this is different' - yes we can easily look back and see, no, it wasn't so very different. If you were paying attention at all in 2008 and a few years after, (in my opinion) you've likely gone through about the worst you are likely to experience in your lifetime, barring a political disaster in the US.

If you've been in the market the last few years, you've done well. Good years are balanced by not so good years - we just don't know in advance which a year will be.

Such statements like Bogle could be a motivation to be a little more careful fiscally - i.e., save more, which isn't a bad thing, especially if it goes into tax deferred accounts and decreases your taxable income (a huge return right there).

Educate yourself about what you can reasonably expect the market to do over 15 years. Use a compound interest calculator - I usually run scenarios from 4 - 5% (if I get more on my entire portfolio, I will be pleasantly surprised). Think about your time frame & need for money. If you're nearing retirement, does your IPS suggest changing your asset allocation? Read up on retirement issues (sequence of return, safe withdrawal rates), think about what you want vs. need for an income.

There have actually been a number of very good years in the last 5, and during all of that time, people were spouting doom & gloom. Gloom will come for a while, but I don't know when.

I remember a chart on marking timing showing that if you missed out on just a dozen or so key days when the market went up, that dramatically & negatively affected your returns over time, so trying to time the market is a demonstrated bad idea.

smectym
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Re: Lower Return Decade Says Jack: Thoughts?

Post by smectym » Fri Sep 14, 2018 12:17 am

CarpeDiem22 wrote:
Sun Sep 09, 2018 11:14 am
Yes, lower return is EXPECTED. Actual return could be much higher or much lower. On the other hand, CD would ensure low return.
So true, and with hindsight I’d have gone 100% equity in March 2009. But then and now we have held a healthy slug of CD’s and other non-fluctuating-principal instruments (including I bonds). I still believe that’s the prudent foundation of portfolio planning. Investors with a secure core of “never goes down” assets, though return on such capital is low, are better able to weather market volatility on the stock and bond side of the portfolio.

Smectym

mariezzz
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Re: Lower Return Decade Says Jack: Thoughts?

Post by mariezzz » Fri Sep 14, 2018 12:32 am

randomguy wrote:
Thu Sep 13, 2018 1:19 pm
CarpeDiem22 wrote:
Mon Sep 10, 2018 2:51 am
HomerJ wrote:
Sun Sep 09, 2018 6:45 pm
EnjoyIt wrote:
Sun Sep 09, 2018 1:31 pm
JustWantToGetItRight wrote:
Sun Sep 09, 2018 11:07 am
For a 60/40 balanced fund it could be as low as 6% and even 4% in some circumstances. Am I misreading? Because if not, Id rather be in CDs and take a small hit on inflation then incur the risk for a few more percentage points.
Here is jack in Jan 2011 https://money.cnn.com/2010/12/31/pf/inv ... /index.htm predicting 7-8% which as was pointed out was almost half of what we got so far. Maybe we will have a 50% correction over the next 2 years to bring things in line. Maybe not. None of this should be considered a personal criticism of Bogle. It is a criticism of ALL market predication schemes. I could sit here and predict 9%+ returns for the next decade AND if I did it for the next 30 years, I would be right more often than not. But it isn't remotely useful.
Seems to me Bogle is really just relying on some basic principles. In 2011, a decent increase of 7-8% (a was reasonable given the market was recovering from a trough. From the CNN article: 'Add in the dividend, and you can expect the investment return on stocks to be close to 7% or perhaps 8%'. In 2017, he is talking about 6%, maybe 4% for a 60/40 balanced fund- this after a few quite good years in the last 5, so he's lowered the numbers a little.

As someone has mentioned, to a degree Bogle is managing expectations. We all know he doesn't have a crystal ball.

I find it useful to understand historic trends. When the market drops some significant amount, I think about the fact it's done that before, and recovered. I also think it's usually misleading to quote just a few sentences of Bogle's, because everything he say is in a larger context. The sentence about 7-8% was made in a much larger discussion about dividends - it's worth reading the entire article to understand the point Bogle was making.

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Fri Sep 14, 2018 1:07 am

JBTX wrote:
Thu Sep 13, 2018 9:02 pm
We have been at this level of cape10 3 times in the past, give or take. All 3 times the next 10 years were either negative or very low single digits.

It took a long time to recover after 1929.

10 years after 2000 crash was probably negative.

10 years after 2006/2007 was probably about flat.

18 years after 2000 to now, even at today's levels, has been about 3-4% nominal.

Of course anything is possible. Maybe we go Japan style mega bubble with PES in the 60s or higher. But it will take something close to that to get to historical 10% returns. That seems highly unlikely. It has never happened before.

Bogle is saying expected returns will be about 4% nominal give or take. The key word is expected. He is basically setting expectations. If you are in the market now you need to be prepared for low single digit returns (or worse) If it goes higher than that, consider it gravy.
Your numbers are some what questionable:)

Lets look at some examples
In 1998 we hit a PE10 of 33 (well technically 32.9:)) just like today
1998-2007 6.25%. Not great but a long way from negative or low single digits
2000-9 was a -.3%. That was a bad decade:)
2006-2015 was 7.39%.
2000-2018 was 6.1% or about 2x what you estimated


PE10s are a bit funky to use since they keep changing the definition of Profit. A PE10 of 33 in 1998 was a richer (estimates are 15-30%) valuation than today.

If you look at PE10s we are either in a mega bubble (off like 20+ years now) or something has changed. Or both. We had one of the biggest crashes ever and we barely hit the historical mean.

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Fri Sep 14, 2018 1:18 am

mariezzz wrote:
Fri Sep 14, 2018 12:32 am

Seems to me Bogle is really just relying on some basic principles. In 2011, a decent increase of 7-8% (a was reasonable given the market was recovering from a trough. From the CNN article: 'Add in the dividend, and you can expect the investment return on stocks to be close to 7% or perhaps 8%'. In 2017, he is talking about 6%, maybe 4% for a 60/40 balanced fund- this after a few quite good years in the last 5, so he's lowered the numbers a little.

yes. The question is how good have those "basic" principles been at predicting market returns over the past 30 years. Everything I have seen doesn't suggest much accuracy. You can dredge up tons of predictions for 10 year returns from 2000 on from various sources. They are rarely close to what we got (both ways).

Ron Scott
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Re: Lower Return Decade Says Jack: Thoughts?

Post by Ron Scott » Fri Sep 14, 2018 2:37 am

randomguy wrote:
Thu Sep 13, 2018 8:34 pm
Ron Scott wrote:
Sun Sep 09, 2018 3:09 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Bingo.

Why count on investment growth above inflation to sleep at night during your retirement?
Because working an extra decade to get enough money (and shorter retirement) in order to not count on conservative (i.e. things that have happenned 99% in US history) isn't very appealing.
Check your math The resultant WR for a 30 retirement plan assuming 0% real return is 3.33%. Reduce that plan to 25 years and it’s 4%.

I also have not had anyone explain to me the rationale for trusting their only 25- or 30-year specific retirement period to an analysis of market return experience in one country in the exact time-period during which it grew to become the most powerful and dominant country in the history of the world. That’s one helluva selection bias to gamble your old age on.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

mariezzz
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Re: Lower Return Decade Says Jack: Thoughts?

Post by mariezzz » Fri Sep 14, 2018 5:56 am

Ron Scott wrote:
Fri Sep 14, 2018 2:37 am
randomguy wrote:
Thu Sep 13, 2018 8:34 pm
Ron Scott wrote:
Sun Sep 09, 2018 3:09 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Bingo.

Why count on investment growth above inflation to sleep at night during your retirement?
Because working an extra decade to get enough money (and shorter retirement) in order to not count on conservative (i.e. things that have happenned 99% in US history) isn't very appealing.
Check your math The resultant WR for a 30 retirement plan assuming 0% real return is 3.33%. Reduce that plan to 25 years and it’s 4%.

I also have not had anyone explain to me the rationale for trusting their only 25- or 30-year specific retirement period to an analysis of market return experience in one country in the exact time-period during which it grew to become the most powerful and dominant country in the history of the world. That’s one helluva selection bias to gamble your old age on.
Just a reminder: the 3.33 & 4% are *safe withdrawal rates* - very low likelihood of failure across various (historical) scenarios, in part dependent on your asset allocation and how it interacts with the economic realities at a given time. However, in a majority of scenarios, somewhat higher percentages can be withdrawn - the problem is, you cannot predict the future and know what your fate will be.
As has been stated on other threads here, many find their portfolio grows over time when they withdraw at these rates.
See also https://www.kitces.com/blog/safe-withdr ... p-reviews/

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midareff
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Re: Lower Return Decade Says Jack: Thoughts?

Post by midareff » Fri Sep 14, 2018 8:25 am

AlphaLess wrote:
Thu Sep 13, 2018 10:25 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Unfortunately, that plan is to unrealistic for most people.
I suspect that is due to most people living larger than necessary and not developing proper habits early on.

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midareff
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Re: Lower Return Decade Says Jack: Thoughts?

Post by midareff » Fri Sep 14, 2018 8:32 am

AlphaLess wrote:
Thu Sep 13, 2018 10:25 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Unfortunately, that plan is to unrealistic for most people.
I suspect that is due to most people living larger than necessary and not developing proper habits early on. People can start a disciplined savings plan in their early 20's, even if it's 2 bucks a week. Skip the soda and drink water........ I watched lunch buddies buy sodas every day for decades. Start saving $50 a month that way right away and your dentist will love you too. I think it is realistic for nearly everyone ... as long as they want to and want to be efficient with their money. .. regardless of how much they have.

protagonist
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Re: Lower Return Decade Says Jack: Thoughts?

Post by protagonist » Fri Sep 14, 2018 9:41 am

randomguy wrote:
Thu Sep 13, 2018 8:30 pm
Thesaints wrote:
Thu Sep 13, 2018 8:13 pm
protagonist wrote:
Thu Sep 13, 2018 8:09 pm
Look at his predictions ten years ago and see how well they match reality for this decade.
Ten years ago, after the crash depressed market valuations, the theory forecasted returns more likely to be above the historical average than below it.
The theory was correct.
Care to point out anyone who in 2009 predicted above average historical returns. I can find a lot of 2009 and 2010 doom and gloomers. Not many bulls. For example here is Jack in 2009 and he was one of the more optimistic people
https://www.forbes.com/2009/01/09/intel ... 0db0265ef0 has him predicting 10% returns.

Predicated 10%. Real number is over 15% with 4 months left. Do you really think this predication is any more accurate?
You know that Boglehead annual stock market prediction contest, where he who comes closest wins? I always guess something crazy. Up 30%, down 30%, it doesn't matter which....I flip a coin. Why? Because most people guess 3% or 5% or 7% or 10% and they almost always come close, like everybody else. I seem to recall reading another post by Jack Bogle from around that time period where he predicted 7%/year. I stand a very small chance of being right guessing 30%, but if I am, I am a hero. The one genius who got it right, when Bogle and the other experts floundered. I am playing a long game. Maybe I will win some day. Otherwise I am just forgotten. I suppose I shouldn't give away my secrets.

50%-100% off target is a pretty large miss. That said, Jack's guess was as good as anybody's. And admittedly better than my annual Boglehead prediction contest guess.

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Fri Sep 14, 2018 10:46 am

Ron Scott wrote:
Fri Sep 14, 2018 2:37 am
randomguy wrote:
Thu Sep 13, 2018 8:34 pm
Ron Scott wrote:
Sun Sep 09, 2018 3:09 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Bingo.

Why count on investment growth above inflation to sleep at night during your retirement?
Because working an extra decade to get enough money (and shorter retirement) in order to not count on conservative (i.e. things that have happenned 99% in US history) isn't very appealing.
Check your math The resultant WR for a 30 retirement plan assuming 0% real return is 3.33%. Reduce that plan to 25 years and it’s 4%.

I also have not had anyone explain to me the rationale for trusting their only 25- or 30-year specific retirement period to an analysis of market return experience in one country in the exact time-period during which it grew to become the most powerful and dominant country in the history of the world. That’s one helluva selection bias to gamble your old age on.
50 year old with 30x in savings.
0% real return. broke by 80. Needs to save another 20 years worth of income to retire. That will take 5-10 years depending on savings rate and market returns.

50 year old with 30x savings and 50 year retirement investing 60/40. 0% chance of failure historically

sure looks like my math is about right:) And no living to a hundred for a couple of healthy people (nonsmoking, not obese, no family history) isn't a crazy rare event. It is in the 5-10% range.

And yes things can fail. But if the markets fail do you think your conservative approach will make a difference. It isn't like the bond holders in countries that suffer hyperinflation, are bombed into rubble, have the government overthrown, and so on (i.e. pretty much all of the markets with low returns) do well either. And yes none of that stuff seems possible until it is. The Romanov's ruled for 300 years. Nobody in 1913 would have predicted 5 years later it would all be gone.

JBTX
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Re: Lower Return Decade Says Jack: Thoughts?

Post by JBTX » Fri Sep 14, 2018 11:42 am

randomguy wrote:
Fri Sep 14, 2018 1:07 am
JBTX wrote:
Thu Sep 13, 2018 9:02 pm
We have been at this level of cape10 3 times in the past, give or take. All 3 times the next 10 years were either negative or very low single digits.

It took a long time to recover after 1929.

10 years after 2000 crash was probably negative.

10 years after 2006/2007 was probably about flat.

18 years after 2000 to now, even at today's levels, has been about 3-4% nominal.

Of course anything is possible. Maybe we go Japan style mega bubble with PES in the 60s or higher. But it will take something close to that to get to historical 10% returns. That seems highly unlikely. It has never happened before.

Bogle is saying expected returns will be about 4% nominal give or take. The key word is expected. He is basically setting expectations. If you are in the market now you need to be prepared for low single digit returns (or worse) If it goes higher than that, consider it gravy.
Your numbers are some what questionable:)

Lets look at some examples
In 1998 we hit a PE10 of 33 (well technically 32.9:)) just like today
1998-2007 6.25%. Not great but a long way from negative or low single digits
2000-9 was a -.3%. That was a bad decade:)
2006-2015 was 7.39%.
2000-2018 was 6.1% or about 2x what you estimated


PE10s are a bit funky to use since they keep changing the definition of Profit. A PE10 of 33 in 1998 was a richer (estimates are 15-30%) valuation than today.

If you look at PE10s we are either in a mega bubble (off like 20+ years now) or something has changed. Or both. We had one of the biggest crashes ever and we barely hit the historical mean.
Fair enough. That is what happens when I try to estimate compound rates of return in my head based upon a visual of a graph in my memory. :oops:

I think the point is still valid though. Those 6% range numbers you quoted are probably at the high end of the 10 year-ish rate of return, from a high point, because they are all going from a prior high point to a new high point. I don't think a 3-5% nominal prediction is at all unreasonable as a mid point.

I understand PE10 is not a perfect predictor of forward returns, but when it has reached historically very high levels, nominal returns have tended to be modest - and we have had the benefit the last couple of times the market has largely bounced back within a few years after the crash. In a great depression or Japan style scenario it can be much longer - or mid 60's to early 80's, although the starting point valuations weren't as high then.

Thesaints
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Re: Lower Return Decade Says Jack: Thoughts?

Post by Thesaints » Fri Sep 14, 2018 1:58 pm

That's also true for PE1...

Ron Scott
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Re: Lower Return Decade Says Jack: Thoughts?

Post by Ron Scott » Fri Sep 14, 2018 2:11 pm

randomguy wrote:
Fri Sep 14, 2018 10:46 am
Ron Scott wrote:
Fri Sep 14, 2018 2:37 am
randomguy wrote:
Thu Sep 13, 2018 8:34 pm
Ron Scott wrote:
Sun Sep 09, 2018 3:09 pm
midareff wrote:
Sun Sep 09, 2018 11:16 am
The answer is save enough and retire with enough so you are not dependent on returns for your life style.
Bingo.

Why count on investment growth above inflation to sleep at night during your retirement?
Because working an extra decade to get enough money (and shorter retirement) in order to not count on conservative (i.e. things that have happenned 99% in US history) isn't very appealing.
Check your math The resultant WR for a 30 retirement plan assuming 0% real return is 3.33%. Reduce that plan to 25 years and it’s 4%.

I also have not had anyone explain to me the rationale for trusting their only 25- or 30-year specific retirement period to an analysis of market return experience in one country in the exact time-period during which it grew to become the most powerful and dominant country in the history of the world. That’s one helluva selection bias to gamble your old age on.
50 year old with 30x in savings.
0% real return. broke by 80. Needs to save another 20 years worth of income to retire. That will take 5-10 years depending on savings rate and market returns.

50 year old with 30x savings and 50 year retirement investing 60/40. 0% chance of failure historically

sure looks like my math is about right:) And no living to a hundred for a couple of healthy people (nonsmoking, not obese, no family history) isn't a crazy rare event. It is in the 5-10% range.

And yes things can fail. But if the markets fail do you think your conservative approach will make a difference. It isn't like the bond holders in countries that suffer hyperinflation, are bombed into rubble, have the government overthrown, and so on (i.e. pretty much all of the markets with low returns) do well either. And yes none of that stuff seems possible until it is. The Romanov's ruled for 300 years. Nobody in 1913 would have predicted 5 years later it would all be gone.
You're commenting on my post using Firecalc-math? My post speaks to the need for someone looking at 30 years in retirement to work for an additional 10 years to build a nest egg that would put his spend at the traditional 4% level but at 0% real. The answer is 5 years, not 10.

When confronted with the questions I pose about using 20th Century USA market return data to predict future returns, others too have countered as you have i.e., a) you need to work with something and b) since we can't plan for Armageddon (hyperinflation, the Romanov's, and so on) let's go with those great USA data points. But choosing reliance on a positive extreme because the negative extreme yields futility is not logical. Facing the unknown, It may be better to assume something less than 20th Century USA and more than The Romanovs IMO. You don't have to assume a horror scenario, "if the markets fail" as you put it, to prepare yourself for times in which the markets return between 0-3%.

2-3% real over an extended period is low but believable; 0% is conservative, for "S"WR purposes. My opinion.

30X is not all that, and 50 years at 30X is a REAL LONG time to be hanging your hat on Firecalc or some Monte Carlo sim which assumes all the bad times that need to be planned for in retirement are found in 20th Century USA. Not feeling it.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Fri Sep 14, 2018 2:20 pm

Ron Scott wrote:
Fri Sep 14, 2018 2:11 pm
You're commenting on my post using Firecalc-math? My post speaks to the need for someone looking at 30 years in retirement to work for an additional 10 years to build a nest egg that would put his spend at the traditional 4% level but at 0% real. The answer is 5 years, not 10.

When confronted with the questions I pose about using 20th Century USA market return data to predict future returns, others too have countered as you have i.e., a) you need to work with something and b) since we can't plan for Armageddon (hyperinflation, the Romanov's, and so on) let's go with those great USA data points. But choosing reliance on a positive extreme because the negative extreme yields futility is not logical. Facing the unknown, It may be better to assume something less than 20th Century USA and more than The Romanovs IMO. You don't have to assume a horror scenario, "if the markets fail" as you put it, to prepare yourself for times in which the markets return between 0-3%.

2-3% real over an extended period is low but believable; 0% is conservative, for "S"WR purposes. My opinion.

30X is not all that, and 50 years at 30X is a REAL LONG time to be hanging your hat on Firecalc or some Monte Carlo sim which assumes all the bad times that need to be planned for in retirement are found in 20th Century USA. Not feeling it.
Sure a 65 year old only has to work 5 more years. Does that sound more appealing than retiring at 65 and counting on 1% real returns?

No I am not relying on have as good of historical results. What I am relying on is that the I will get returns on the level of the bottom 5% of historical returns. Think about how conservative that is. I am planning on retiring when the great depression starts. Or when the stagflation of the 70s will start. Get even below average returns and I will end up with a huge pile of cash.

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Fri Sep 14, 2018 2:35 pm

JBTX wrote:
Fri Sep 14, 2018 11:42 am
randomguy wrote:
Fri Sep 14, 2018 1:07 am
JBTX wrote:
Thu Sep 13, 2018 9:02 pm
We have been at this level of cape10 3 times in the past, give or take. All 3 times the next 10 years were either negative or very low single digits.

It took a long time to recover after 1929.

10 years after 2000 crash was probably negative.

10 years after 2006/2007 was probably about flat.

18 years after 2000 to now, even at today's levels, has been about 3-4% nominal.

Of course anything is possible. Maybe we go Japan style mega bubble with PES in the 60s or higher. But it will take something close to that to get to historical 10% returns. That seems highly unlikely. It has never happened before.

Bogle is saying expected returns will be about 4% nominal give or take. The key word is expected. He is basically setting expectations. If you are in the market now you need to be prepared for low single digit returns (or worse) If it goes higher than that, consider it gravy.
Your numbers are some what questionable:)

Lets look at some examples
In 1998 we hit a PE10 of 33 (well technically 32.9:)) just like today
1998-2007 6.25%. Not great but a long way from negative or low single digits
2000-9 was a -.3%. That was a bad decade:)
2006-2015 was 7.39%.
2000-2018 was 6.1% or about 2x what you estimated


PE10s are a bit funky to use since they keep changing the definition of Profit. A PE10 of 33 in 1998 was a richer (estimates are 15-30%) valuation than today.

If you look at PE10s we are either in a mega bubble (off like 20+ years now) or something has changed. Or both. We had one of the biggest crashes ever and we barely hit the historical mean.
Fair enough. That is what happens when I try to estimate compound rates of return in my head based upon a visual of a graph in my memory. :oops:

I think the point is still valid though. Those 6% range numbers you quoted are probably at the high end of the 10 year-ish rate of return, from a high point, because they are all going from a prior high point to a new high point. I don't think a 3-5% nominal prediction is at all unreasonable as a mid point.

I understand PE10 is not a perfect predictor of forward returns, but when it has reached historically very high levels, nominal returns have tended to be modest - and we have had the benefit the last couple of times the market has largely bounced back within a few years after the crash. In a great depression or Japan style scenario it can be much longer - or mid 60's to early 80's, although the starting point valuations weren't as high then.
Pretty much every 10 year sample is going to go from a high point to a high point. Thats why the stock market has a positive return. We don't have remotely enough data to figure out if the 6% of 1998-2007 was average, below average or above average. PE10s did a great job of predicting returns up to the mid 90s. Since then they have been sketchy at best.

To some extent I agree with the general idea. It is more how conservative do you want to go. 6-7% for a decade is a pretty poor return. Taking the next step and cutting those numbers by 50% crosses the line for me:)

JBTX
Posts: 4087
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Re: Lower Return Decade Says Jack: Thoughts?

Post by JBTX » Fri Sep 14, 2018 3:53 pm

randomguy wrote:
Fri Sep 14, 2018 2:35 pm
JBTX wrote:
Fri Sep 14, 2018 11:42 am
randomguy wrote:
Fri Sep 14, 2018 1:07 am
JBTX wrote:
Thu Sep 13, 2018 9:02 pm
We have been at this level of cape10 3 times in the past, give or take. All 3 times the next 10 years were either negative or very low single digits.

It took a long time to recover after 1929.

10 years after 2000 crash was probably negative.

10 years after 2006/2007 was probably about flat.

18 years after 2000 to now, even at today's levels, has been about 3-4% nominal.

Of course anything is possible. Maybe we go Japan style mega bubble with PES in the 60s or higher. But it will take something close to that to get to historical 10% returns. That seems highly unlikely. It has never happened before.

Bogle is saying expected returns will be about 4% nominal give or take. The key word is expected. He is basically setting expectations. If you are in the market now you need to be prepared for low single digit returns (or worse) If it goes higher than that, consider it gravy.
Your numbers are some what questionable:)

Lets look at some examples
In 1998 we hit a PE10 of 33 (well technically 32.9:)) just like today
1998-2007 6.25%. Not great but a long way from negative or low single digits
2000-9 was a -.3%. That was a bad decade:)
2006-2015 was 7.39%.
2000-2018 was 6.1% or about 2x what you estimated


PE10s are a bit funky to use since they keep changing the definition of Profit. A PE10 of 33 in 1998 was a richer (estimates are 15-30%) valuation than today.

If you look at PE10s we are either in a mega bubble (off like 20+ years now) or something has changed. Or both. We had one of the biggest crashes ever and we barely hit the historical mean.
Fair enough. That is what happens when I try to estimate compound rates of return in my head based upon a visual of a graph in my memory. :oops:

I think the point is still valid though. Those 6% range numbers you quoted are probably at the high end of the 10 year-ish rate of return, from a high point, because they are all going from a prior high point to a new high point. I don't think a 3-5% nominal prediction is at all unreasonable as a mid point.

I understand PE10 is not a perfect predictor of forward returns, but when it has reached historically very high levels, nominal returns have tended to be modest - and we have had the benefit the last couple of times the market has largely bounced back within a few years after the crash. In a great depression or Japan style scenario it can be much longer - or mid 60's to early 80's, although the starting point valuations weren't as high then.
Pretty much every 10 year sample is going to go from a high point to a high point. Thats why the stock market has a positive return. We don't have remotely enough data to figure out if the 6% of 1998-2007 was average, below average or above average. PE10s did a great job of predicting returns up to the mid 90s. Since then they have been sketchy at best.

To some extent I agree with the general idea. It is more how conservative do you want to go. 6-7% for a decade is a pretty poor return. Taking the next step and cutting those numbers by 50% crosses the line for me:)
The key is, the only way you get to that 6-7% over 10 years, is that you assume PE10 stays around 30 or higher. I think Bogle and others (Grantham for example) tend to assume some level of at least partial reversion towards historical averages when they are saying 3-5%. It is certainly possible PE10 stays around or gets back to that level for another 10 years, but it isn't something I'd automatically assume as the base case scenario.

EnjoyIt
Posts: 1591
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Re: Lower Return Decade Says Jack: Thoughts?

Post by EnjoyIt » Fri Sep 14, 2018 5:58 pm

randomguy wrote:
Fri Sep 14, 2018 2:20 pm
Ron Scott wrote:
Fri Sep 14, 2018 2:11 pm
You're commenting on my post using Firecalc-math? My post speaks to the need for someone looking at 30 years in retirement to work for an additional 10 years to build a nest egg that would put his spend at the traditional 4% level but at 0% real. The answer is 5 years, not 10.

When confronted with the questions I pose about using 20th Century USA market return data to predict future returns, others too have countered as you have i.e., a) you need to work with something and b) since we can't plan for Armageddon (hyperinflation, the Romanov's, and so on) let's go with those great USA data points. But choosing reliance on a positive extreme because the negative extreme yields futility is not logical. Facing the unknown, It may be better to assume something less than 20th Century USA and more than The Romanovs IMO. You don't have to assume a horror scenario, "if the markets fail" as you put it, to prepare yourself for times in which the markets return between 0-3%.

2-3% real over an extended period is low but believable; 0% is conservative, for "S"WR purposes. My opinion.

30X is not all that, and 50 years at 30X is a REAL LONG time to be hanging your hat on Firecalc or some Monte Carlo sim which assumes all the bad times that need to be planned for in retirement are found in 20th Century USA. Not feeling it.
Sure a 65 year old only has to work 5 more years. Does that sound more appealing than retiring at 65 and counting on 1% real returns?

No I am not relying on have as good of historical results. What I am relying on is that the I will get returns on the level of the bottom 5% of historical returns. Think about how conservative that is. I am planning on retiring when the great depression starts. Or when the stagflation of the 70s will start. Get even below average returns and I will end up with a huge pile of cash.
I thought comments regarding a 2% returns over retirement as overly pessimistic. I come here today and see people discussing 0%. Hell if returns are 0% then why the hell are we investing. Might as well buy TIPS and stop thinking about any of this.

RandomGuy, there is just no way or really any reason to change the mind of people who live in fear. If 4% withdrawal rates have worked in the past when retiring in some of the worst times in history then anyone should be able to cut their spending for a few years if need be and ride out any bad waves that occur. Working another 5 years because of irrational fear sounds insane to me especially if those 5 years lead up to health issues. But again, it is pointless to argue with the irrational. You might as well argue with Jenny McCarthy that vaccines don't cause Autism.

Thesaints
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Re: Lower Return Decade Says Jack: Thoughts?

Post by Thesaints » Fri Sep 14, 2018 6:08 pm

EnjoyIt wrote:
Fri Sep 14, 2018 5:58 pm
If 4% withdrawal rates have worked in the past when retiring in some of the worst times in history
Which times do you have in mind ? In my opinion the worst time for a retiree would be when interest rates are at an historical low and stocks valuations at very high levels (consequently, I may add).
then anyone should be able to cut their spending for a few years if need be and ride out any bad waves that occur. Working another 5 years because of irrational fear sounds insane to me especially if those 5 years lead up to health issues. But again, it is pointless to argue with the irrational. You might as well argue with Jenny McCarthy that vaccines don't cause Autism.
Not sure if it is more irrational to work another 5 years, or to plan for 5 years of tight belt while retired. That too may reflect negatively on one's health level.

randomguy
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Re: Lower Return Decade Says Jack: Thoughts?

Post by randomguy » Fri Sep 14, 2018 7:33 pm

JBTX wrote:
Fri Sep 14, 2018 3:53 pm


The key is, the only way you get to that 6-7% over 10 years, is that you assume PE10 stays around 30 or higher. I think Bogle and others (Grantham for example) tend to assume some level of at least partial reversion towards historical averages when they are saying 3-5%. It is certainly possible PE10 stays around or gets back to that level for another 10 years, but it isn't something I'd automatically assume as the base case scenario.
How do you explain 1998-2007 when PE10s went from 32.8 (i.e. todays level) to 24(i.e. 25% lower) but we still got 6.25% returns. Why do you think that can't happen again? And remember those gains happened with accounting rule changes that inflated the later years of the period. Get rid of that inflation and you would have had a much bigger drop.

Thesaints
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Re: Lower Return Decade Says Jack: Thoughts?

Post by Thesaints » Fri Sep 14, 2018 7:38 pm

randomguy wrote:
Fri Sep 14, 2018 7:33 pm
How do you explain 1998-2007 when PE10s went from 32.8 (i.e. todays level) to 24(i.e. 25% lower) but we still got 6.25% returns. Why do you think that can't happen again? And remember those gains happened with accounting rule changes that inflated the later years of the period. Get rid of that inflation and you would have had a much bigger drop.
It is easily explained by the fact that PE10 is not a good predictor. If you take the PE1 instead, it went from 24.3 to 17.4. Over 9 years it means -3.7% yearly. Then you add the 6.3% realized and there you have the magic 10% !

mikeyzito22
Posts: 84
Joined: Sat Dec 02, 2017 5:42 pm

Re: Lower Return Decade Says Jack: Thoughts?

Post by mikeyzito22 » Fri Sep 14, 2018 10:16 pm

tibbitts wrote:
Sun Sep 09, 2018 11:41 pm
mikeyzito22 wrote:
Sun Sep 09, 2018 9:39 pm
SimplicityNow wrote:
Sun Sep 09, 2018 6:40 pm
JustWantToGetItRight wrote:
Sun Sep 09, 2018 6:34 pm
CarpeDiem22 wrote:
Sun Sep 09, 2018 11:14 am
Yes, lower return is EXPECTED. Actual return could be much higher or much lower. On the other hand, CD would ensure low return.
Man, this drives me crazy...you are right...it could be lower....we've had a long run...I still have 15 years before retirement...but would hate to get in with my lump sum I have right before a fall....
And so would anyone else. There is no way to tell. No one can predict it. Not jack Bogle, not Warren Buffet, not you or me.

All you can do is pick an asset allocation you are comfortable with whether the market goes up or down and then invest.
Use your need, willingness and ability to take risk to help you decide on your asset allocation. Then do it.
There is no "correct" answer and no matter how many different ways it is asked the answer will still be the same.
Exactly, Didn't we all read that time in the market is better than timing the market? There was an article that showed a dude buying at all-time highs right before dips and never selling and he turned out just fine. Lump it in or DCA. It really doesn't matter, but make sure to be invested and have an emergency fund. Am I right?
No, you're not right. That hypothetical person only turned out fine over periods of decent market returns, with substantial time in the market - and even then not relative to someone who always bought at optimal times. That's not actionable, but the fact is that it may be possible to do all the right things that everyone here advocates, and still lose.
Oy. Now I don't want to invest. I'm too optimistic I suppose. I'm not right buying the index, holding and buying often. Damn it

EnjoyIt
Posts: 1591
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Re: Lower Return Decade Says Jack: Thoughts?

Post by EnjoyIt » Sat Sep 15, 2018 4:11 pm

Thesaints wrote:
Fri Sep 14, 2018 6:08 pm
EnjoyIt wrote:
Fri Sep 14, 2018 5:58 pm
If 4% withdrawal rates have worked in the past when retiring in some of the worst times in history
Which times do you have in mind ? In my opinion the worst time for a retiree would be when interest rates are at an historical low and stocks valuations at very high levels (consequently, I may add).
then anyone should be able to cut their spending for a few years if need be and ride out any bad waves that occur. Working another 5 years because of irrational fear sounds insane to me especially if those 5 years lead up to health issues. But again, it is pointless to argue with the irrational. You might as well argue with Jenny McCarthy that vaccines don't cause Autism.
Not sure if it is more irrational to work another 5 years, or to plan for 5 years of tight belt while retired. That too may reflect negatively on one's health level.
The worst time to retire I believe was right before we had double digit inflation in the 70s. Someone could correct me if I am wrong.

To answer your other question, the odds of one running out of money in retirement is a tiny fraction at a 4% withdrawal rate. One has to decide on their risk tolerance. Do you risk the need to cut back for a few years of spending in a situation that already has a low risk of occurring to begin with or do you risk wasting away an extra 5 years of your life for money you will likely never need? It is your choice and I choose a combination of the two. Working 1 extra year to have a withdrawal rate of about 3.75% which should allow for possible lifestyle creep and a little extra protection in that rare event of a bad sequence of returns.

The reality is that every person on this forum will be cutting back during a downturn. It is simply human nature and you will do it too. This is even if you work the extra 5 years to protect yourself from belt tightening.

JustWantToGetItRight
Posts: 138
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Re: Lower Return Decade Says Jack: Thoughts?

Post by JustWantToGetItRight » Tue Sep 18, 2018 10:17 pm

protagonist wrote:
Thu Sep 13, 2018 8:09 pm
Look at his predictions ten years ago and see how well they match reality for this decade.

My guess is that he probably did as well as anybody who enters the annual "Dow challenge" guessing game. If he nailed it, he was one really lucky guy.

Who would have predicted a black president in 1998? Who would have predicted Trump in 2006?

I'm not suggesting that Jack Bogle is not brilliant and doesn't know his stuff. I am suggesting that no "expert" can see ten years into the future, to the point of predicting stock market returns, any better than you or I can. Speaking for myself, I am clueless. The future is chaotic.

Read this. It is more important than anybody's future predictions. https://www.newyorker.com/magazine/2005 ... -an-expert

Then get a copy of "The Book of Predictions" (Wallace et al), published in 1980. See how well the experts of 1980 did predicting ten or more years into the future. It's great for a laugh. And it may change your life. The used hardcover is currently available on Amazon for $4.05. If you put any faith in expert clairvoyance, it could be the best four bucks you ever spent.
Awesome post. Thanks.

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