Return expectations for the next 10 years

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grkmec
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Return expectations for the next 10 years

Post by grkmec »

So what are people's expectations for stock market returns for something like the S&P 500 over the next 10 years and why? I have little conviction on the nominal return of S&P 500 over the next 10 years, however, I feel like it has to be worse than the last 10 years (+7.5%) for the following reasons:

1) Fed fund rates have gone from 5.25% to 0.37% over the last 10 years
2) Demographics of developed economics have turned materially negative vs. 10 years ago
3) Taxation higher across developed markets
4) Entitlements have risen globally disincentivizing value creation
5) China is in deceleration mode and their current credit growth is unsustainable
6) Commodities supercycle is busted - history tells us that commodity cycles are much longer than economic cycles
7) We are on 8th year in row of S&P500 increases and current economic cycle is getting long in the tooth
8) SP500 PE multiples elevated vs. recent history
9) Debt levels are substantially higher as % of GDP across most economies and rising

So if you told me to forecast the return of S&P 500 over the next 10 years, my answer would be 5.0-5.5%. And sadly about 40% of that expected return is tax inefficient due to it coming from dividends. A 60/40 balanced fund using 10yr govies will barely get you 4%. Might be better off doing 60% S&P 500 and 40% High Yield Bonds so you have a shot of hitting 6% annualized.

If I am wrong on the upside, I think the most likely reason is because equity multiples have risen from 17.5x to 22.5x because rates remain at the zero bound or negative for the next 10 years. This can add +30% total return to equities which would allow total returns to approach 8% annualized. Tough to make that bet though.

Thoughts ?
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Ever Ready
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Re: Return expectations for the next 10 years

Post by Ever Ready »

If you're trying to cheer us up, you need to try harder.
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SimpleGift
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Re: Return expectations for the next 10 years

Post by SimpleGift »

What is the market currently predicting that real (inflation-adjusted) U.S. stock and bond returns will be over the next 10 years?
  • • For Stocks: The earnings yield of S&P 500 (reciprocal of CAPE 10, or 1/25) = 4.00%

    • For Bonds: The current yield of 10-year TIPS Bond = 0.15%
The market itself (the current consensus of all the market participants on the planet) is likely be a much better predictor of future asset returns than any expert forecaster, in my view.
NoLongerTiming
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Re: Return expectations for the next 10 years

Post by NoLongerTiming »

Simplegift wrote:What is the market currently predicting that real (inflation-adjusted) U.S. stock and bond returns will be over the next 10 years?
  • • For Stocks: The earnings yield of S&P 500 (reciprocal of CAPE 10, or 1/25) = 4.00%

    • For Bonds: The current yield of 10-year TIPS Bond = 0.15%
The market itself (the current consensus of all the market participants on the planet) is likely be a much better predictor of future asset returns than any expert forecaster, in my view.
SimpleGift: Is there any historical data on your 2 metrics in terms of how well they've predicted things in past rolling 5-10 year periods?
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Re: Return expectations for the next 10 years

Post by jebmke »

Simplegift wrote:What is the market currently predicting that real (inflation-adjusted) U.S. stock and bond returns will be over the next 10 years?
  • • For Stocks: The earnings yield of S&P 500 (reciprocal of CAPE 10, or 1/25) = 4.00%

    • For Bonds: The current yield of 10-year TIPS Bond = 0.15%
The market itself (the current consensus of all the market participants on the planet) is likely be a much better predictor of future asset returns than any expert forecaster, in my view.
This is pretty much what I would use as a wet-finger forecast if I needed one; I round the bond returns down to zero to make the calculation easier. I only use the bond returns to project RMDs so I can figure out where to set my ROTH conversion in December. Using zero makes it simple.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
lack_ey
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Re: Return expectations for the next 10 years

Post by lack_ey »

Simplegift wrote:What is the market currently predicting that real (inflation-adjusted) U.S. stock and bond returns will be over the next 10 years?
  • • For Stocks: The earnings yield of S&P 500 (reciprocal of CAPE 10, or 1/25) = 4.00%

    • For Bonds: The current yield of 10-year TIPS Bond = 0.15%
The market itself (the current consensus of all the market participants on the planet) is likely be a much better predictor of future asset returns than any expert forecaster, in my view.
Those aren't market predictions of returns. Those are your predictions based on current market pricing... based on simple heuristics that have historically been reasonable and look appropriate, which I wouldn't really disagree much with.

Also, these are real returns. Looks like grkmec is talking about nominal returns.

I think a few of the macroeconomic arguments are a bit overstated, either with the linkage or the actual change in data being less than implied. But sure, doesn't look amazing at least by the median or expected outcome. There can always be a significant surprise on the upside or downside, though.


Here's my list of links I keep reposting in every thread, for reference:
lack_ey wrote:You may want to see Vanguard's methodology and numbers from last year here. Some conditions are definitely different now than about a year ago, though. It has a range of estimates on stocks, bonds, inflation, etc.:
https://personal.vanguard.com/pdf/ISGVEMO_122015.pdf

AQR publishes some numbers and estimates stock returns based on averaging an earnings yield approach and dividend discount model approach, with the methodology explained a little more in the 1q14 publication. This also has some numbers for bonds:
https://www.aqr.com/~/media/files/paper ... g-1q16.pdf

For reference, here is the main overview page for the Research Affiliates projections:
http://www.researchaffiliates.com/Asset ... rview.aspx

BNY Mellon has their own 10-year capital market return assumptions for different asset classes:
https://www.bnymellon.com/_global-asset ... s-2016.pdf

For some theoretical frameworks and equity risk premium estimates (also some ways to adapt that to other countries, stock subclasses), check Aswath Damodaran's site here, especially the links at the bottom:
http://pages.stern.nyu.edu/~adamodar/

William Bernstein has a simple methodology for both stocks and bonds that is more pessimistic than the above that you can see described in If You Can (from last year; it's easy to plug in today's numbers, though) in the "hurdle number two" section [update figures with today's data yourself]:
http://www.etf.com/docs/IfYouCan.pdf

Rick Ferri has a 30-year forecast he publishes every year. Or at least he did. Looks like PortfolioSolutions is continuing with it even with Rick gone from the firm.
https://portfoliosolutions.com/latest-l ... ecast-2016

GMO has a 7-year forecast, which gets reported on by others. See here:
https://spiderfinance.com/2016/05/11/je ... t-q1-2016/

The wiki page here cites the Rick Ferri results as well as more numbers from Jack Bogle, Burton Malkiel, and Bill Bernstein:
https://www.bogleheads.org/wiki/Histori ... ed_returns
@NoLongerTiming: see above. Bottom line is that bonds are more predictable than stocks and that this is all going to be wrong, just by an unknown amount. Also see this thread and search some others for bonds:
viewtopic.php?t=150865

See this Vanguard paper, though that doesn't quite address that specific measure:
https://personal.vanguard.com/pdf/s338.pdf

You can probably search around and find more. These are fairly commonly cited.

edit: updated the Rick Ferri (now PortfolioSolutions) forecast thanks to Doc below, further down in the thread
Last edited by lack_ey on Sun Jun 26, 2016 6:58 pm, edited 4 times in total.
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SimpleGift
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Re: Return expectations for the next 10 years

Post by SimpleGift »

NoLongerTiming wrote:Is there any historical data on your 2 metrics in terms of how well they've predicted things in past rolling 5-10 year periods?
There’s actually been quite a few studies showing that current bond yields and stock CAPE 10 have been decent forecasters of future asset returns. Here’s one:
Last edited by SimpleGift on Sat Jun 25, 2016 3:08 pm, edited 1 time in total.
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Phineas J. Whoopee
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Re: Return expectations for the next 10 years

Post by Phineas J. Whoopee »

I have no more idea today than I ever had what future returns will be. I just don't know.

My plan will work if my portfolio returns zero percent real. At small negative real I'm not necessarily doomed, but it depends on how far negative, and how my basket of goods and services compares to the average. Probably returns will be higher.

I view my role with respect to my portfolio not as a return maximizer, but as a risk manager.

It wasn't quick or easy to get to this point, and frankly, I'm amazed I did.

PJW
lack_ey
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Re: Return expectations for the next 10 years

Post by lack_ey »

Simplegift wrote:
NoLongerTiming wrote:Is there any historical data on your 2 metrics in terms of how well they've predicted things in past rolling 5-10 year periods?
There’s actually been quite a few studies showing that current bond yields and stock CAPE 10 have been decent forecasters of future asset returns. Here’s one:
That's not quite showing what was being asked, at least not the regression and trendline. Particularly the second graph, which shows nominal price return, not real total return. Furthermore, the precise question is not whether CAPE has predicted past returns but if that return is 1/CAPE specifically. In any case, using the long-term regression over the full data set is kind of cheating, or in the very least you have to understand that the fit on future data is not going to look as good as the fit on the data for which the regression was done, particularly given that we're looking at a price ratio being used to determine price returns in that graph. See for example this piece for some discussion.

Also, it could use a little more data. Those dots also represent heavily overlapping periods.
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

I am not sure how non-independence of time frames - a couple of months apart levels are closer - non-linearity- potential influence points given swings in returns - might make an R square not the best test statistic in this case
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SimpleGift
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Re: Return expectations for the next 10 years

Post by SimpleGift »

lack_ey wrote:Furthermore, the precise question is not whether CAPE has predicted past returns but if that return is 1/CAPE specifically.
To avoid turning this thread into a discussion of various forecasting models (which is not what the OP is after), I believe we can agree that current valuations have generally proven to be the single greatest predictor of future asset returns. For bonds, this can be stated almost unequivocally: current yield = future return. For stocks, it's been generally true, with a much greater dispersion of outcomes.

The earnings yield (reciprocal of CAPE 10) has merit, I believe, because it's a quick and easy metric for beginning investors to calculate, based on available published information. It hasn't been a perfect forecaster of expected 10-year real stock returns in the past, but it's been a reasonably good one:
Last edited by SimpleGift on Sat Jun 25, 2016 4:37 pm, edited 1 time in total.
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

Simplegift's initial response is as usual correct.

Simplegift's first response is likely the best guess, but we are just not sure how good of a guess it is. So to the OP use that as your point estimate but do not be surprised by higher or lower numbers IMO YMMV and other internet sayings for shrug
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JoMoney
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Re: Return expectations for the next 10 years

Post by JoMoney »

I don't have a projection, but to borrow a phrase I read somewhere recently, my long-term expectation is that stocks will return more than bonds.
Bonds aren't yielding much these days, so that's not saying much of practical use :annoyed
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Re: Return expectations for the next 10 years

Post by Sheepdog »

"Prediction is very difficult, especially if it's about the future."
--Nils Bohr
Unless you try to do something beyond what you have already mastered you will never grow. (Ralph Waldo Emerson)
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SimpleGift
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Re: Return expectations for the next 10 years

Post by SimpleGift »

Just for perspective, below are the expert 10-year forecasts from the first three sources on lack_ey’s list upthread. These are expected, real 10-year returns for U.S. intermediate-term bonds and U.S. large cap stocks. Not too much different than the current market valuation forecasts.
  • Image
    Note: For consistency, Research Affiliates stock return is w/o valuation changes.
As discussed, these might be a good place to start, if needed for financial or retirement planning purposes.
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Johnnie
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Re: Return expectations for the next 10 years

Post by Johnnie »

The explanations of why returns will remain sucky for years and years make ever so much sense - and yet the record of such long term predictions in the past is laughably bad, and perhaps never more so than it's what "everyone knows."

I'm always reminded of a scene in the movie Patton. It's late 1944 and the front has grown static as the weather deteriorates. No one expects much to happen until spring... Patton assembles his lieutenants and says the following:
There's absolutely no reason for us to assume that the Germans are mounting a major offense.
The weather is awful and their supplies are low.
The Germans haven't mounted a winter attack since Frederick the Great.
Therefore I believe that's exactly what they're going to do.
The rest is legend. :)

History - and markets - don't move in straight lines. We cannot fail to incorporate the possibility of poor returns into our plans, but neither should we put too much stock in them.
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Doc
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Re: Return expectations for the next 10 years

Post by Doc »

lack_ey wrote:
Here's my list of links I keep reposting in every thread, for reference:
lack_ey wrote:
Rick Ferri has a 30-year forecast he publishes every year. Personally I think some of his bond numbers look a bit kooky (high). This has been discussed before:
http://www.rickferri.com/blog/investmen ... -for-2015/
Here's a link to Portfolio Solutions 30 year forecast for 2016. (Ferri is no longer an active participant in the firm.)
https://portfoliosolutions.com/latest-l ... ecast-2016

The chart has forecasts for four asset classes each containing several sub-classes and has results in both real and nominal terms along with a risk metric.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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Re: Return expectations for the next 10 years

Post by jeffyscott »

lack_ey wrote: William Bernstein has a simple methodology for both stocks and bonds that is more pessimistic than the above that you can see described in If You Can (from last year; it's easy to plug in today's numbers, though) in the "hurdle number two" section:
http://www.etf.com/docs/IfYouCan.pdf
He uses 30 year TIPS for bonds, so today that would give a real return of 0.81%.

For stocks he uses yield plus 1.5% (growth rate), so based on S&P 500 that would be 2.15%+1.5% = 3.65% real.

For foreign, m* shows EFA with SEC yield of 2.55% and 0.33% ER, so gross yield should be 2.88%. Add the 1.5% growth to that and it's 4.38% real.

These are not specifically 10 year forecasts, they are very long term forecasts. The 3.65% real would be much lower if you assume a decline in valuations over that time frame. Going from CAPE = 25 to CAPE = 20, for example would -20% so around -2% per year for 10 years, resulting in about 1.5% real.


GMO is another forecast source, they assume a return to average valuations over 7 years and have US large cap at -2.7% real. They assume normal returns would be 5.7% real in their model, so adjusting the 7 year forecast to 10 years, based on that and the current lower price, I calculate the 10 real return right at 0% per year. Adjusting their foreign large cap forecast to 10 years and for the current lower price, I come up with about 3.2% annualized real return.

Research Affiliates at http://www.researchaffiliates.com/Asset ... ities.aspx
They have US large cap 10 year at 1.2% real and EAFE at 6.1% real as of May 31. They have intermediate treasuries at 0.8% real.
FWIW, they have Bank Loans and High Yield with significantly higher expected returns than US stocks, 2.3% and 2.9% real.
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Re: Return expectations for the next 10 years

Post by letsgobobby »

jebmke wrote:
Simplegift wrote:What is the market currently predicting that real (inflation-adjusted) U.S. stock and bond returns will be over the next 10 years?
  • • For Stocks: The earnings yield of S&P 500 (reciprocal of CAPE 10, or 1/25) = 4.00%

    • For Bonds: The current yield of 10-year TIPS Bond = 0.15%
The market itself (the current consensus of all the market participants on the planet) is likely be a much better predictor of future asset returns than any expert forecaster, in my view.
This is pretty much what I would use as a wet-finger forecast if I needed one; I round the bond returns down to zero to make the calculation easier. I only use the bond returns to project RMDs so I can figure out where to set my ROTH conversion in December. Using zero makes it simple.
me as well. international stocks may more like 5-6%.
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Toons
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Re: Return expectations for the next 10 years

Post by Toons »

I will be satisfied with whatever the market offers :happy
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Cyclesafe
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Re: Return expectations for the next 10 years

Post by Cyclesafe »

I hope for the best and plan for the worst. The result of quantitative machination is only as good as the assumptions that go into it. There is no crystal ball. Asset allocation adjusted to risk tolerance is the only touchstone in financial planning. All else - in the end - is BS.
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Snowjob
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Re: Return expectations for the next 10 years

Post by Snowjob »

0-2% real return for US equities unless the endpoint 10 years from now is during a panic sell off then obviously negative =)
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HomerJ
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Re: Return expectations for the next 10 years

Post by HomerJ »

What were the 10-year return expectations in 2006?

Heck, what were the 5-year return expectations in 2011?

Nobody knows enough to predict anything.
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HomerJ
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Re: Return expectations for the next 10 years

Post by HomerJ »

Simplegift wrote:
NoLongerTiming wrote:Is there any historical data on your 2 metrics in terms of how well they've predicted things in past rolling 5-10 year periods?
There’s actually been quite a few studies showing that current bond yields and stock CAPE 10 have been decent forecasters of future asset returns. Here’s one:
That CAPE10 chart is mostly junk... Way too many data points... What is that? A dot for every month?

It shows that a CAPE of 40 has had multiple data points, all with poor returns... but that's really just one event. CAPE only went above 40 in 1999-2000.

So it's really just one data point.

Plus 10-year, although a good round number, is by coincidence, the point between a high point and low point in the recent past... Yes, returns from 1999-2009 were terrible... But 8-year returns from 1999-2007 were not that bad, nor were 15-year returns from 1999-2014.

People investing at highest valuation in history in 2000 still made 5% nominal over the next 15 years.
Last edited by HomerJ on Sun Jun 26, 2016 11:50 am, edited 1 time in total.
qwertyjazz
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

HomerJ wrote:
Simplegift wrote:
NoLongerTiming wrote:Is there any historical data on your 2 metrics in terms of how well they've predicted things in past rolling 5-10 year periods?
There’s actually been quite a few studies showing that current bond yields and stock CAPE 10 have been decent forecasters of future asset returns. Here’s one:
That CAPE10 chart is mostly junk... Way too many data points... What is that? A dot for every month?

It shows that a CAPE of 40 has had multiple data points, all with poor returns... but that's really just one event. CAPE only went above 40 in 2000.

So it's really just one data point.
There are a lot of problems with it of course. But what do you have that is better other than Toons' sage response of taking whatever the market will give
That of course could also be negative over the next decade.
There is the point estimate and the error bars for any prediction. I am not sure there is any other way of prediction.
G.E. Box "All models are wrong, but some are useful."
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HomerJ
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Re: Return expectations for the next 10 years

Post by HomerJ »

qwertyjazz wrote:But what do you have that is better other than Toons' sage response of taking whatever the market will give
I have nothing better... Just take the what the market will give.
That of course could also be negative over the next decade.
Yes, it could be, which is why if you are close to retirement or in retirement, you probably shouldn't have a huge percentage in stocks.

If you are 30 years from retirement, you don't care as much what happens over the next 10 years... A not-great 10-years means you can load up on stocks cheaply (assuming you don't lose your job--- that's why I say "not-great"... a "terrible" 10 years is nothing to wish for)
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SimpleGift
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Re: Return expectations for the next 10 years

Post by SimpleGift »

HomerJ wrote:What were the 10-year return expectations in 2006?
Below are the expected and actual, real (inflation-adjusted) 10-year total returns for U.S. large-cap stocks and 10-year Treasury bonds, from May 2006 to May 2016 — based on the simple market valuation models upthread:
  • Image
    Data Sources: 10-year Treasury (real, coupons reinvested) total returns calculator
    and S&P 500 (real, dividends reinvested) total returns calculator
To my eye, these figures from 2006 look close enough to have been useful for rough financial planning purposes — at least the expected and actual returns were in the ballpark.
rgs92
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Re: Return expectations for the next 10 years

Post by rgs92 »

Would you have written this on Thursday when the markets were soaring? Honestly?
On good market days, my mind drifts towards all sorts of reasons why the long term is lollipops and roses.
On bad market days, I come up with end-of-the-world scenarios.
I do my best to resist my own worst instincts and be a good Boglehead.
So should you.
Welcome to the forum.
devans0
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Re: Return expectations for the next 10 years

Post by devans0 »

I have no magic crystal ball telling what returns will be. I believe that we are still working through previous baggage. The low returns on capital and excess money chasing to small returns on equity doesn't look promising in the near future.

But.... The internet of things offers new efficiencies throughout all the tools we use. Medical advances are hinting to breakthroughs in some of the most debilitating and expensive illnesses. 3D printing offers efficiencies that will rock our worlds much like computers did. Self driving cars.. The list goes on and on. I see plenty of reason for optimism for markets in the future. I intend to be in on that, too. I know my consumption and fueling the economy is waiting for the cool stuff to come to fruitition, and i'm frugal. The future will be what it will be but it will be good or at worst good enough.
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zaboomafoozarg
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Re: Return expectations for the next 10 years

Post by zaboomafoozarg »

Why just 10 years? I wouldn't be surprised if real stock market returns are 2-3% for the next 50 years.
Rodc
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Re: Return expectations for the next 10 years

Post by Rodc »

Simplegift wrote:
NoLongerTiming wrote:Is there any historical data on your 2 metrics in terms of how well they've predicted things in past rolling 5-10 year periods?
There’s actually been quite a few studies showing that current bond yields and stock CAPE 10 have been decent forecasters of future asset returns. Here’s one:
Despite ringing out all those dots from 40 or so years of data, there are only four honest more or less independent data points in those graphs.

Not much to hang a hat on. :)
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Rodc
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Re: Return expectations for the next 10 years

Post by Rodc »

That said, I get being a pessimistic.

So, 5% plus or minus 10% would be a guess.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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just frank
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Re: Return expectations for the next 10 years

Post by just frank »

grkmec wrote: 2) Demographics of developed economics have turned materially negative vs. 10 years ago
3) Taxation higher across developed markets
4) Entitlements have risen globally disincentivizing value creation

Thoughts ?
2) You mention SP500, and then cite demographics? US Demographics are different than other developed countries....the US' prime age population will be a higher percentage for the next 10 years than the last 10...not true of our economic 'competitors'.

I want to see data for 3) and 4)....and while you are at it, any evidence that these measures are correlated as implied with growth in stock valuation.

With all due respect, your list seems like a mixture of political and financial media 'talking points' , and few think following such is a wise investing strategy.

On a more positive note, we might expect (at least) one recession and two market corrections in 10 years....which could make for some interesting growth years in between, as per usual.
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Re: Return expectations for the next 10 years

Post by Day9 »

Not trying to derail the thread, but what would be a Boglehead-friendly way for someone who has the need, willingness, and ability to take more risk to increase the expected return of his portfolio, besides saving more and working longer?
I'm just a fan of the person I got my user name from
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

Day9 wrote:Not trying to derail the thread, but what would be a Boglehead-friendly way for someone who has the need, willingness, and ability to take more risk to increase the expected return of his portfolio, besides saving more and working longer?
Increase stock to bond ratio - do not prepay mortgage using it for increased stocks - consider factor investing which may or may not be Boglehead
G.E. Box "All models are wrong, but some are useful."
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Phineas J. Whoopee
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Re: Return expectations for the next 10 years

Post by Phineas J. Whoopee »

qwertyjazz wrote:...
Increase stock to bond ratio - do not prepay mortgage using it for increased stocks - consider factor investing which may or may not be Boglehead
Plenty of Bogleheads use and advocate it. Some of them even use the word diversification to mean concentration into certain types of stocks.
PJW
Last edited by Phineas J. Whoopee on Sun Jun 26, 2016 7:06 pm, edited 1 time in total.
qwertyjazz
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

Phineas J. Whoopee wrote:
qwertyjazz wrote:...
Increase stock to bond ratio - do not prepay mortgage using it for increased stocks - consider factor investing which may or may not be Boglehead
Plenty of Bogleheads use and advocate for it.
PJW
But many argue against it - I have not been in forum long enough to say anything but to me it does not read like Boglehead doctrine (hence consider)
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Phineas J. Whoopee
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Re: Return expectations for the next 10 years

Post by Phineas J. Whoopee »

qwertyjazz wrote:...
But many argue against it - I have not been in forum long enough to say anything but to me it does not read like Boglehead doctrine (hence consider)
Ain't none.
PJW
qwertyjazz
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

Phineas J. Whoopee wrote:
qwertyjazz wrote:...
But many argue against it - I have not been in forum long enough to say anything but to me it does not read like Boglehead doctrine (hence consider)
Ain't none.
PJW
To really derail the thread :)
There is implied doctrine and stated beliefs for any group. They might not match.
For doctrine I would argue the following
Consider risk; index investing is a good thing; the invention of index investing was a very good thing (Thank you Mr Bogle)
G.E. Box "All models are wrong, but some are useful."
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Phineas J. Whoopee
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Re: Return expectations for the next 10 years

Post by Phineas J. Whoopee »

qwertyjazz wrote:...
To really derail the thread :)
There is implied doctrine and stated beliefs for any group. They might not match.
For doctrine I would argue the following
Consider risk; index investing is a good thing; the invention of index investing was a very good thing (Thank you Mr Bogle)
Ain't doctrine by any reasonable usage of the word. Repeating my link to the Bogleheads investment philosophy, for reader convenience.

Words matter.

PJW
qwertyjazz
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

Phineas J. Whoopee wrote:
qwertyjazz wrote:...
To really derail the thread :)
There is implied doctrine and stated beliefs for any group. They might not match.
For doctrine I would argue the following
Consider risk; index investing is a good thing; the invention of index investing was a very good thing (Thank you Mr Bogle)
Ain't doctrine by any reasonable usage of the word. Repeating my link to the Bogleheads investment philosophy, for reader convenience.

Words matter.

PJW
Words absolutely matter. Per my education and training I am using doctrine in a specific manner
Doctrine to me is a function of content, frequency, intensity and centrality. I believe but have not done the textual analysis to show that those principles could be considered doctrine based on most writing here. But I could be wrong and no offense was meant.
Sorry
G.E. Box "All models are wrong, but some are useful."
Rodc
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Re: Return expectations for the next 10 years

Post by Rodc »

Phineas J. Whoopee wrote:
qwertyjazz wrote:...
Increase stock to bond ratio - do not prepay mortgage using it for increased stocks - consider factor investing which may or may not be Boglehead
Plenty of Bogleheads use and advocate it. Some of them even use the word diversification to mean concentration into certain types of stocks.
PJW
The primary diversification benefit in investing is between high risk assets and low risk assets, for most people in particular that means primarily the split between stocks and fixed income (bonds, CDs and the like).

Diversification within an asset class is still important but historically the precise weights have not been too important. Cap weighted S&P 500 vs equal weight for example (more risk tends to go with higher returns, so not much of a story here), or S&P 500 cap weight and TBM vs (shutter) active Wellington (if one keeps the same stock bond split for both). As long as well diversified, low turn over and low cost, it just does not matter much other than to those prone to being dogmatic.

If one wants to argue "optimal" diversification of a stock portfolio vs simply being well diversified one has to make a lot of simplify assumptions to make simple model stock markets so that one can formulate mathematical definitions of "optimal" and prove theorems. To what degree any of these models correspond to the real world of course is what academics argue about so they can publish papers and get tenure. If one believes in one factor models you get one answer. If you believe in multi-factor models you get a different answer. There is no known one "right" answer because there is no perfect model to rule them all.

Given no one knows how to set the most important aspect of diversification to better than at best +/- 10% or so, my personal take it is not all that important to get hung up on the details of what might be optimal in the lesser forms of diversification. Best to just pick one of the more or less rational options and stick with it.

Unless one gets paid to argue or one's tenure hangs in the balance...
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Watty
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Re: Return expectations for the next 10 years

Post by Watty »

I don't have a good guess but one thing to keep in mind is that if you are younger and still in the accumulation phase then you will be putting more money into your accounts each year.

That makes deciding what is good for you much more complicated.

For example if you have 30 years until retirement and the market drops over the next ten years so the P/E is very low then that might set you up well for for investing for the remaining 20 years until you retire.

It the market booms for ten more years to very high levels then the 20 years after that could be pretty lean investing years.
edge
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Re: Return expectations for the next 10 years

Post by edge »

I don't think anyone knows. But everyone knows the info the OP has in his first post.
qwertyjazz
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Re: Return expectations for the next 10 years

Post by qwertyjazz »

edge wrote:I don't think anyone knows. But everyone knows the info the OP has in his first post.
What information is known is reflected in current market prices
In regards to taxes OECD provides good data vs pundits on TV
http://www.oecd.org/ctp/tax-policy/taxi ... t-year.htm
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grkmec
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Re: Return expectations for the next 10 years

Post by grkmec »

just frank wrote:
grkmec wrote: 2) Demographics of developed economics have turned materially negative vs. 10 years ago
3) Taxation higher across developed markets
4) Entitlements have risen globally disincentivizing value creation

Thoughts ?
2) You mention SP500, and then cite demographics? US Demographics are different than other developed countries....the US' prime age population will be a higher percentage for the next 10 years than the last 10...not true of our economic 'competitors'.

I want to see data for 3) and 4)....and while you are at it, any evidence that these measures are correlated as implied with growth in stock valuation.

With all due respect, your list seems like a mixture of political and financial media 'talking points' , and few think following such is a wise investing strategy.

On a more positive note, we might expect (at least) one recession and two market corrections in 10 years....which could make for some interesting growth years in between, as per usual.
Just Frank,

I think there is a relationship between demographics and economic growth. Take for example the countries in the G7. The oldest country is Japan with average age of 46.5 years and its 10yr bond is yielding negative 21 bps. The youngest country is US with average age of 37.8 and our 10yr bond is 1.49% - the second highest yield after Italy - US was yielding more pre-Brexit if I am not mistaken. Mere coincidence you think? Perhaps.

As to your comment on S&P500 and global demographics - their are lots multi-nationals in the S&P500 whose success will be a function of global GDP growth and currencies (as that impacts local demand). Just highlighting it as an incremental negatives for global GDP growth,

On 3), here you go. Take the most important country in the G7 - that would the US. Top bracket today for someone living in CT is 39.6% + 3.8% +6.7% = 50.1%. 10 years ago my bracket was 35% + 6.7% = 41.7%. [Political comment removed -- moderator triceratop] There are numerous other examples in Europe where austerity measures have come in the form of higher taxes (eg. Greece).

on 4) Sorry, I don't have any analysis to answer your question -- "any evidence that these measures are correlated as implied with growth in stock valuation" question. I will give you this -- growth in stock valuation is easily manipulated, and yesterday's correlations, might tell you nothing about the future. When you have the Fed's balance sheet exploding due to QE, or maybe straight up equity purchases like BOJ is doing, stock valuations can disconnect from GDP growth and historic P/E multiples. Throw the finance book in the garbage because central bankers are the new masters of the universe. When I went to business school, there was no finance class on central banking manipulation - we are in a whole new world.

To your point on "all due respect". I take no offense. I never recommended an investing strategy. I merely asked a question on return expectation. I offered a high level view as to why I thought, returns would be lower over next 10 year vs. last 10. I gave you my nominal estimate of 5.0-5.5%. I see you offered no prognostication of your own.

I am new to this forum. I have read lots of threads. I have seen many of you recommend XYZ stock market index... That is not good enough for me. When I invest my money, I need to be able to quantify both an expected return and understand the risks I am taking.
edge
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Re: Return expectations for the next 10 years

Post by edge »

If you are looking for precision and accuracy in returns I hear the US government sells bonds.
qwertyjazz
Posts: 2000
Joined: Tue Feb 23, 2016 3:24 am

Re: Return expectations for the next 10 years

Post by qwertyjazz »

grkmec wrote:
just frank wrote:
grkmec wrote: 2) Demographics of developed economics have turned materially negative vs. 10 years ago
3) Taxation higher across developed markets
4) Entitlements have risen globally disincentivizing value creation

Thoughts ?
2) You mention SP500, and then cite demographics? US Demographics are different than other developed countries....the US' prime age population will be a higher percentage for the next 10 years than the last 10...not true of our economic 'competitors'.

I want to see data for 3) and 4)....and while you are at it, any evidence that these measures are correlated as implied with growth in stock valuation.

With all due respect, your list seems like a mixture of political and financial media 'talking points' , and few think following such is a wise investing strategy.

On a more positive note, we might expect (at least) one recession and two market corrections in 10 years....which could make for some interesting growth years in between, as per usual.
Just Frank,

I think there is a relationship between demographics and economic growth. Take for example the countries in the G7. The oldest country is Japan with average age of 46.5 years and its 10yr bond is yielding negative 21 bps. The youngest country is US with average age of 37.8 and our 10yr bond is 1.49% - the second highest yield after Italy - US was yielding more pre-Brexit if I am not mistaken. Mere coincidence you think? Perhaps.

As to your comment on S&P500 and global demographics - their are lots multi-nationals in the S&P500 whose success will be a function of global GDP growth and currencies (as that impacts local demand). Just highlighting it as an incremental negatives for global GDP growth,

On 3), here you go. Take the most important country in the G7 - that would the US. Top bracket today for someone living in CT is 39.6% + 3.8% +6.7% = 50.1%. 10 years ago my bracket was 35% + 6.7% = 41.7%. [Political comment removed -- moderator triceratop] There are numerous other examples in Europe where austerity measures have come in the form of higher taxes (eg. Greece).

on 4) Sorry, I don't have any analysis to answer your question -- "any evidence that these measures are correlated as implied with growth in stock valuation" question. I will give you this -- growth in stock valuation is easily manipulated, and yesterday's correlations, might tell you nothing about the future. When you have the Fed's balance sheet exploding due to QE, or maybe straight up equity purchases like BOJ is doing, stock valuations can disconnect from GDP growth and historic P/E multiples. Throw the finance book in the garbage because central bankers are the new masters of the universe. When I went to business school, there was no finance class on central banking manipulation - we are in a whole new world.

To your point on "all due respect". I take no offense. I never recommended an investing strategy. I merely asked a question on return expectation. I offered a high level view as to why I thought, returns would be lower over next 10 year vs. last 10. I gave you my nominal estimate of 5.0-5.5%. I see you offered no prognostication of your own.

I am new to this forum. I have read lots of threads. I have seen many of you recommend XYZ stock market index... That is not good enough for me. When I invest my money, I need to be able to quantify both an expected return and understand the risks I am taking.
Top tax bracket [was previously] 70%
[Response to political comment removed -- moderator triceratop]
Never let facts get in the way of a good argument
I believe the eminent philosophers Monty Python best described looking for an argument
G.E. Box "All models are wrong, but some are useful."
Topic Author
grkmec
Posts: 255
Joined: Wed Jun 22, 2016 8:46 am

Re: Return expectations for the next 10 years

Post by grkmec »

edge wrote:If you are looking for precision and accuracy in returns I hear the US government sells bonds.
I was looking for informed opinions and perhaps some debate :happy
Topic Author
grkmec
Posts: 255
Joined: Wed Jun 22, 2016 8:46 am

Re: Return expectations for the next 10 years

Post by grkmec »

qwertyjazz wrote:
grkmec wrote:
just frank wrote:
grkmec wrote: 2) Demographics of developed economics have turned materially negative vs. 10 years ago
3) Taxation higher across developed markets
4) Entitlements have risen globally disincentivizing value creation

Thoughts ?
2) You mention SP500, and then cite demographics? US Demographics are different than other developed countries....the US' prime age population will be a higher percentage for the next 10 years than the last 10...not true of our economic 'competitors'.

I want to see data for 3) and 4)....and while you are at it, any evidence that these measures are correlated as implied with growth in stock valuation.

With all due respect, your list seems like a mixture of political and financial media 'talking points' , and few think following such is a wise investing strategy.

On a more positive note, we might expect (at least) one recession and two market corrections in 10 years....which could make for some interesting growth years in between, as per usual.
Just Frank,

I think there is a relationship between demographics and economic growth. Take for example the countries in the G7. The oldest country is Japan with average age of 46.5 years and its 10yr bond is yielding negative 21 bps. The youngest country is US with average age of 37.8 and our 10yr bond is 1.49% - the second highest yield after Italy - US was yielding more pre-Brexit if I am not mistaken. Mere coincidence you think? Perhaps.

As to your comment on S&P500 and global demographics - their are lots multi-nationals in the S&P500 whose success will be a function of global GDP growth and currencies (as that impacts local demand). Just highlighting it as an incremental negatives for global GDP growth,

On 3), here you go. Take the most important country in the G7 - that would the US. Top bracket today for someone living in CT is 39.6% + 3.8% +6.7% = 50.1%. 10 years ago my bracket was 35% + 6.7% = 41.7%. Obama has raised my marginal tax rate by 8.4 pts. There are numerous other examples in Europe where austerity measures have come in the form of higher taxes (eg. Greece).

on 4) Sorry, I don't have any analysis to answer your question -- "any evidence that these measures are correlated as implied with growth in stock valuation" question. I will give you this -- growth in stock valuation is easily manipulated, and yesterday's correlations, might tell you nothing about the future. When you have the Fed's balance sheet exploding due to QE, or maybe straight up equity purchases like BOJ is doing, stock valuations can disconnect from GDP growth and historic P/E multiples. Throw the finance book in the garbage because central bankers are the new masters of the universe. When I went to business school, there was no finance class on central banking manipulation - we are in a whole new world.

To your point on "all due respect". I take no offense. I never recommended an investing strategy. I merely asked a question on return expectation. I offered a high level view as to why I thought, returns would be lower over next 10 year vs. last 10. I gave you my nominal estimate of 5.0-5.5%. I see you offered no prognostication of your own.

I am new to this forum. I have read lots of threads. I have seen many of you recommend XYZ stock market index... That is not good enough for me. When I invest my money, I need to be able to quantify both an expected return and understand the risks I am taking.
Top tax bracket [was previously] 70%
[Response to political comment removed -- moderator triceratop]
Never let facts get in the way of a good argument
I believe the eminent philosophers Monty Python best described looking for an argument
See my 1st post - I was specifically making a comparison between last 10 years and next 10 years. [Response to political comment removed -- moderator triceratop]
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