The Next 40 Years

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clayr361
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The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 10:40 am

I am 30 years old. My wife and I actively contribute a large portion of our salary to retirement savings. Most of that is in the form of Vanguard target retirement funds.

I struggle with the idea that throughout the next 35-40 years until retirement age, that I will receive a good return on my investments. That which has been enjoyed by a lot of you that have invested over the last 35-40 years. General rules say to allocate a large portion of your investments in stocks at a young age because over time it has performed the best. Another general rule is that past performance does not guarantee future results. What I am getting at is what if in 30 years the market has made inferior gains. Even Bogle himself has said not to expect more than 5% gains in the stock market for the next decade or so. I know gains in the stock market are not a sure thing but it has been instilled on me as the only way to go if you want to build wealth over the long run. I also realize there would be much bigger problems than my retirement account if the market failed to produce gains for the next 30 years.

I plan on staying the course and socking away all I can towards retirement, 529's and taxable accounts. I just have a feeling I will get to retirement age and look back at my returns and not be very impressed with them. I know I am probably just being entirely too pessimistic about the whole situation.

For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?

larryswedroe
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Re: The Next 40 Years

Post by larryswedroe » Tue Mar 22, 2016 10:47 am

Good questions

The issue is simply that for US investors in US stocks the expected returns are now quite a bit lower than historical simply because valuations are now much higher--

Just like with bond yields now much lower ==the lower yields mean you clearly should expect lower returns going forward.

There are many good/logical reasons why US valuations have drifted higher. Thus it doesn't mean that the market is overvalued, just more highly valued.

With CAPE 10 at about 26 you get real expected returns of about 4%, add 2% for inflation that's about 6%. That's versus about 7% real and 3% inflation historically. But that doesn't mean stocks are bad investments as there is still a reasonable equity risk premium. It's just that you need to lower your expectations and plan accordingly--saving more, spending less, lowering your goals or even considering taking more, not less equity risk. Or you could try to increase returns by "tilting" more to small and value and also allocating more to international where valuations quite a bit lower----they are perceived as riskier and thus have lower valuations and higher expected returns.

Those are the choices one should consider, but hoping future returns will be like past returns isn't a strategy, it's fantasy

I hope that is helpful
Larry

kalebbrasee
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Re: The Next 40 Years

Post by kalebbrasee » Tue Mar 22, 2016 11:12 am

One thing to consider is that accumulating during a period of lower returns, then retiring during a period of higher returns, allows for higher SWR (safe withdrawal rate) and more money during your retirement.

So even if returns are low for a couple decades, that might not be bad for you. Where returns really matter most is when you're withdrawing the money.

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siamond
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Re: The Next 40 Years

Post by siamond » Tue Mar 22, 2016 11:19 am

OP, don't confuse expected returns over a decade (currently gloomy, cf. high valuations) and expected returns over a lifetime (lots of ups and downs). There has been multiple situations like that in the past, and periods of low returns are typically followed by periods of high returns, and this all made for the fairly rosy historical returns we know. Also, investing in low periods (buy low) has better returns than investing in high periods (buy high), so this could turn out pretty good for you.

There *might* be some reasons for which the long-term average returns could be lower than the past century, but those are really cloudy, and even if true, I don't think anybody would believe that stocks wouldn't remain the best investment vehicle for long-term returns. If you do buy into such pessimism (I partly do), then this essentially means 'save more' (while not forgetting to enjoy life).

For me, the best recipe to uncertainty is to diversify, domestic and international. And then, que sera, sera...

sp0704
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Re: The Next 40 Years

Post by sp0704 » Tue Mar 22, 2016 11:38 am

I am in my early 30's and have had similar thoughts. However, I don't think there is any reason at this point to believe over the course of several decades there will be zero to negative returns (if I understand your post correctly). I would not doubt the potential for lower returns than the previous 40 years, but who really knows what will happen?

Do you believe there is a good alternative to investing the majority, if not all, of your nest egg in a vehicle other than the stock market over the long-term?

QuietProsperity
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Re: The Next 40 Years

Post by QuietProsperity » Tue Mar 22, 2016 11:39 am

It's anyone guess but here is something to think about...what if we looked even further back at 30 year returns. I went back to 1928 and looked at forward 30 year returns.

The data set starts at the end of 1957 (i.e. 1928-1957) and was the first 30 year rolling data point.

Here is how it looks:

Average 30 Yr Return: 11.13%
Min: 7.97% (1957 and 1958)(Important to remember, includes the great depression in the data)
Max: 13.63% (1999)(We all know how it has been since then)
Median: 10.88%


So at worst case scenario (so far), which includes a time period with the Great Depression, you would have had 7.97% return on your stocks over a 30 Yr period. Not horrible, but yes, maybe not the same as the past 30 years (1986 - 2015 was 10.3%).

Regardless...the returns over the time periods that we invest are one of those uncontrollable's.

If you save enough, invest well and stay disciplined (which it sounds like you are doing), I wouldn't worry too much about the returns over the next 30 years. You will get there fine if you do the above.

Ari
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Re: The Next 40 Years

Post by Ari » Tue Mar 22, 2016 12:34 pm

QuietWealth wrote:Min: 7.97% (1957 and 1958)(Important to remember, includes the great depression in the data)


And the great depression was deflationary, wasn't it? So looking at real returns the results might not be that terrible compared to other periods.
All in, all the time.

lack_ey
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Re: The Next 40 Years

Post by lack_ey » Tue Mar 22, 2016 12:45 pm

See the red line (right vertical axis) for rolling real total returns. That's the last 30 years, not 40, sorry:

Image
source (also shows for rolling 5 years, 10 years, 20 years)

The US market of course has had above-average returns as well as relatively high consistency of returns. It's been much worse elsewhere and past returns don't represent the full range of potential outcomes that could have been, never mind describe the future distribution we will see. Also of course this is raw returns before costs, where costs used to be considerably higher.

And as always, the disclaimer that you're not lump summing into the market once with no contributions at any other point. The IRR is not all going to be the same—could be better, could be worse, but not all of it is going to see the worst-case scenario.

bigred77
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Re: The Next 40 Years

Post by bigred77 » Tue Mar 22, 2016 2:01 pm

I am early 30s myself.

I try to invest 1/3 of my household income (I don't make it, probably around 25% right now but I'm still reducing debt as best I can). I have a reasonable and appropriate AA (75/25 for me, tilted towards small, value, and EM). I don't really "plan" with an expected portfolio return in mind because there are just too many unknowns and variables. I believe stocks and bonds are the best investments for me (no small business or directly owned rental real estate in my future). I believe that stocks will outperform bonds over my investing timeline (decades) and believe in the premiums for small and value stocks.

I know if my portfolio returns 7% real i will be able to retire either in my 40s or fabulously wealthy. If it returns 2% real I will be working until my early 60s. If it gets worse than that, well, I'll be better off than if I saved less (and probably most of my peers) and will just downshift my expectations. There's nothing actionable that can come from worrying about it so I just keep my head down and plow forward.

I pretty confident that my portfolio (which i plan to hold constant until retirement or near retirement) will get me 4% - 5% real over the next 25-30 years. I spend my energy on trying to further my career and increase my income.

clayr361
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Re: The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 2:26 pm

bigred77 wrote:I am early 30s myself.

I try to invest 1/3 of my household income (I don't make it, probably around 25% right now but I'm still reducing debt as best I can). I have a reasonable and appropriate AA (75/25 for me, tilted towards small, value, and EM). I don't really "plan" with an expected portfolio return in mind because there are just too many unknowns and variables. I believe stocks and bonds are the best investments for me (no small business or directly owned rental real estate in my future). I believe that stocks will outperform bonds over my investing timeline (decades) and believe in the premiums for small and value stocks.

I know if my portfolio returns 7% real i will be able to retire either in my 40s or fabulously wealthy. If it returns 2% real I will be working until my early 60s. If it gets worse than that, well, I'll be better off than if I saved less (and probably most of my peers) and will just downshift my expectations. There's nothing actionable that can come from worrying about it so I just keep my head down and plow forward.

I pretty confident that my portfolio (which i plan to hold constant until retirement or near retirement) will get me 4% - 5% real over the next 25-30 years. I spend my energy on trying to further my career and increase my income.


What is your reason for being so conservative on your allocation? Unless you don't think 75/25 is conservative I guess. I think most models would say you should be 80%+ stocks in your early 30's. Not saying your allocation is wrong, just questioning. I personally am 90%+ stocks and plan to be that way for the next decade.

I would not say I plan with a set return in mind either. It's just every piece of advice out there points you to past performance data, which is not a bad thing. I would be fine with a 7% average return until retirement, whenever that may be.

I agree with you on furthering your career and income, that is many times more important than worrying about what the market may or may not do. I just wanted to bring up the subject to see what other people thought.

clayr361
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Re: The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 2:34 pm

sp0704 wrote:I am in my early 30's and have had similar thoughts. However, I don't think there is any reason at this point to believe over the course of several decades there will be zero to negative returns (if I understand your post correctly). I would not doubt the potential for lower returns than the previous 40 years, but who really knows what will happen?

Do you believe there is a good alternative to investing the majority, if not all, of your nest egg in a vehicle other than the stock market over the long-term?


I do not think there will be zero to negative returns over 2-3 decades time, lets hope not anyway.

At the moment I do not believe there is a better investment. I'm hoping maybe I find something better one of these days. Until then I will just keep doing what I am doing.

livesoft
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Re: The Next 40 Years

Post by livesoft » Tue Mar 22, 2016 2:36 pm

Folks my age did not know the future either back in the 1970s. If you look back, the stock market didn't do so well in the 1960's and 1970's, did it?

Also note that if everyone is getting the same returns, then it really doesn't matter what those returns are. The savers/investors will always be better off than the non-savers and non-investors. The prices and costs of the things that you will want to buy in 40 years will not be so much relatively higher that they will be unobtainable by you unless they are unobtainable now. That is, Bogleheads.org will still have threads asking what is the best TV, dishwasher, laptop, car, vacation, etc every week.
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Runner01
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Re: The Next 40 Years

Post by Runner01 » Tue Mar 22, 2016 2:40 pm

My wife and I are 30 as well and we are extremely optimistic about the next 40 years. There are a couple billion people on Earth waiting for their chance to earn a middle class lifestyle, plenty of opportunity for growth.

Regardless, we are currently on track to reach FI by the time we are 50 but if my optimism turns out to be wrong, our "worst case" scenario is that we have to work until we can collect SS. Either one sounds fine to me.

blevine
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Re: The Next 40 Years

Post by blevine » Tue Mar 22, 2016 2:44 pm

I just have a feeling I will get to retirement age and look back at my returns and not be very impressed with them.


The goal of saving/investing is NOT to impress oneself. The goal is to maintain or improve ones standard of living.
Keep in mind the effect of inflation and deflation. If the market is "only" up 5% per year, it's up 5% per year for everyone else too.
If we have low inflation or even deflation, the cost of your future purchases can be funded despite 5% annual gains.
The problem is not your absolute gain but relative gains. 5% would like brilliant if the avg return was 1% for others, a major problem
for you if 10% for the avg investor. It is your purchasing power you should focus on, not the % return.

Given you can't know exactly how to have above average returns, the best you can do is to have above average savings.
LBYM and save..... As far as investing, I see nothing wrong with your investing strategy to use Target funds.

clayr361
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Re: The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 2:56 pm

Runner01 wrote:My wife and I are 30 as well and we are extremely optimistic about the next 40 years. There are a couple billion people on Earth waiting for their chance to earn a middle class lifestyle, plenty of opportunity for growth.

Regardless, we are currently on track to reach FI by the time we are 50 but if my optimism turns out to be wrong, our "worst case" scenario is that we have to work until we can collect SS. Either one sounds fine to me.


Good to hear you are that optimistic. May I ask what your stock allocation is US vs International? Just curious because of your "couple billion people" comment.

Texanbybirth
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Re: The Next 40 Years

Post by Texanbybirth » Tue Mar 22, 2016 3:00 pm

I figure very low real returns in my calculations (1-2%), and then I'll be pleasantly surprised if I'm wrong. (In one direction; in the other direction and there will be bigger things to worry about!)

And hey, I'm 30 like you. It sounds like you're saving way more than we are (not close to maxing 401k, no 529s or taxable accounts and not enough to go around to them any time in the near future), so you'll probably always be doing better than at least one family! :moneybag :P

clayr361
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Re: The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 3:03 pm

livesoft wrote:Folks my age did not know the future either back in the 1970s. If you look back, the stock market didn't do so well in the 1960's and 1970's, did it?

Also note that if everyone is getting the same returns, then it really doesn't matter what those returns are. The savers/investors will always be better off than the non-savers and non-investors. The prices and costs of the things that you will want to buy in 40 years will not be so much relatively higher that they will be unobtainable by you unless they are unobtainable now. That is, Bogleheads.org will still have threads asking what is the best TV, dishwasher, laptop, car, vacation, etc every week.


Good point. I had not really thought about it myself vs other savers in the long run.

bigred77
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Re: The Next 40 Years

Post by bigred77 » Tue Mar 22, 2016 3:03 pm

clayr361 wrote:
What is your reason for being so conservative on your allocation? Unless you don't think 75/25 is conservative I guess. I think most models would say you should be 80%+ stocks in your early 30's. Not saying your allocation is wrong, just questioning. I personally am 90%+ stocks and plan to be that way for the next decade.

I would not say I plan with a set return in mind either. It's just every piece of advice out there points you to past performance data, which is not a bad thing. I would be fine with a 7% average return until retirement, whenever that may be.

I agree with you on furthering your career and income, that is many times more important than worrying about what the market may or may not do. I just wanted to bring up the subject to see what other people thought.


I don't consider 75/25 all that conservative (although certainly less equity exposure than most age based target date funds). I started learning about AA with some simple rules of thumb like "age in bonds" and "never have less than 25% or more than 75% stocks". As i learned more and more I realized I liked the idea of holding static allocations over longer time frames, rather than a more traditional glidepath approach. I'd like to hold a 75/25 portfolio for the next 20-30 years before jumping down to somewhere between 60/40 and 50/50 to hold throughout retirement. I also think I'm getting great "value" in the sense that I like the amount of historical volatility reduction a 75/25 portfolio buys you vs 100% equities for a relatively small price in historical return. I also like having that slug of fixed income in case of job loss, medical scare, or some other event in which I need to tap my portfolio before my golden years.

I agree with a lot of the predictions that US stocks might underperform historical real return averages over the next 10 years or so. For the next 3 or 4 decades, I don't see a reason to expect substantially lower real returns for a globally diversified, equity heavy portfolio than we've seen in the past.

clayr361
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Re: The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 3:08 pm

Texanbybirth wrote:I figure very low real returns in my calculations (1-2%), and then I'll be pleasantly surprised if I'm wrong. (In one direction; in the other direction and there will be bigger things to worry about!)

And hey, I'm 30 like you. It sounds like you're saving way more than we are (not close to maxing 401k, no 529s or taxable accounts and not enough to go around to them any time in the near future), so you'll probably always be doing better than at least one family! :moneybag :P


I live in Texas as well, maybe we are just too pessimistic down here. Although I am just assuming you live in Texas by your login name... My wife and I both work in the Oil and Gas industry so at the moment we are just happy to have a job and be able to contribute something. The future of our current industry should probably worry me more than future stock returns.

Runner01
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Re: The Next 40 Years

Post by Runner01 » Tue Mar 22, 2016 3:16 pm

clayr361 wrote:
Runner01 wrote:My wife and I are 30 as well and we are extremely optimistic about the next 40 years. There are a couple billion people on Earth waiting for their chance to earn a middle class lifestyle, plenty of opportunity for growth.

Regardless, we are currently on track to reach FI by the time we are 50 but if my optimism turns out to be wrong, our "worst case" scenario is that we have to work until we can collect SS. Either one sounds fine to me.


Good to hear you are that optimistic. May I ask what your stock allocation is US vs International? Just curious because of your "couple billion people" comment.


We are 100% stock with 25% being international. Keep in mind though that most large U.S. companies derive a large portion of their revenue from international locations.

clayr361
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Re: The Next 40 Years

Post by clayr361 » Tue Mar 22, 2016 3:20 pm

bigred77 wrote:
clayr361 wrote:
What is your reason for being so conservative on your allocation? Unless you don't think 75/25 is conservative I guess. I think most models would say you should be 80%+ stocks in your early 30's. Not saying your allocation is wrong, just questioning. I personally am 90%+ stocks and plan to be that way for the next decade.

I would not say I plan with a set return in mind either. It's just every piece of advice out there points you to past performance data, which is not a bad thing. I would be fine with a 7% average return until retirement, whenever that may be.

I agree with you on furthering your career and income, that is many times more important than worrying about what the market may or may not do. I just wanted to bring up the subject to see what other people thought.


I don't consider 75/25 all that conservative (although certainly less equity exposure than most age based target date funds). I started learning about AA with some simple rules of thumb like "age in bonds" and "never have less than 25% or more than 75% stocks". As i learned more and more I realized I liked the idea of holding static allocations over longer time frames, rather than a more traditional glidepath approach. I'd like to hold a 75/25 portfolio for the next 20-30 years before jumping down to somewhere between 60/40 and 50/50 to hold throughout retirement. I also think I'm getting great "value" in the sense that I like the amount of historical volatility reduction a 75/25 portfolio buys you vs 100% equities for a relatively small price in historical return. I also like having that slug of fixed income in case of job loss, medical scare, or some other event in which I need to tap my portfolio before my golden years.

I agree with a lot of the predictions that US stocks might underperform historical real return averages over the next 10 years or so. For the next 3 or 4 decades, I don't see a reason to expect substantially lower real returns for a globally diversified, equity heavy portfolio than we've seen in the past.


Sounds like you have got a good plan. I plan to stay in my target date fund until I no longer agree with the allocation or something better comes along. Who knows that the investment/financial landscape will look like in 10-20 years.

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Meaty
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Re: The Next 40 Years

Post by Meaty » Tue Mar 22, 2016 6:50 pm

clayr361 wrote:I am 30 years old. My wife and I actively contribute a large portion of our salary to retirement savings. Most of that is in the form of Vanguard target retirement funds.

I struggle with the idea that throughout the next 35-40 years until retirement age, that I will receive a good return on my investments. That which has been enjoyed by a lot of you that have invested over the last 35-40 years. General rules say to allocate a large portion of your investments in stocks at a young age because over time it has performed the best. Another general rule is that past performance does not guarantee future results. What I am getting at is what if in 30 years the market has made inferior gains. Even Bogle himself has said not to expect more than 5% gains in the stock market for the next decade or so. I know gains in the stock market are not a sure thing but it has been instilled on me as the only way to go if you want to build wealth over the long run. I also realize there would be much bigger problems than my retirement account if the market failed to produce gains for the next 30 years.

I plan on staying the course and socking away all I can towards retirement, 529's and taxable accounts. I just have a feeling I will get to retirement age and look back at my returns and not be very impressed with them. I know I am probably just being entirely too pessimistic about the whole situation.

For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?


I'm 32 so in a similar situation. The thing is - we have no alternative. Future returns maybe awful but we don't know that for sure nor is it actionable as all other investments will likely also be poor if the broad equity market is poor. The only thing you can do is save diligently and see what happens
"Discipline equals Freedom" - Jocko Willink

Dirghatamas
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Re: The Next 40 Years

Post by Dirghatamas » Tue Mar 22, 2016 7:43 pm

clayr361 wrote:For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?

I haven't been doing this for 30+ years but only 23 years (started investing at 22, currently 45 years old). By your age, I had already been investing for 8 years, had paid off my mortgage and had already gone through a huge boom and bust cycle.

The idea of gloom is not new and at least during my investing lifetime, right now is not the worst one would have felt.

You were probably too young to remember 9/11 vividly. I do. That was scary as in crazy people will kill all of us. I write this today while seeing the news of Belgium bombings so some things have not changed. The Tech Crash of 2000-2002 was worrisome because it was my job/field. 2008-2009 was scary because of the financial crisis. My company's 401K plan had major funds locked up for multiple years because money market funds went broke, just when people were losing jobs and defaulting on home mortgages. That was worrying..

There were smaller other ones as a global investor. The Asia Crisis of 1997-1998 had me worried. Russia defaulting on debt in 1998 was concerning. US companies getting pummeled by Japanese competition in the early nineties was concerning in my field. Japan's stagnation and recent earthquakes/Tsunamis have concerned me because of my investments (beyond the obvious human aspect). Europe has been dysfunctional financially with its monetary union, as long as I can remember. The South American/Latin American countries are constantly in some kind of revolution/corruption/default scandal every decade.. Middle east is constantly at war as long as I have been alive...

I wasn't alive back then but if you go back a few more years, the idea of the world being one button away from being destroyed (Cuba Crisis) during the cold war, would have kept me up all night...

The point of all this is today is nothing special. There has never been an extended period of time where the economic and political forecasts have been all rosy. Just invest globally and hope it all works out.

I put my money where my mouth is. I was 100% in stocks (globally cap weighted) at 22, same at your age of 30 and same at 45. Being worried is normal. Don't let that stop you from investing. That will be foolish. The future always looks scary but it has a strange habit of working out.

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patrick013
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Re: The Next 40 Years

Post by patrick013 » Tue Mar 22, 2016 7:56 pm

If enough people are pessimistic I'm additionally tempted
to tilt towards IUSG, a Russell 3000 Growth Index. If anything
goes up it would have to be something with Rev/Earnings
growth and market exposure. As opposed to flat operating
companies and dividend stocks.

But I'm not investing for retirement, just to stay ahead a bit.
age in bonds, buy-and-hold, 10 year business cycle

clayr361
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Re: The Next 40 Years

Post by clayr361 » Wed Mar 23, 2016 10:03 am

Dirghatamas wrote:
clayr361 wrote:For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?

I haven't been doing this for 30+ years but only 23 years (started investing at 22, currently 45 years old). By your age, I had already been investing for 8 years, had paid off my mortgage and had already gone through a huge boom and bust cycle.

The idea of gloom is not new and at least during my investing lifetime, right now is not the worst one would have felt.

You were probably too young to remember 9/11 vividly. I do. That was scary as in crazy people will kill all of us. I write this today while seeing the news of Belgium bombings so some things have not changed. The Tech Crash of 2000-2002 was worrisome because it was my job/field. 2008-2009 was scary because of the financial crisis. My company's 401K plan had major funds locked up for multiple years because money market funds went broke, just when people were losing jobs and defaulting on home mortgages. That was worrying..

There were smaller other ones as a global investor. The Asia Crisis of 1997-1998 had me worried. Russia defaulting on debt in 1998 was concerning. US companies getting pummeled by Japanese competition in the early nineties was concerning in my field. Japan's stagnation and recent earthquakes/Tsunamis have concerned me because of my investments (beyond the obvious human aspect). Europe has been dysfunctional financially with its monetary union, as long as I can remember. The South American/Latin American countries are constantly in some kind of revolution/corruption/default scandal every decade.. Middle east is constantly at war as long as I have been alive...

I wasn't alive back then but if you go back a few more years, the idea of the world being one button away from being destroyed (Cuba Crisis) during the cold war, would have kept me up all night...

The point of all this is today is nothing special. There has never been an extended period of time where the economic and political forecasts have been all rosy. Just invest globally and hope it all works out.

I put my money where my mouth is. I was 100% in stocks (globally cap weighted) at 22, same at your age of 30 and same at 45. Being worried is normal. Don't let that stop you from investing. That will be foolish. The future always looks scary but it has a strange habit of working out.


Good reply. I do remember 9/11 and some of the other events you mentioned but I was not investing during the time so I did not look at the events from a financial perspective. I was starting to invest around the financial crisis but not as much or as smart as I would have wished.

I think what I am most worried about is financial policy and debt. US debt is out of control with no plan to slow it down and irresponsible central bank action. Not only in the US bu internationally. Seems like the cards keep getting stacked against future growth.

Texanbybirth
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Re: The Next 40 Years

Post by Texanbybirth » Wed Mar 23, 2016 10:17 am

clayr361 wrote:
Texanbybirth wrote:I figure very low real returns in my calculations (1-2%), and then I'll be pleasantly surprised if I'm wrong. (In one direction; in the other direction and there will be bigger things to worry about!)

And hey, I'm 30 like you. It sounds like you're saving way more than we are (not close to maxing 401k, no 529s or taxable accounts and not enough to go around to them any time in the near future), so you'll probably always be doing better than at least one family! :moneybag :P


I live in Texas as well, maybe we are just too pessimistic down here. Although I am just assuming you live in Texas by your login name... My wife and I both work in the Oil and Gas industry so at the moment we are just happy to have a job and be able to contribute something. The future of our current industry should probably worry me more than future stock returns.


Born, raised, and still living here. I prefer "realistic" and "conversative", but I suppose "pessimistic" could work in one sense of the word. :D You live in the greatest country on earth (which we can argue may not be saying much these days), and in the greatest state in that country (which is never up for argument) so you're already heads and shoulders above a lot of the people in the world. My wife and I make service to others (soup kitchens, visiting the sick, tithing, etc.) a significant part of our lives to remind us of what we have and what others don't have. That, and a 14-month old with another on the way, and I find myself running out of time to worry about 40 years (or more) worth of returns. There's so much I can't control about this finance stuff that I'm learning to do what I can in all aspects, love my family, and entrust the rest to Someone else. :sharebeer

P.s. - I'm sure O&G has been very good to your family in the last few years. I have a lot of friends in that industry who are in your same position, so I can kinda understand your worry.

Dirghatamas
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Re: The Next 40 Years

Post by Dirghatamas » Wed Mar 23, 2016 8:45 pm

clayr361 wrote:Good reply. I do remember 9/11 and some of the other events you mentioned but I was not investing during the time so I did not look at the events from a financial perspective. I was starting to invest around the financial crisis but not as much or as smart as I would have wished.

I think what I am most worried about is financial policy and debt. US debt is out of control with no plan to slow it down and irresponsible central bank action. Not only in the US bu internationally. Seems like the cards keep getting stacked against future growth.

clayr361
The thing I would add to my previous reply is that again we always had things to worry about and the ability to predict the future is very rare indeed. Most of the time, the problems that do occur are ones we didn't predict and problems we predict, don't occur.

When I started in the technology field in 1992, my (then) middle aged, very smart, highly educated boss was absolutely convinced about huge job losses in the entire tech industry to Japanese companies. He was convinced the days of US technology companies (like IBM) were over and Japan would rule the world. And yet, "Peak Japan" had already happened by then, we just didn't know it. That decade with experienced doomsday predictions like my boss saw a 10X or more market cap/revenue/earnings growth in US tech companies like Microsoft/Intel/Cisco etc. PC and Internet became commonplace. The next ten years saw the emergence (and reemergence) of companies like Apple, Google, Facebook etc. Mobile and social media became common place. Technology has been one of the fastest growing sectors in US in the past 20 years and yet a highly experienced engineer in that field was worried about technology future and job losses in US in 1992 :oops:

I am not being casual but something similar may happen with debts and governments. I still remember SNL (Saturday Night Live), (is that show still on), brilliant satire on government debt in the mid 1990s when it crossed (I think) 30% of GDP. The prognosis was that we were dead at these debt levels. I still also remember "lockbox" election campaign by Al Gore in 2000 when social security was considered broke and there would be a "lockbox" to keep it solvent.. Here we are ~15-25 years after many of these predictions and USA is still chugging along slowly.

My only actionable lesson if any from all this is to be humble and diversify globally. It is certainly possible for me to envision any one country (even USA) going into stagnation or getting over indebted..but it is difficult to imagine the entire world stagnating for 40 years. Being diversified globally will give you a fair share of the world's economic engine and my strong bet is that it will turn out rather positive. My strong sense is that the next 20 years will see even faster development in technology than the last 20 years and technology development/innovation will drive the world economy upwards. :beer

protagonist
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Re: The Next 40 Years

Post by protagonist » Wed Mar 23, 2016 11:20 pm

clayr361 wrote:I am 30 years old. My wife and I actively contribute a large portion of our salary to retirement savings. Most of that is in the form of Vanguard target retirement funds.

I struggle with the idea that throughout the next 35-40 years until retirement age, that I will receive a good return on my investments. That which has been enjoyed by a lot of you that have invested over the last 35-40 years. General rules say to allocate a large portion of your investments in stocks at a young age because over time it has performed the best. Another general rule is that past performance does not guarantee future results. What I am getting at is what if in 30 years the market has made inferior gains. Even Bogle himself has said not to expect more than 5% gains in the stock market for the next decade or so. I know gains in the stock market are not a sure thing but it has been instilled on me as the only way to go if you want to build wealth over the long run. I also realize there would be much bigger problems than my retirement account if the market failed to produce gains for the next 30 years.

I plan on staying the course and socking away all I can towards retirement, 529's and taxable accounts. I just have a feeling I will get to retirement age and look back at my returns and not be very impressed with them. I know I am probably just being entirely too pessimistic about the whole situation.

For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?


I feel like I am clueless about future gains. I believe, as you do, that the post-WW II economy, and actually the economy for the past 200 years since the dawn of the industrial revolution, has been (to say the least) remarkable. I have no idea how long that will continue. Maybe five more years, or maybe a couple more centuries, or ???? How could I possibly know. I'm 63 y o and I was just really lucky.

I think you are right to assume you are clueless, too.

There is no reason to be pessimistic. There is also no reason to be optimistic. The future is uncertain.

The cup is not half full or half empty. It is half filled with water and half filled with air.

You say, "Yeah, but what good is that? We have to rely on assumptions to make decisions".

Of course we do. So make your assumptions. Just don't get wed to them. Realize it is a house of cards, and realistically anything can happen. If you are going to be investing for the next 40-plus years, come up with an investment plan that makes sense to you even though you know that, in fact, you know nothing of the world of 2060. The chips will fall as they may. You have to learn to laugh at those who think they can predict the future, but more important, you have to learn to laugh at yourself.

protagonist
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Re: The Next 40 Years

Post by protagonist » Wed Mar 23, 2016 11:24 pm

clayr361 wrote:I struggle with the idea that throughout the next 35-40 years until retirement age, that I will receive a good return on my investments. That which has been enjoyed by a lot of you that have invested over the last 35-40 years. ...Even Bogle himself has said not to expect more than 5% gains in the stock market for the next decade or so. ..... I also realize there would be much bigger problems than my retirement account if the market failed to produce gains for the next 30 years.....

I know I am probably just being entirely too pessimistic about the whole situation.

For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?


I feel like I am clueless about future gains. I believe, as you do, that the post-WW II economy, and actually the economy for the past 200 years since the dawn of the industrial revolution, has been (to say the least) remarkable. I have no idea how long that will continue. Maybe five more years, or maybe a couple more centuries, or ???? How could I possibly know. I'm 63 y o and I was just really lucky.

I think you are right to assume you are clueless, too.

There is no reason to be pessimistic. There is also no reason to be optimistic. The future is uncertain.

The cup is not half full or half empty. It is half filled with water and half filled with air.

You say, "Yeah, but what good is that? We have to rely on assumptions to make decisions".

Of course we do. So make your assumptions. Just don't get wed to them. Realize it is a house of cards, and realistically anything can happen. If you are going to be investing for the next 40-plus years, come up with an investment plan that makes sense to you even though you know that, in fact, you know nothing of the world of 2060. The chips will fall as they may. You have to learn to laugh about predictions of the future, but more important, you have to learn to laugh at yourself.
Last edited by protagonist on Thu Mar 24, 2016 4:17 am, edited 1 time in total.

carofe
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Re: The Next 40 Years

Post by carofe » Wed Mar 23, 2016 11:26 pm

clayr361 wrote:I am 30 years old. My wife and I actively contribute a large portion of our salary to retirement savings. Most of that is in the form of Vanguard target retirement funds.

I struggle with the idea that throughout the next 35-40 years until retirement age, that I will receive a good return on my investments. That which has been enjoyed by a lot of you that have invested over the last 35-40 years. General rules say to allocate a large portion of your investments in stocks at a young age because over time it has performed the best. Another general rule is that past performance does not guarantee future results. What I am getting at is what if in 30 years the market has made inferior gains. Even Bogle himself has said not to expect more than 5% gains in the stock market for the next decade or so. I know gains in the stock market are not a sure thing but it has been instilled on me as the only way to go if you want to build wealth over the long run. I also realize there would be much bigger problems than my retirement account if the market failed to produce gains for the next 30 years.

I plan on staying the course and socking away all I can towards retirement, 529's and taxable accounts. I just have a feeling I will get to retirement age and look back at my returns and not be very impressed with them. I know I am probably just being entirely too pessimistic about the whole situation.

For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?


The risk of not having enough when you retire (because you didn't invest enough or didn't take enough risk) to live is more scary to me. When investing you need to understand the risk, not only of what could happen with your money, but also what could happen with the money not invested at all.
US Total Stock Market + Intermediate Term Bond. That's it.

shelanman
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Re: The Next 40 Years

Post by shelanman » Thu Mar 24, 2016 1:36 am

Meaty wrote:I'm 32 so in a similar situation. The thing is - we have no alternative. Future returns maybe awful but we don't know that for sure nor is it actionable as all other investments will likely also be poor if the broad equity market is poor. The only thing you can do is save diligently and see what happens


This is where I get to, too. I have a model that takes my (in my opinion, high) savings rate, my current assets, and projects slightly-optimistic, neutral, and slightly-pessimistic future curves. Even the optimistic curve is inadequate to meet my goals, and both the neutral and pessimistic curves are ruinous.

But I follow the plan anyway, because as bad as the odds are on my plan, I can't find a set of options whereby realistic assumptions about the future lead to better results.

Every once-in-a-while, I consider abandoning the plan and living the good life for 2-3 years. That's about how long it would last if I was efficient and careful in my excess. I mean, if my plan results in failure anyway, I might as well enjoy things while I can, right? But I don't. Not because I don't think that's a perfectly viable option, it just isn't in my make-up to act that way. I struggle with using up the last bit of unimportant and easily-replaced things, so using up my savings in that way would create more anxiety than enjoyment. I just keep on keeping on, not because I think it will work, but because I don't see a better alternative.

protagonist
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Re: The Next 40 Years

Post by protagonist » Thu Mar 24, 2016 9:54 am

It's interesting hearing all of this agita (spelling?) about having enough to retire from 20-somethings.

I graduated college in the early 1970s. In my 20s the country was in stagflation and unemployment was soaring. Post-Vietnam the US was in a tailspin and on the street people spoke of Japanese businessmen buying up the country. There was no cause for optimism. I had a very hard time finding decent work with a degree in Chemistry and English from a respected university. I eventually went back to school , partly because it was hard to find a decent job, which in retrospect was good for me. But retirement was the last thing on my mind. I don't know about others, but it was just not something my friends or I thought about. We pretty much lived day to day. Don't worry. Be happy.

The economy is so much better now than in the 1970s and early 1980s. I imagine a Bogleheads forum is not a representative sample, but I am reminded of the vast differences in terms of how people now view the world. My generation identified with the likes of Holden Caulfield. Nowadays, Holden would be vilified as a slacker who should have stopped whining and gone out , gotten a job, and prepared for his future.

Chadnudj
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Re: The Next 40 Years

Post by Chadnudj » Thu Mar 24, 2016 10:09 am

Are you dollar cost averaging with your contributions (i.e. putting a steady amount in at regular times via automatic payroll deducations)?

You'll be fine. Yes, overall the market might only have 5% returns, but large chunks of your money (bought on downturns, like in 2008) will have returns much, much higher than that, especially given forecasts for higher volatility even with low growth....

And 5% real per year is still good enough growth to get you where you need to be if you're saving aggressively, particularly as you get past having to save for kids' college education/pay off student loans/pay off your mortgage and your expenses (ideally) go down.

Chadnudj
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Re: The Next 40 Years

Post by Chadnudj » Thu Mar 24, 2016 10:16 am

clayr361 wrote:I think what I am most worried about is financial policy and debt. US debt is out of control with no plan to slow it down and irresponsible central bank action. Not only in the US bu internationally. Seems like the cards keep getting stacked against future growth.


US debt is not out of control. It's at rock bottom low interest rates, and still is less than 100% of our GDP, and our debt service rate on that debt is still very low (arguably, we should be going into more debt given low interest rates, and pouring that debt into infrastructure, but no one in Congress seems to grasp that the best time to borrow for necessary, long-term, beneficial improvements is when interest rates are low).

And certainly the situation is no worse than when our military spending was out of control during WWII, or the Cold War, or Vietnam, all of which the US economy survived.

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mephistophles
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Re: The Next 40 Years

Post by mephistophles » Thu Mar 24, 2016 10:46 am

Clay,
Anyone can predict the future, but no one has a crystal ball to get it right. You are doing the right things now. Save, diversify, maybe add some real estate and enjoy life. What comes will come.
Regards,
ole meph

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tetractys
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Re: The Next 40 Years

Post by tetractys » Thu Mar 24, 2016 10:52 am

clayr361 wrote:For those that have invested for the past 30+ years and are now in a safer allocation. How would you feel about future gains if you were just starting out today? Have you ever had the same feelings I do now in the past?

clayr361,

I've only been investing for the last 19 years, and I still have some of your feeling asking if it's worth it. Having started investing after the gargantuan boom of the 80's and 90's, my investments have dropped well below their initial value a couple of times.

Observing the human picture over the whole span of written history, we see that for those privileged with the possibility, an optimistic expectation for a real rate of return is somewhere between 3 to 5 percent. My portfolio expected return is set a little above that, and rather risky at 75% stocks. Prudence tells us to save in the best manner we can, as generosity allows. People all over the world are persistently loosing and have lost all their material wealth--it can happen anywhere at any moment. That's life, so we must dream our best dream. -- Tet

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