Vanguard's comments on the economy and markets

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garlandwhizzer
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Vanguard's comments on the economy and markets

Postby garlandwhizzer » Mon Mar 20, 2017 10:27 am

Joe Davis, Vanguard's Global Chief Economist, has written a piece on the Vanguard website entitled, "We're not going back to the 80s but expect the Fed to raise rates." In it he gives Vanguard's view of the economy and markets, present and future. Vanguard believes that underlying macroeconomic fundamentals ultimately determine market gains, hence the likely future of the equity and bond markets. In short the piece argues that the markets currently have gotten ahead of themselves due to exuberant animal spirits and that the future holds positive but less than historical rates of return for both bonds (2.5% - 3%) and stocks (6% - 8%) going forward. Many respected market forecasters are now singing the same song, positive but well less than historical returns for the foreseeable future. If they're correct, investors had best invest more and start investing sooner in life to meet future investment goals.

https://vanguardblog.com/2017/03/13/were-not-going-back-to-the-80s-but-expect-the-fed-to-raise-rates/?EXCMPGN=EX:EM:RIG:eITV:031617:EDU:article:slot4:201:mkt:XX:XX:XX

Garland Whizzer

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pennstater2005
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Re: Vanguard's comments on the economy and markets

Postby pennstater2005 » Mon Mar 20, 2017 10:56 am

garlandwhizzer wrote:Joe Davis, Vanguard's Global Chief Economist, has written a piece on the Vanguard website entitled, "We're not going back to the 80s but expect the Fed to raise rates." In it he gives Vanguard's view of the economy and markets, present and future. Vanguard believes that underlying macroeconomic fundamentals ultimately determine market gains, hence the likely future of the equity and bond markets. In short the piece argues that the markets currently have gotten ahead of themselves due to exuberant animal spirits and that the future holds positive but less than historical rates of return for both bonds (2.5% - 3%) and stocks (6% - 8%) going forward. Many respected market forecasters are now singing the same song, positive but well less than historical returns for the foreseeable future. If they're correct, investors had best invest more and start investing sooner in life to meet future investment goals.

https://vanguardblog.com/2017/03/13/were-not-going-back-to-the-80s-but-expect-the-fed-to-raise-rates/?EXCMPGN=EX:EM:RIG:eITV:031617:EDU:article:slot4:201:mkt:XX:XX:XX

Garland Whizzer


I hope they're wrong but one never knows. I started investing later in life and can't save as aggressively as others here. Despite all that, I am not worried that I won't be at least comfortable in retirement.

As is usually noted here I'm always more worried about my health than anything, and thankful each day that I have it now.
“Life is short, Break the Rules, Forgive quickly, Kiss slowly, Love truly, Laugh uncontrollably, And never regret anything that made you smile" - Unknown

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flamesabers
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Re: Vanguard's comments on the economy and markets

Postby flamesabers » Mon Mar 20, 2017 11:00 am

garlandwhizzer wrote: If they're correct, investors had best invest more and start investing sooner in life to meet future investment goals.


Unless investors are trying to time the market or are convinced there is an asset bubble that will pop soon, I think this advice holds true regardless of what the economists say. Investing more money then less increases the quantity of your returns and investing sooner then later improves the likelihood of receiving favorable returns.

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jharkin
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Re: Vanguard's comments on the economy and markets

Postby jharkin » Mon Mar 20, 2017 11:14 am

Thanks for sharing - interesting.

I has already been using the following assumptions in my future planning, based on the expected future returns summary page in our wiki:
Inflation: 1.75%
Av. bond return: 2.5% nominal
Av. stock return: 5% nominal

Looking at the recommendations in this new blog, does this indicate a shift to a more optimistic forward view @ Vanguard? Am I being too conservative in my own planning? I wouldn't change my AA, but if stocks return a couple points more than I had assumed I might hit my number a couple years earlier than I expect....

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nedsaid
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Re: Vanguard's comments on the economy and markets

Postby nedsaid » Mon Mar 20, 2017 11:35 am

Garland, I feel like an old geezer at the coffee shop complaining about high property taxes and how much better things were in the old days. Boy, young people have it so tough now. Bond yields at 8% and cheap stocks everywhere, boy those where the days. I largely agree with what Vanguard has been saying but I wonder if there is a bit of old fogeyism in there.

I was about 9 years old when the go-go years of the 1960's peaked in about 1968. I google "Nifty Fifty" and just cringe at the high P/E ratios that a lot of the Blue Chip stocks traded for back then. The Wikipedia article said that P/E ratios of 50 were not uncommon. Bond yields then were probably higher than now but the economy hadn't yet seen the 1970's stagflation. I suppose that a top economist would have written a rather depressing article about high valuations and future low returns. Of course, the article would have been mostly unread because of the market euphoria that existed at that time.

When I look at the unofficial Nifty Fifty list from the Wikipedia article, nearly all the companies exist today and they are mostly stocks that I would be pleased to own. What is also encouraging is that market P/E's are nowhere near the levels of the Nifty Fifty in the late 1960's and nowhere near the high market P/E's of the late 1990's.

What I am reminded of is the Warren Buffett quote when asked if the stock market was expensive. "Yes," he said, "but not as expensive as it looks." It is one of my favorite Buffett quotes and spot on.

It is kind of odd, I was talking to my independent broker today and I found myself getting excited about individual stocks again. I also couldn't help but notice the juicy dividends that I am getting and as I get older the dividends from those stocks are getting more and more appealing particularly when bond funds which offer no growth offer yields of maybe 2.5%. I am actually interested in building a portfolio of individual stocks again and harvesting the growing dividends when I retire.

I am sure that I will be put on trial for heresy here at the Bogleheads but my thinking is going against the grain. And no, I am not selling my index funds. I like the low expenses and the good performance. It is just that I find myself going back to my roots. Starting to think about what stocks to buy in the future. Hmmm.
A fool and his money are good for business.

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willthrill81
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Re: Vanguard's comments on the economy and markets

Postby willthrill81 » Mon Mar 20, 2017 12:01 pm

6-8% nominal returns going forward? As long as inflation is kept low (<2%), I can live with that. Given the entirety of the situation, that sounds reasonable to me, though if corporate taxes are reduced, that will improve earnings, and prices will very likely go up consequently.

Incidentally, the real return of the TSM for the last 25 years was almost 7%, so their predictions for the future aren't much different than that.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings


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