Next decade outlook from Vanguard CEO

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sanfran2015
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Next decade outlook from Vanguard CEO

Post by sanfran2015 »

I read this from Vanguard CEO today. Kinda depressing outlook for the next decade :(

Want to hear Bogleheads thoughts on this.

Vanguard's global stock and bond market projections are our most muted since 2006. Over the next decade, we estimate the most likely average annual return for global stocks to be centered in the 5% to 8% range. For historical context, stocks have returned an average of 10% per year from 1926 to 2014, and more than 20% annually since the bottom of the financial crisis in 2009.

For global bond markets, we expect average annual returns over the next decade to be in the 2.0% to 3.5% range—lower than their historical average of about 6% since 1926, and their 5% yearly average since 2009.

https://personal.vanguard.com/us/insigh ... ess-012015
juliewongferra
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Re: Next decade outlook from Vanguard CEO

Post by juliewongferra »

What does the Vanguard CEO know? Stay the course and rebalance! Don't listen to the noise!

cheers,
jwf
If you aren't familiar with Mr. Bogle and his investment philosophy, then you don't know Jack!
tibbitts
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Re: Next decade outlook from Vanguard CEO

Post by tibbitts »

juliewongferra wrote:What does the Vanguard CEO know? Stay the course and rebalance! Don't listen to the noise!

cheers,
jwf
I don't think you could interpret the comments to be counter to staying the course. He seems to be saying that asset classes will offer roughly similar relative (to each other) returns as in the past - but lower absolute (nominal and real) returns.
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in_reality
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Re: Next decade outlook from Vanguard CEO

Post by in_reality »

juliewongferra wrote:What does the Vanguard CEO know? Stay the course and rebalance! Don't listen to the noise!

cheers,
jwf
The point I took rather was that I shouldn't rely on historical return rates when thinking though what I need to contribute/save.
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Phineas J. Whoopee
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Re: Next decade outlook from Vanguard CEO

Post by Phineas J. Whoopee »

Maybe McNabb's right, and maybe he's wrong. Maybe some of it is right-ish and some is wrong-ish. He doesn't know the future, and neither do we. My preference would be for him to spend his time, and therefore our money, figuring out how to run index funds still more inexpensively. At least he isn't using the company dime to campaign for his favorite political causes and candidates, like Brennan did.

Aside from saving more today, which is almost always useful, what would you do differently, to make a reliable, material difference ten years from now, that would work no matter how accurate his, or anybody else's, predictions are or are not?

It just doesn't matter much, in practice.

PJW
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DG99999
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Re: Next decade outlook from Vanguard CEO

Post by DG99999 »

He seems to be presenting this forecast specifically to emphasize the need to save enough to fund retirement. I agree with him, though a cynic might interpret this as self-serving for Vanguard. He seemed to be suggesting that one stay the course in a balanced program (i.e. "maintain a balanced and diversified portfolio in the years ahead" = stay the course for the long term), but consider saving more. Here is the rest of the quotation:

"Our expectations for lower returns are coupled with expectations for increased volatility. For investors, it will remain important to maintain a balanced and diversified portfolio in the years ahead. Those investing for retirement should consider saving more of their paychecks. Today the average savings rate among retirement plans administered by Vanguard is about 10% (including any matching funds from employer plans). We believe savings rates need to be between 12% and 15% of income (including an employer match) to ensure an adequate retirement."
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.
JohnFiscal
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Re: Next decade outlook from Vanguard CEO

Post by JohnFiscal »

That sounds a bit similar to what John Bogle said in his first book, which I read sometime around 1995. As it turned out, the next decade after that bore little relation to the prognostication. So as Bogle and McNabb might say, stay the course.

ETA: actually, I would be pretty happy to get those returns, if guaranteed.
lack_ey
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Re: Next decade outlook from Vanguard CEO

Post by lack_ey »

OP, you may be interested in reading some of Vanguard's writing and rationale for its projections. They're not so much directly telling people to stay the course, but warning them of rough waters ahead.

See here for starters:
http://vanguard.com/pdf/ISGVEMO.pdf (read page 29 if nothing else, about what it means for portfolios)
https://personal.vanguard.com/pdf/s338.pdf

Personally, I don't think it's honest and productive to assume the past and the current state contain no information about what the future might bring. But on the other hand, any and all forecasters should be forthright about the high degree of uncertainty surrounding such things, which I believe Vanguard mostly is. The simulations and projections come from models that are but one flawed understanding of capital markets, warts and all.

For what it's worth, many other experts including some Bogleheads authors expect worse returns to some degree than what Vanguard is stating here, not like anybody really knows for sure. Anyway, investing transaction costs are at an all-time low, and the wealth of information available grows by the day, so it's not all bad.
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sanfran2015
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Re: Next decade outlook from Vanguard CEO

Post by sanfran2015 »

lack_ey wrote:OP, you may be interested in reading some of Vanguard's writing and rationale for its projections. They're not so much directly telling people to stay the course, but warning them of rough waters ahead.

See here for starters:
http://vanguard.com/pdf/ISGVEMO.pdf (read page 29 if nothing else, about what it means for portfolios)
https://personal.vanguard.com/pdf/s338.pdf

Personally, I don't think it's honest and productive to assume the past and the current state contain no information about what the future might bring. But on the other hand, any and all forecasters should be forthright about the high degree of uncertainty surrounding such things, which I believe Vanguard mostly is. The simulations and projections come from models that are but one flawed understanding of capital markets, warts and all.

For what it's worth, many other experts including some Bogleheads authors expect worse returns to some degree than what Vanguard is stating here, not like anybody really knows for sure. Anyway, investing transaction costs are at an all-time low, and the wealth of information available grows by the day, so it's not all bad.
Thanks Lack_ey. Both documents are quite insightful. I wonder if several years from now, folks will look back at 2009-2014 as a once in a lifetime historic bull-run.
lazyday
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Re: Next decade outlook from Vanguard CEO

Post by lazyday »

There's also early 1980s to 2000.
richard
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Re: Next decade outlook from Vanguard CEO

Post by richard »

sanfran2015 wrote:<>For historical context, stocks have returned an average of 10% per year from 1926 to 2014<>
sanfran2015 wrote:Thanks Lack_ey. Both documents are quite insightful. I wonder if several years from now, folks will look back at 2009-2014 as a once in a lifetime historic bull-run.
You might also wonder if folks will regard 1926-2014 as a period of unusually high returns, not to be repeated in their lifetimes.
x35864
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Re: Next decade outlook from Vanguard CEO

Post by x35864 »

Assuming this prediction pans out (a faulty one because the future is unknowable), then whether this is good or bad depends on your phase of investing. Because I'm in the accumulation stage (mid-30s), I'm hoping to get as many VTSMX shares as I can over the next decade, so I hope he's right! Regardless of the outcome, I'll be putting as much money as I can into retirement savings.
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Electron
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Re: Next decade outlook from Vanguard CEO

Post by Electron »

John Bogle presents simple forecasting models for the decade ahead in his book "Common Sense on Mutual Funds". The models are worth understanding and they do give a hint on the returns going forward. I think it is useful from the standpoint of expectations especially after the high stock returns since March 2009 and the above average bond returns going all the way back to 1981.

The bond model simply looks at the current yield on either Government bonds or a Bond index. The stock model starts with the current dividend yield on the broad stock market and adds an estimate of earnings growth and then an adjustment based on PE expansion or contraction. The models are likely in agreement with the outlook from Vanguard.

The high current valuations in stocks has probably borrowed from future returns unless earnings growth is well above expectations. The model is definitely worth understanding especially after periods of significant expansion in PE ratios.
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lack_ey
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Re: Next decade outlook from Vanguard CEO

Post by lack_ey »

x35864 wrote:Assuming this prediction pans out (a faulty one because the future is unknowable), then whether this is good or bad depends on your phase of investing. Because I'm in the accumulation stage (mid-30s), I'm hoping to get as many VTSMX shares as I can over the next decade, so I hope he's right! Regardless of the outcome, I'll be putting as much money as I can into retirement savings.
Just keep in mind that the most likely outcome in their opinion for equity returns (for a split of 70/30 US/ex-US) is 6-9% nominal annualized for the next 10 years, but even their model gives that a less than 20% chance of happening. They think returns less than 3% nominal are more likely than between 6-9%, and also consider returns above 12% nominal more likely than the 6-9% range. In other words, expect the unexpected.

Also, many of the factors behind lowered expectations relative to historical returns will probably persist to a high degree from here on out, so get used to relatively low expectations for the future. Sure, some of it has to do with the relatively high US cyclically adjusted P/E and so on, but even if stock market prices go back to whatever level you might imagine as normal, you shouldn't rely on returns to go quite back to historical levels, even in terms of inflation-adjusted returns.

In other words, save as much as you reasonably can. Worst thing that happens if they're wrong is that you end up with too much money or you can retire earlier than planned. Actually, worst thing that happens is they're not pessimistic enough and everybody's in a world of hurt, the high savers just less so than everyone else.
tibbitts
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Re: Next decade outlook from Vanguard CEO

Post by tibbitts »

lack_ey wrote: In other words, save as much as you reasonably can. Worst thing that happens if they're wrong is that you end up with too much money or you can retire earlier than planned. Actually, worst thing that happens is they're not pessimistic enough and everybody's in a world of hurt, the high savers just less so than everyone else.
The worst thing that happens is that you delay something you could afford today, only to find that you can't afford it tomorrow, or ever in the future. Delayed gratification is a bet that you could lose.
randomguy
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Re: Next decade outlook from Vanguard CEO

Post by randomguy »

richard wrote:
sanfran2015 wrote:<>For historical context, stocks have returned an average of 10% per year from 1926 to 2014<>
sanfran2015 wrote:Thanks Lack_ey. Both documents are quite insightful. I wonder if several years from now, folks will look back at 2009-2014 as a once in a lifetime historic bull-run.
You might also wonder if folks will regard 1926-2014 as a period of unusually high returns, not to be repeated in their lifetimes.
Or maybe they will look back at the 2009-2025 bull market as one of the greatest ever. People keep doubting it and it keep going up and up. Or maybe the 2015-2020 lost years will lead to the 2021-2030 bull market.

Stocks returned 10% for the last 100 or so years. But there were decades of about 0% return and others of 18%. A decade averaging the 5-8% range isn't some crazy outlier
koryg75
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Re: Next decade outlook from Vanguard CEO

Post by koryg75 »

Not only save as much as you can, but pay as little as possible for your investments. Those two things are within our control right now.
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Re: Next decade outlook from Vanguard CEO

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