Could all of these "low expected returns over next 10 years" predictions be wrong?

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WhiteMaxima
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by WhiteMaxima »

10 years of low return. Isn't it a good opportunity for people at accumulate stage to load low inflated equities for 10 years then follow up with another 10 years of above average return at 10%. For people at withdraw stage, this is also not a bad era, you still get better than CD return. As long as there is a big crash, any positive return is good for investors.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by youngpleb »

tibbitts wrote: Mon Mar 19, 2018 9:44 pm I read "beginning really of the investing end of my career" as being near being near the end - but I really have no idea what it means.
Yup, you're right. Haha I should learn how to read :mrgreen: I guess it means he is nearing the end of his investing phase. Like "the beginning of the end."
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by jpsc »

TheBogleWay wrote: Fri Mar 16, 2018 3:05 am
Or, here's some food for thought. What if... for the first time in recorded human history, computer programs have become so advanced that efficiency at companies has increased to never before seen levels with logistics programs/statistics/AI/etc. Therefore, these abnormally good company returns are actually the new norm.
Name one company that use AI/programs/statistics to create world leading edge products or service
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by willthrill81 »

jpsc wrote: Tue Mar 20, 2018 7:19 pm
TheBogleWay wrote: Fri Mar 16, 2018 3:05 am
Or, here's some food for thought. What if... for the first time in recorded human history, computer programs have become so advanced that efficiency at companies has increased to never before seen levels with logistics programs/statistics/AI/etc. Therefore, these abnormally good company returns are actually the new norm.
Name one company that use AI/programs/statistics to create world leading edge products or service
Throughout the Industrial Revolution and ever since, we've been hearing that machines and now robots and AI will replace all of our jobs. Yet we humans have been surprisingly good at harnessing the power of machination to increase our productivity and improve our standard of living. We've gone from a society where nearly everyone was involved in agriculture to one where only 2% are employed in that sector, yet employment is virtually full.

For instance, word processing and spreadsheet software didn't eliminate the need for secretaries, though many jobs in that area were eliminated; rather, it dramatically boosted the productivity of secretaries. And it created a whole host of new jobs oriented around managing the software and hardware necessary to make it all run. Online sales were predicted to kill retail stores at least 15 years ago, yet 90% of retail sales dollars still go through stores today. And on and on.
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munemaker
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by munemaker »

willthrill81 wrote: Tue Mar 20, 2018 7:33 pm
For instance, word processing and spreadsheet software didn't eliminate the need for secretaries, though many jobs in that area were eliminated; rather, it dramatically boosted the productivity of secretaries.
From my experience, word processors have pretty much eliminated secretary positions. True secretaries are a rare breed today.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by munemaker »

jpsc wrote: Tue Mar 20, 2018 7:19 pm
TheBogleWay wrote: Fri Mar 16, 2018 3:05 am
Or, here's some food for thought. What if... for the first time in recorded human history, computer programs have become so advanced that efficiency at companies has increased to never before seen levels with logistics programs/statistics/AI/etc. Therefore, these abnormally good company returns are actually the new norm.
Name one company that use AI/programs/statistics to create world leading edge products or service
You are about to see it in the casual restaurant/ fast food industry with self ordering and paying using a screen. A convenience store chain (Sheetz) has been using this for ordering food ordering for years and it is smooth. Starting to something similar at some McDonalds. Applebees & Olive Garden have the hardware in place. As minimum wages rise, we may see a very significant displacement of restaurant workers.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by willthrill81 »

munemaker wrote: Tue Mar 20, 2018 9:18 pm
willthrill81 wrote: Tue Mar 20, 2018 7:33 pm
For instance, word processing and spreadsheet software didn't eliminate the need for secretaries, though many jobs in that area were eliminated; rather, it dramatically boosted the productivity of secretaries.
From my experience, word processors have pretty much eliminated secretary positions. True secretaries are a rare breed today.
I know several personally. But my bigger point is that most of those who once did this are not now permanently unemployed; they're just doing other, more productive jobs.
munemaker wrote: Tue Mar 20, 2018 9:33 pmYou are about to see it in the casual restaurant/ fast food industry with self ordering and paying using a screen. A convenience store chain (Sheetz) has been using this for ordering food ordering for years and it is smooth. Starting to something similar at some McDonalds. Applebees & Olive Garden have the hardware in place. As minimum wages rise, we may see a very significant displacement of restaurant workers.
I agree. Red Robin has those as well. The day is coming soon when you'll give your order at McDonalds at a kiosk (Taco Bell has tested them too).

However, Chili's has had them for years and still uses regular servers. Perhaps they are able to serve more tables by not having to run so many bills.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by flyingaway »

If you asked the same question in March 2000 when the stocks were on fire last time, you would have more dismal answer now.

Based on the calculation from www.dqydj.com, the inflation adjusted dividend reinvested average annualized return of S&P500 from March 2000 to March 2018 is only 3.368%.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by White Coat Investor »

TheBogleWay wrote: Fri Mar 16, 2018 3:05 am The obvious answer is yes (lol I know that will get quoted) but I'm just wondering, as much as BHs are "anti market time" they all seem to subscribe to the recent predictions that suggest the next 10 years might have 4% returns on average or so.


What are the chances that's entirely wrong?

Or, here's some food for thought. What if... for the first time in recorded human history, computer programs have become so advanced that efficiency at companies has increased to never before seen levels with logistics programs/statistics/AI/etc. Therefore, these abnormally good company returns are actually the new norm.


Maybe it doesn't work like that?
They've been wrong for the last 10 (at least the last 5). So yea, they could be wrong again. Crystal ball always so cloudy.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by White Coat Investor »

lazyday wrote: Sat Mar 17, 2018 3:09 am
JoMoney wrote: Sat Mar 17, 2018 2:15 amMaybe if one was super optimistic one could dream of 6% growth/GDP + 4% in buyback+dividend yield + 2% boost in price multiple with people giddy and markets frothy from high expectations making for 12% total return annualized. I don't think that's the prudent or likely expectation, but it could happen and similar things have happened in the past.
The US market has also fallen by 80% real in the past, and it's more expensive now than it was then.

We should balance a super optimistic prediction with a super pessimistic one. To me, US equity returning 0% real for 10 years is not pessimistic, it is realistic.
If you really expect 0% returns going forward, why wouldn't you invest in something besides stocks? I mean, you can buy a 30 year TIPS that pays 1%. You can buy a cap rate 4 property any day you want. That should give you 4% real.

It just doesn't make sense. At 1% real, your money doubles once in your lifetime. Why bother investing for retirement at all? You'd be far better off figuring out a way to work as long as possible.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by willthrill81 »

White Coat Investor wrote: Tue Mar 20, 2018 11:57 pm
lazyday wrote: Sat Mar 17, 2018 3:09 am
JoMoney wrote: Sat Mar 17, 2018 2:15 amMaybe if one was super optimistic one could dream of 6% growth/GDP + 4% in buyback+dividend yield + 2% boost in price multiple with people giddy and markets frothy from high expectations making for 12% total return annualized. I don't think that's the prudent or likely expectation, but it could happen and similar things have happened in the past.
The US market has also fallen by 80% real in the past, and it's more expensive now than it was then.

We should balance a super optimistic prediction with a super pessimistic one. To me, US equity returning 0% real for 10 years is not pessimistic, it is realistic.
If you really expect 0% returns going forward, why wouldn't you invest in something besides stocks? I mean, you can buy a 30 year TIPS that pays 1%. You can buy a cap rate 4 property any day you want. That should give you 4% real.

It just doesn't make sense. At 1% real, your money doubles once in your lifetime. Why bother investing for retirement at all? You'd be far better off figuring out a way to work as long as possible.
What kind of returns do you think are plausible for the next decade Jim? Historical?

I too think that real returns in the range of 1-4% are very likely for the next decade; beyond that, I don't think anyone can statistically do much better than a pure guess, which is what the predictions for the next decade might turn out to be actually. Valuations, average investor stock allocations, and the length of our current bull market all suggest that below average returns are on the horizon. This has happened many times before and is just part of the cycle. None of the predictors are perfect, but I would be really surprised to see 7% real for 2018-2027.

With that in mind, I am indeed keeping my eyes open for alternative investment vehicles than just stocks. I already have a stake in P2P lending (no desire for more right now), and I'd like to get some invested with FundThatFlip, Realty Mogul, and the like, but I'm not yet an accredited investor and won't be for a while yet. I'd even be willing to at least look into buying tax liens. But all of that being said, stocks indices will likely be my go-to investment for the rest of my life.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by White Coat Investor »

willthrill81 wrote: Wed Mar 21, 2018 12:13 am
White Coat Investor wrote: Tue Mar 20, 2018 11:57 pm
lazyday wrote: Sat Mar 17, 2018 3:09 am
JoMoney wrote: Sat Mar 17, 2018 2:15 amMaybe if one was super optimistic one could dream of 6% growth/GDP + 4% in buyback+dividend yield + 2% boost in price multiple with people giddy and markets frothy from high expectations making for 12% total return annualized. I don't think that's the prudent or likely expectation, but it could happen and similar things have happened in the past.
The US market has also fallen by 80% real in the past, and it's more expensive now than it was then.

We should balance a super optimistic prediction with a super pessimistic one. To me, US equity returning 0% real for 10 years is not pessimistic, it is realistic.
If you really expect 0% returns going forward, why wouldn't you invest in something besides stocks? I mean, you can buy a 30 year TIPS that pays 1%. You can buy a cap rate 4 property any day you want. That should give you 4% real.

It just doesn't make sense. At 1% real, your money doubles once in your lifetime. Why bother investing for retirement at all? You'd be far better off figuring out a way to work as long as possible.
What kind of returns do you think are plausible for the next decade Jim? Historical?

I too think that real returns in the range of 1-4% are very likely for the next decade; beyond that, I don't think anyone can statistically do much better than a pure guess, which is what the predictions for the next decade might turn out to be actually. Valuations, average investor stock allocations, and the length of our current bull market all suggest that below average returns are on the horizon. This has happened many times before and is just part of the cycle. None of the predictors are perfect, but I would be really surprised to see 7% real for 2018-2027.

With that in mind, I am indeed keeping my eyes open for alternative investment vehicles than just stocks. I already have a stake in P2P lending (no desire for more right now), and I'd like to get some invested with FundThatFlip, Realty Mogul, and the like, but I'm not yet an accredited investor and won't be for a while yet. I'd even be willing to at least look into buying tax liens. But all of that being said, stocks indices will likely be my go-to investment for the rest of my life.
I have no idea. I agree no one can do much other than a pure guess. I'm 60/20/20 and plan to stay that way. If the market gives me -2%, 0%, 4%, or 8%, I'll take it. But if I KNEW the stock market was going to give me 0% for a decade plus, I'd go buy properties down the street instead of buying stocks.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by White Coat Investor »

Just looked one up. First one I found. $300K. 1900 square feet. Going rate is $1-2.30 per square foot per month. Let's say $2000/month to be conservative. $24K a year. Apply the 55% rule and you get a cap rate of 4.4%. That's not some awesome investment. It's just sitting there on the listing service. But it's 4.4% real. No sense in investing in equities if you don't think you can get that long term.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by AlohaJoe »

cfs wrote: Mon Mar 19, 2018 8:59 pm Is there a chart anywhere with the experts' expected returns predictions for the past 10, 20, 30 years?

How closed to reality were these bunch, including Mister Bogle?
I've posted this many times before. Here are Bogle's past predictions for 10 year periods and the actual result:

1986-1995: prediction: 11.5%; actual: 14.9%
1987-1996: prediction: 9.1%; actual: 15.3%
1988-1997: prediction: 11.5%; actual: 18.1%
1989-1998: prediction: 12.9%; actual: 19.2%
1990-1999: prediction: 9.4%; actual: 18.2%
1991-2000: prediction: 9.1%; actual: 17.5%
1992-2001: prediction: 3.3%; actual: 12.9%
1993-2002: prediction: 3.0%; actual: 9.3%
1994-2003: prediction: 3.5%; actual: 11.1%
1995-2004: prediction: 7.0%; actual: 12.1%
1996-2005: prediction: 4.5%; actual: 9.1%

I could go on but I'm getting tired of typing. Notice how it is always wrong across more than a decade. Always under the actual number, even when there was the massive tech crash in 2000. A continual pessimist. The closest was being wrong by 3.5%. (By way of comparison that would mean if today he is saying 4% returns, you might get 7.5% instead.)

The only time Bogle's predictions have been close is across the 10-year periods that included both the 2000 & 2008 crash. (i.e. his prediction for 1999-2008, 2000-2009, 2001-2010 were all reasonably close). Every other time he's been off significantly.

I have no reason to believe that Bogle is worse than anyone else at predicting; so this isn't really about Bogle per se. He's just one of the few that has published a long history of past predictions from his model. It just an example of the Broken Clock effect. Pessimists like Bogle or GMO can point to a handful of good predictions because of 2000 and 2008 but ignore their many other bad predictions. Optimists like Siegel can also point to a few good predictions but ignore their many other bad predictions.

It's just that, since the world is generally getting better all the time, optimists are more like a clock whose minute hand is broken: instead of just being right twice a day, they are right 24 times a day. But it is still luck rather than insight.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

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AlohaJoe wrote: Wed Mar 21, 2018 12:45 am Notice how it is always wrong across more than a decade. Always under the actual number, even when there was the massive tech crash in 2000. A continual pessimist. The closest was being wrong by 3.5%. (By way of comparison that would mean if today he is saying 4% returns, you might get 7.5% instead.)
Not to defend Mr. Bogle or any other prognosticator, but the period for which you report his return forecasts has coincided with a rather dramatic secular shift toward higher P/E multiples in the U.S. stock market (chart below).
  • Image
    Note: The full data series is divided into four 35-year periods, with their means in red.
    Source: Shiller Data
Since Mr. Bogle's return forecasts rest primarily on stock market fundamentals (dividends + earnings growth), and the shift toward higher stock valuations was mostly unprecedented historically, one can sympathize. In other decades of the last century, his forecasting method would likely work much better — but the world happened to change in a big way (as it is wont to do!).
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by AlohaJoe »

SimpleGift wrote: Wed Mar 21, 2018 2:47 am but the world happened to change in a big way (as it is wont to do!).
That hardly seems like a good excuse for those who put themselves in the business of predicting the future :D
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by MossySF »

It doesn't matter whether we get low returns or high returns. If we get low returns, your peers will get low returns also (on the aggregate). If we get high returns, so will your peers.

Either case produces roughly the same effect. Sure the nominal dollar amounts are different but money amounts needs the context of prices to mean anything. Low returns means less money chasing the goods/services you and your peers are competing for. High returns means more money chasing the goods/services you and your peers are competing for. So if you do the math, all the matters is saving & investing more than your peers in order to have more purchasing power than them.
Last edited by MossySF on Wed Mar 21, 2018 3:43 am, edited 1 time in total.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by cfs »

AlohaJoe wrote: Wed Mar 21, 2018 3:02 am
SimpleGift wrote: Wed Mar 21, 2018 2:47 am but the world happened to change in a big way (as it is wont to do!).
That hardly seems like a good excuse for those who put themselves in the business of predicting the future :D
Thanks Mister Aloha Joe for The Bogle Data, good detective work, good to keep handy. Mister Simple Gift thanks for the note. Gracias por leer / cfs
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by lazyday »

White Coat Investor wrote: Tue Mar 20, 2018 11:57 pmIf you really expect 0% returns going forward, why wouldn't you invest in something besides stocks? I mean, you can buy a 30 year TIPS that pays 1%. ....
I expect US equity to return 0% real over the next 10 years. (In the way that I expect a rolled die to come up 3.5.)

For global equity over the next 10 years, Research Affiliates predicts over 2% real. A 50 year prediction would be higher. I might go with 3 or 4% real for 50 yr global equity. (I think RA might be too pessimistic on long term growth from reinvested earnings and stock buybacks, and too optimistic in not addressing mean reversion of profit margins.)

With poor risk/reward prospects, I do think it could be reasonable to slightly reduce equity exposure. But for those who need higher returns, it might be a bad idea to broadly move from equity to TIPS. I don't know much about real estate.

I also imagine that for some people it could make sense to save less. Like many Bogleheads, I did without for decades, living with somewhat extreme frugality to take advantage of the time value of money. With lower expected returns, the payoff might not be as worthwhile.
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by White Coat Investor »

MossySF wrote: Wed Mar 21, 2018 3:39 am It doesn't matter whether we get low returns or high returns. If we get low returns, your peers will get low returns also (on the aggregate). If we get high returns, so will your peers.

Either case produces roughly the same effect. Sure the nominal dollar amounts are different but money amounts needs the context of prices to mean anything. Low returns means less money chasing the goods/services you and your peers are competing for. High returns means more money chasing the goods/services you and your peers are competing for. So if you do the math, all the matters is saving & investing more than your peers in order to have more purchasing power than them.
It really is all about relative wealth isn't it?
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Re: Could all of these "low expected returns over next 10 years" predictions be wrong?

Post by 2015 »

Timely post by Josh Brown:

http://thereformedbroker.com/2018/03/20 ... investing/
if the idea of setting the rules in advance, constructing a durable portfolio that can survive and thrive in a range of future environments and then letting asset markets do what they do is not appealing to you, that’s okay.

Here are some alternatives…

* Hourly, daily, weekly and monthly account activity
* Constant decision making based on the unlimited amount of variables that affect market outcomes
* Endless monitoring of news and opinion and the requisite portfolio adjustments that this sort of thing implies
* Researching thousands of publicly traded securities on an ongoing basis
* Chasing hot managers and pretending there is a such thing as persistence of performance (there isn’t)
* Chasing hot investment themes and pinpointing the moment they’re about to cool off
* Chasing hot strategies and ignoring the fact that mean reversion is the gravity of the investing world
* Making calls based on gut feeling and emotion
* Leaning toward biases because of past experiences or the last article you read
* Taking tips from pundits, brothers-in-law, anonymous people on Twitter
* Confusing market commentary for financial advice as opposed to contextual information / entertainment
* Calling tops and bottoms based on (choose technical indicators, valuation metrics, pop culture moments)
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