Seasoned bogleheads repressing the thought of lower expected returns

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indexonlyplease
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by indexonlyplease » Sun Mar 25, 2018 9:10 am

If you go with the thinking of Work, Save, invest and live debt free and below your salary you should be ok. And along the way your AA should be set at your comfort level so you don't make to many bad mistakes with your investments along the way. Also, make sure you have a very large emergency fund for those who are in jobs that people get laid off from. Meaning if you are a police officer your emergency fund can be small because police officers do not get laid off.

Anyway, this is what I have done and I can say this since I have retired in 2016. So now in retirement my AA is more conservative than ever and I have a very large amount of money in cd's. I can now say my portfolio is ready no matter what the market does and even if it last a while.

I could made more money in a more aggressive portfolio, but I like the less risk and more money would not have changed my lifestyle.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by ImUrHuckleberry » Sun Mar 25, 2018 9:39 am

midareff wrote:
Sun Mar 25, 2018 9:01 am
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
No need to repress anything, it's a market and markets go up and they go down... and sometimes for extended periods. Younger Bogleheads in accumulation should view it as a blessing since they can buy more shares at stagnant or depressed (lost decade) prices. Older ones (like me) in decumulation should not have expected the economic expansion to go on forever and should have maintained a SWAN AA as appropriate to their needs. For a "little bit of Bill" some of us have safe assets that align with our life expectancy.
I agree. Also, for anybody that's still significantly accumulating (but especially those with small current portfolio balances) how we get there over 10 years matters. If the market drops 50% this year and recovers to eventually have a small gain after a decade, that can be of great benefit for those who are able to contribute heavily while the market is way down and during the recovery. Certainly better than if the market just goes sideways the entire time.

Meanwhile, people with a large portfolio (as compared to their ongoing contributions) would probably sleep better with a sideways market resulting in a small gain at the end of the decade.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 9:41 am

Valuethinker wrote:
Sun Mar 25, 2018 7:56 am
nisiprius wrote:
Sun Mar 25, 2018 6:19 am
willthrill81 wrote:
Sat Mar 24, 2018 10:36 pm
...KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs...
1) It's not unique. There are at least two people in this forum who believe it. It's at least duplique.

2) Benjamin Graham (Warren Buffett's guru) believed it, too. My summary of Graham's words (show below):
  • "Fundamental guiding principle:" everyone, always, stay within the range of 25%-75% stocks.
  • "Standard division:" 50% stocks.
  • "In general" don't go above 50% stocks unless you are sure you could "view a market decline of the 1969-70 type with equanimity."
  • For "most of our readers," 50-50.
(The 1969-70 market decline was about -35%). Graham's actual words:
In 'The Intelligent Investor,' Benjamin Graham wrote:We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high....

[However] we can give the investor no reliable rules by which to reduce his common-stock holdings toward the 25% minimum and then rebuild them later to the 75% maximum. We can urge that in general the investor should not have more than one-half in equities unless he is has strong confidence in the soundness of his stock position and is sure that he could view a market decline of the 1969-70 type with equanimity....

We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula...
I am a great believer in Reversion to Mean (isn't it actually Regression to the Mean?) and in wisdom.

Graham had wisdom. Many things have changed in investing since his day. Financial information about companies that you could once only obtain by visiting them, in person, is now available at the push of a button. If you waited for the market to revert to his levels of PE, dividend yield, you'd have been out of the market since at least the mid 1980s, and missed a phenomenal run up.

But he had wisdom. His understanding of financial markets, and of human nature, that gave him the arbitrary rules of 25% and 75% are both well founded. We tend to be too exuberant at the top (when we should be selling) and too pessimistic at the bottom (when we should be buying). I have watched myself be both the former in 2000, and the latter in 2009.

Note Franco Modigliani also suggested 50/50 -- that was partly a function of how TIAA Cref worked (there was a stock fund, and an annuity/ fixed interest fund), but he, too, understood his (own) human nature. His autobiography (dotted with little economic models) is a classic of the genre (of great economists writing autobiographically).
I certainly believe that moderate stock allocations are 'ideal' for a great many investors but certainly not all of them. And as noted by iamlucky13, virtually every target date fund out there with a distant number is at least 90% stocks, so there must be something to this notion that allocations greater than 75% are appropriate for some.
“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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willthrill81
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 9:43 am

ImUrHuckleberry wrote:
Sun Mar 25, 2018 9:39 am
midareff wrote:
Sun Mar 25, 2018 9:01 am
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
No need to repress anything, it's a market and markets go up and they go down... and sometimes for extended periods. Younger Bogleheads in accumulation should view it as a blessing since they can buy more shares at stagnant or depressed (lost decade) prices. Older ones (like me) in decumulation should not have expected the economic expansion to go on forever and should have maintained a SWAN AA as appropriate to their needs. For a "little bit of Bill" some of us have safe assets that align with our life expectancy.
I agree. Also, for anybody that's still significantly accumulating (but especially those with small current portfolio balances) how we get there over 10 years matters. If the market drops 50% this year and recovers to eventually have a small gain after a decade, that can be of great benefit for those who are able to contribute heavily while the market is way down and during the recovery. Certainly better than if the market just goes sideways the entire time.

Meanwhile, people with a large portfolio (as compared to their ongoing contributions) would probably sleep better with a sideways market resulting in a small gain at the end of the decade.
Yes, I think that a deep, grizzly bear market, even if followed by a decent bull run, would scare people much more than a sideways market, even if they would both end with the same annualized return (i.e. loss aversion).
“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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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by dbr » Sun Mar 25, 2018 9:52 am

premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
No, they are not.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by cherijoh » Sun Mar 25, 2018 10:04 am

premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
I wouldn't call them "seasoned Bogleheads", but I have noticed an uptick in the number of posts from people asking if they can retire at ridiculously young ages based on very optimistic future returns. On the whole, I think Bogleheads tend to be of the mind "hope for the best but plan for the worst".

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by cfs » Sun Mar 25, 2018 10:10 am

Cherijoh wrote:
. . . .I have noticed an uptick in the number of posts from people asking if they can retire at ridiculously young ages based on very optimistic future returns . . .

Ding Ding Ding . . . Bingo!

Gracias por leer / cfs
~ Member of the Active Retired Force since 2014 ~

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by ImUrHuckleberry » Sun Mar 25, 2018 10:31 am

willthrill81 wrote:
Sun Mar 25, 2018 9:43 am
ImUrHuckleberry wrote:
Sun Mar 25, 2018 9:39 am
midareff wrote:
Sun Mar 25, 2018 9:01 am
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
No need to repress anything, it's a market and markets go up and they go down... and sometimes for extended periods. Younger Bogleheads in accumulation should view it as a blessing since they can buy more shares at stagnant or depressed (lost decade) prices. Older ones (like me) in decumulation should not have expected the economic expansion to go on forever and should have maintained a SWAN AA as appropriate to their needs. For a "little bit of Bill" some of us have safe assets that align with our life expectancy.
I agree. Also, for anybody that's still significantly accumulating (but especially those with small current portfolio balances) how we get there over 10 years matters. If the market drops 50% this year and recovers to eventually have a small gain after a decade, that can be of great benefit for those who are able to contribute heavily while the market is way down and during the recovery. Certainly better than if the market just goes sideways the entire time.

Meanwhile, people with a large portfolio (as compared to their ongoing contributions) would probably sleep better with a sideways market resulting in a small gain at the end of the decade.
Yes, I think that a deep, grizzly bear market, even if followed by a decent bull run, would scare people much more than a sideways market, even if they would both end with the same annualized return (i.e. loss aversion).
Yes, but people who are heavily accumulating during the entire cycle end up with better returns than the annualized market return under the deep bear market scenario versus the flat market. It's just a hard thing to root for.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by staythecourse » Sun Mar 25, 2018 10:36 am

bengal22 wrote:
Sat Mar 24, 2018 8:57 pm
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
not painful to acknowledge because the one thing we know is that you cannot predict future returns. as long as I match the market I have done the best I can.
Excellent attitude. Investing becomes really EASY when one accepts the one thing everyone likes to talk about is the one thing NO ONE has any control of which is returns. As long as you have focused on: Saving, LBYM, asset allocation, avoiding active management, being tax efficient, keeping fees down, and staying the course you have done EVERYTHING that you need as an investor.

Returns have nothing to do with investing (sounds odd). When the returns happen one adjusts their living expenses accodingly. If they can't then you consider SPIA, reverse mortgages, etc... In no situation does worrying about returns make any difference to what happens in real life.

Good luck.

p.s. Once one accepts this you realize how much a waste of time looking at the markets become.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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cockersx3
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by cockersx3 » Sun Mar 25, 2018 10:42 am

Not sure that I qualify as a "seasoned boglehead," but I am absolutely aware of what the experts are saying about 10-year returns. I also know that the experts are frequently wrong.

At the end of the day, I still think that an passive index investing - even with potentially low returns - is the least bad option out there. So I invest and stay the course, secure in the knowledge that I'm doing the best I can with the information (and investing environment) that I have.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iamlucky13 » Sun Mar 25, 2018 10:46 am

wootwoot wrote:
Sun Mar 25, 2018 2:44 am
iamlucky13 wrote:
Sun Mar 25, 2018 1:36 am
I don't know I will survive every single recession. My record so far is poor - I've had long unemployed periods in 100% of the recessions since I entered the full time workforce.
Just curious but what type of industry are you in that you lost your job through multiple recessions?
I was joking around a bit - that was 100% of one recessions. I was in engineering for products typically treated as capital expenditures by businesses. In 2008-2009, capital expentitures were hit very hard. Sales in the field my employer operated in fell by roughly 50%, for multiple quarters in a row. I think it was the third round of layoffs that got me.
KlangFool wrote:
Sun Mar 25, 2018 7:32 am
1) I have one portfolio. It is spread across the taxable, tax-deferred, and Roth. Folks with multiple portfolios choose to pay more taxes. I would rather spend my own money.
I'm not sure what you're trying to tell me. I'd rather spend as much of my own money on myself as possible, too. That means my planning deals with a step-change how I can utilize my savings at age 59-1/2 that affects how I assess my progress towards independence. I certainly have no interest in paying extra taxes either, and I have even less interest in 10% penalties.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool » Sun Mar 25, 2018 10:52 am

iamlucky13 wrote:
Sun Mar 25, 2018 10:46 am
KlangFool wrote:
Sun Mar 25, 2018 7:32 am
1) I have one portfolio. It is spread across the taxable, tax-deferred, and Roth. Folks with multiple portfolios choose to pay more taxes. I would rather spend my own money.
I'm not sure what you're trying to tell me. I'd rather spend as much of my own money on myself as possible, too. That means my planning deals with a step-change how I can utilize my savings at age 59-1/2 that affects how I assess my progress towards independence. I certainly have no interest in paying extra taxes either, and I have even less interest in 10% penalties.
iamlucky13,

I am trying to tell you that you are under the illusion that those tax-deferred accounts are retirement accounts. Aka, you cannot withdraw them before 59.5 years old without paying 10% penalty.

Please read the following URL.

https://www.madfientist.com/how-to-acce ... nds-early/

If you are interested in knowing more, start your own topic and we can discuss how to improve your tax efficiency with one portfolio approach.

KlangFool

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by MindBogler » Sun Mar 25, 2018 11:13 am

We have jobs in two uncorrelated industries. We have a high savings rate between 30-40% depending on the year. The market isn't something you can set your watch by. There is a dispersion of potential outcomes. The expected return even with CAPE where it stands today is still positive. The market could go sideways for 15 years or it could pull back 30% and then start climbing again. No one knows. The only defense against uncertainty is to keep saving until it doesn't matter.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Kenkat » Sun Mar 25, 2018 11:13 am

I have learned that there is absolutely no way of knowing future returns. I have also learned that there is no point in worrying about things that may or may not happen in the future. Countless hours of worry are spent on things that never come to pass. Seasoned bogleheads simply save as much as they can and accept what the market will return.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by tibbitts » Sun Mar 25, 2018 11:16 am

I think most Bogleheads are not too optimistic about future returns - thus all the talk of 2% SWR, living off dividends (coincidentally 2%), etc.

On the other hand I do think Bogleheads are too optimistic about other aspects of personal finances - for example telling younger people to "save their raises." Umm... what raises? What I see are a small and decreasing percentage of people receiving increasingly substantial wage increases and everybody else making in nominal dollars what they did 5 or 10 years ago. Admittedly that's anecdotal, but I just didn't see that in the 80s or 90s for example. I'm not saying the situation isn't justified, at least partly - having extraordinary skills is perhaps now being properly rewarded, I'm just saying that it has a huge effect on the broader community outside of Bogleheads.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by lostdog » Sun Mar 25, 2018 12:58 pm

cfs wrote:
Sun Mar 25, 2018 10:10 am
Cherijoh wrote:
. . . .I have noticed an uptick in the number of posts from people asking if they can retire at ridiculously young ages based on very optimistic future returns . . .

Ding Ding Ding . . . Bingo!

Gracias por leer / cfs
FI blogs have popped up at insane rates due to this bull market.
95% VTWAX | 5% BNDW

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Phineas J. Whoopee » Sun Mar 25, 2018 1:36 pm

I know for a fact that, like all human beings, neither I nor my possessions will survive. I accept it. There's nothing to repress.

My current asset allocation, which my plan does not say I should change but of course I will revisit occasionally:
25% Total US Stock Market; 15% Total International Stock Market; 40% Inflation-protected Fixed Income; 20% Nominal Fixed Income.

I posted my reasons here, and then a couple of years later I answered some questions about them.

For the record, I think an age-based asset allocation will be far more practical for most investors.

PJW

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premiumbananas
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by premiumbananas » Sun Mar 25, 2018 1:39 pm

lostdog wrote:
Sun Mar 25, 2018 12:58 pm
cfs wrote:
Sun Mar 25, 2018 10:10 am
Cherijoh wrote:
. . . .I have noticed an uptick in the number of posts from people asking if they can retire at ridiculously young ages based on very optimistic future returns . . .

Ding Ding Ding . . . Bingo!

Gracias por leer / cfs
FI blogs have popped up at insane rates due to this bull market.
+1
feels similar to year 2000 peak

longinvest
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by longinvest » Sun Mar 25, 2018 1:40 pm

nisiprius wrote:
Sun Mar 25, 2018 6:19 am
2) Benjamin Graham (Warren Buffett's guru) believed it, too. My summary of Graham's words (show below):
  • "Fundamental guiding principle:" everyone, always, stay within the range of 25%-75% stocks.
  • "Standard division:" 50% stocks.
  • "In general" don't go above 50% stocks unless you are sure you could "view a market decline of the 1969-70 type with equanimity."
  • For "most of our readers," 50-50.
I've adopted the "standard division".

I don't believe anyone's future return predictions.

I'll accept my portfolio's future returns as they happen to be and adapt my spending accordingly when I retire.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by marcopolo » Sun Mar 25, 2018 2:37 pm

premiumbananas wrote:
Sun Mar 25, 2018 1:39 pm
lostdog wrote:
Sun Mar 25, 2018 12:58 pm
cfs wrote:
Sun Mar 25, 2018 10:10 am
Cherijoh wrote:
. . . .I have noticed an uptick in the number of posts from people asking if they can retire at ridiculously young ages based on very optimistic future returns . . .

Ding Ding Ding . . . Bingo!

Gracias por leer / cfs
FI blogs have popped up at insane rates due to this bull market.
+1
feels similar to year 2000 peak
I have no idea what the market will do going forward. But, this does not feel like the year 2000 peak at all to me.
Valuations are certainly high, but at least they can be computed because the companies with the high valuations actually have earnings. Do you remember Pets.com? I am not getting stock tips from random strangers in the checkout aisle. People are not quitting their day jobs to try day trading as full time hobby. The market could still crash the same way or worse. But, I just do not see signs of the same euphoria that was everywhere in 1998-2000. What are you seeing that feels similar?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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iceport
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iceport » Sun Mar 25, 2018 3:31 pm

marcopolo wrote:
Sun Mar 25, 2018 2:37 pm
premiumbananas wrote:
Sun Mar 25, 2018 1:39 pm
lostdog wrote:
Sun Mar 25, 2018 12:58 pm
cfs wrote:
Sun Mar 25, 2018 10:10 am
Cherijoh wrote:
. . . .I have noticed an uptick in the number of posts from people asking if they can retire at ridiculously young ages based on very optimistic future returns . . .

Ding Ding Ding . . . Bingo!

Gracias por leer / cfs
FI blogs have popped up at insane rates due to this bull market.
+1
feels similar to year 2000 peak
I have no idea what the market will do going forward. But, this does not feel like the year 2000 peak at all to me.
Valuations are certainly high, but at least they can be computed because the companies with the high valuations actually have earnings. Do you remember Pets.com? I am not getting stock tips from random strangers in the checkout aisle. People are not quitting their day jobs to try day trading as full time hobby. The market could still crash the same way or worse. But, I just do not see signs of the same euphoria that was everywhere in 1998-2000. What are you seeing that feels similar?
I agree 100%. My late uncle was an honest stock broker who was a teenager when the Great Depression hit. He noted to me in late 1999/early 2000 how eerily similar the mood felt then to the mood just before the 1929 crash. Everyone on Main Street had a hot stock tip, and the talk of stock market was every bit as common — and entertaining — as talking about the latest sports scores. Everyone was playing, and there was virtually nobody left on the sidelines.

That's the way I remember 2000. In my own professional life, we had telecommunications infrastructure engineers pitching their company's stock as a personal tip — and my educated and otherwise intelligent co-workers were buying! People were drunk with greed and eager to place their bets anywhere and everywhere, with no conception of stock prices ever retreating, let alone going completely bust.

Sorry, but this is nothing like 2000.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by david1082b » Sun Mar 25, 2018 3:44 pm

iceport wrote:
Sun Mar 25, 2018 3:31 pm
I agree 100%. My late uncle was an honest stock broker who was a teenager when the Great Depression hit. He noted to me in late 1999/early 2000 how eerily similar the mood felt then to the mood just before the 1929 crash. Everyone on Main Street had a hot stock tip, and the talk of stock market was every bit as common — and entertaining — as talking about the latest sports scores. Everyone was playing, and there was virtually nobody left on the sidelines.
Around 50% of US households were invested around 1999/2000 apparently, only slightly higher than the % invested now: https://www.washingtonpost.com/news/won ... 1fb53580e6

So to be pedantic, around half of US households were on the sidelines right at the top in 2000, just like now.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by randomguy » Sun Mar 25, 2018 4:04 pm

willthrill81 wrote:
Sat Mar 24, 2018 9:35 pm
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Investors' current equity allocation suggests about a 3% nominal return for the next decade (+/- 2%), most valuation models are around 4%, interest rates are rising (increasing the cost of capital, usually lowering future stock returns), and the current bull market is very long in the tooth. Frankly, I'd be surprised to see equities return more than 5% nominal annualized over the next decade. It's hard for many, I think, to accept that the next decade's returns may barely keep ahead of inflation. That's not much of a reward for holding a volatile asset.
iceport wrote:
Sat Mar 24, 2018 9:12 pm
It's possible, but I haven't noticed much denial of the possibility.
There are some here who, I think, are in denial. Depending on one's situation, the distinct possibility of another 'lost decade' is a hard pill to swallow.
I think most people accept the possibility of low returns. That is a lot different than accepting it as a certainty or an actionable item. If you have been investing long enough you remember that there are always people/methodologie/reasons why the market is about to crash. And those reasons are right 20% of the time.

And the next step of assuming a bad 10 years doom us to a bad 30 is an even bigger one. And then the next step of saying the next 30 years will be 50% worse than the worse in US history is another step.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by littlebird » Sun Mar 25, 2018 4:17 pm

First, returns have been fine ever since they were forecast to be poor. Second, having managed perfectly well for 30 years of retirement, spouse and I are 30 years closer to never needing money at all, and can therefore start actually spending down principal if need be.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Elysium » Sun Mar 25, 2018 4:41 pm

Take this for FWIW. My best portfolio returns came during the period I was most inactive in my investments when I had no time to worry about expected market returns, interesr rates, new factors, on and on.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 5:28 pm

randomguy wrote:
Sun Mar 25, 2018 4:04 pm
willthrill81 wrote:
Sat Mar 24, 2018 9:35 pm
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Investors' current equity allocation suggests about a 3% nominal return for the next decade (+/- 2%), most valuation models are around 4%, interest rates are rising (increasing the cost of capital, usually lowering future stock returns), and the current bull market is very long in the tooth. Frankly, I'd be surprised to see equities return more than 5% nominal annualized over the next decade. It's hard for many, I think, to accept that the next decade's returns may barely keep ahead of inflation. That's not much of a reward for holding a volatile asset.
iceport wrote:
Sat Mar 24, 2018 9:12 pm
It's possible, but I haven't noticed much denial of the possibility.
There are some here who, I think, are in denial. Depending on one's situation, the distinct possibility of another 'lost decade' is a hard pill to swallow.
I think most people accept the possibility of low returns. That is a lot different than accepting it as a certainty or an actionable item. If you have been investing long enough you remember that there are always people/methodologie/reasons why the market is about to crash. And those reasons are right 20% of the time.
I hope you're correct. Betting on a 7% real CAGR for the next decade is certainly what many of the pension holders are doing, and I'd be surprised if even some of the seasoned folks here aren't doing the same. Sadly, the 'valuation crowd', which includes many notable 'experts', have probably cried wolf too many times. Many have justly learned that their predictions can be largely (entirely?) ignored, but this doesn't mean that returns will forever be solid.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by MotoTrojan » Sun Mar 25, 2018 5:29 pm

KlangFool wrote:
Sat Mar 24, 2018 9:00 pm
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.

B) The market will be volatile. It will not be consistent in any fashion.

In summary, it is meaningless.

Please look at your own portfolio. How is the actual return of your portfolio match with the market return? It is not the same.

KlangFool
I’m not a reasonable person at 100/0? Hmm.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by longinvest » Sun Mar 25, 2018 5:31 pm

MotoTrojan wrote:
Sun Mar 25, 2018 5:29 pm
I’m not a reasonable person at 100/0? Hmm.
Is it really 100/0? Isn't there some big emergency fund in cash, CDs, or other fixed income, somewhere? Social Security and annuities, maybe? Often, people divide their assets into buckets, then claim that one bucket is 100/0. But, I haven't often seen people claim to be really 100/0. Even Berkshire Hathaway maintains a pretty significant allocation to cash and short-term bonds.
Last edited by longinvest on Sun Mar 25, 2018 6:37 pm, edited 1 time in total.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Toons » Sun Mar 25, 2018 5:36 pm

premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?

Next 10 years??
Never give it a moments thought.
The portfolio is set at 70/30.
I will gladly accept what Mr. Market offers.
I stay in the present.
One Day At A Time.
:mrgreen
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by bradshaw1965 » Sun Mar 25, 2018 5:36 pm

willthrill81 wrote:
Sun Mar 25, 2018 9:41 am
Valuethinker wrote:
Sun Mar 25, 2018 7:56 am
nisiprius wrote:
Sun Mar 25, 2018 6:19 am
willthrill81 wrote:
Sat Mar 24, 2018 10:36 pm
...KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs...
1) It's not unique. There are at least two people in this forum who believe it. It's at least duplique.

2) Benjamin Graham (Warren Buffett's guru) believed it, too. My summary of Graham's words (show below):
  • "Fundamental guiding principle:" everyone, always, stay within the range of 25%-75% stocks.
  • "Standard division:" 50% stocks.
  • "In general" don't go above 50% stocks unless you are sure you could "view a market decline of the 1969-70 type with equanimity."
  • For "most of our readers," 50-50.
(The 1969-70 market decline was about -35%). Graham's actual words:
In 'The Intelligent Investor,' Benjamin Graham wrote:We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high....

[However] we can give the investor no reliable rules by which to reduce his common-stock holdings toward the 25% minimum and then rebuild them later to the 75% maximum. We can urge that in general the investor should not have more than one-half in equities unless he is has strong confidence in the soundness of his stock position and is sure that he could view a market decline of the 1969-70 type with equanimity....

We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula...
I am a great believer in Reversion to Mean (isn't it actually Regression to the Mean?) and in wisdom.

Graham had wisdom. Many things have changed in investing since his day. Financial information about companies that you could once only obtain by visiting them, in person, is now available at the push of a button. If you waited for the market to revert to his levels of PE, dividend yield, you'd have been out of the market since at least the mid 1980s, and missed a phenomenal run up.

But he had wisdom. His understanding of financial markets, and of human nature, that gave him the arbitrary rules of 25% and 75% are both well founded. We tend to be too exuberant at the top (when we should be selling) and too pessimistic at the bottom (when we should be buying). I have watched myself be both the former in 2000, and the latter in 2009.

Note Franco Modigliani also suggested 50/50 -- that was partly a function of how TIAA Cref worked (there was a stock fund, and an annuity/ fixed interest fund), but he, too, understood his (own) human nature. His autobiography (dotted with little economic models) is a classic of the genre (of great economists writing autobiographically).
I certainly believe that moderate stock allocations are 'ideal' for a great many investors but certainly not all of them. And as noted by iamlucky13, virtually every target date fund out there with a distant number is at least 90% stocks, so there must be something to this notion that allocations greater than 75% are appropriate for some.
"something to this notion" are just changing trends, sometimes abruptly. The guy you're quoting has lots of great citations of how significant asset allocations changes just "show up" between editions of many edition investment book classics.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 5:53 pm

bradshaw1965 wrote:
Sun Mar 25, 2018 5:36 pm
willthrill81 wrote:
Sun Mar 25, 2018 9:41 am
Valuethinker wrote:
Sun Mar 25, 2018 7:56 am
nisiprius wrote:
Sun Mar 25, 2018 6:19 am
willthrill81 wrote:
Sat Mar 24, 2018 10:36 pm
...KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs...
1) It's not unique. There are at least two people in this forum who believe it. It's at least duplique.

2) Benjamin Graham (Warren Buffett's guru) believed it, too. My summary of Graham's words (show below):
  • "Fundamental guiding principle:" everyone, always, stay within the range of 25%-75% stocks.
  • "Standard division:" 50% stocks.
  • "In general" don't go above 50% stocks unless you are sure you could "view a market decline of the 1969-70 type with equanimity."
  • For "most of our readers," 50-50.
(The 1969-70 market decline was about -35%). Graham's actual words:
In 'The Intelligent Investor,' Benjamin Graham wrote:We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high....

[However] we can give the investor no reliable rules by which to reduce his common-stock holdings toward the 25% minimum and then rebuild them later to the 75% maximum. We can urge that in general the investor should not have more than one-half in equities unless he is has strong confidence in the soundness of his stock position and is sure that he could view a market decline of the 1969-70 type with equanimity....

We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula...
I am a great believer in Reversion to Mean (isn't it actually Regression to the Mean?) and in wisdom.

Graham had wisdom. Many things have changed in investing since his day. Financial information about companies that you could once only obtain by visiting them, in person, is now available at the push of a button. If you waited for the market to revert to his levels of PE, dividend yield, you'd have been out of the market since at least the mid 1980s, and missed a phenomenal run up.

But he had wisdom. His understanding of financial markets, and of human nature, that gave him the arbitrary rules of 25% and 75% are both well founded. We tend to be too exuberant at the top (when we should be selling) and too pessimistic at the bottom (when we should be buying). I have watched myself be both the former in 2000, and the latter in 2009.

Note Franco Modigliani also suggested 50/50 -- that was partly a function of how TIAA Cref worked (there was a stock fund, and an annuity/ fixed interest fund), but he, too, understood his (own) human nature. His autobiography (dotted with little economic models) is a classic of the genre (of great economists writing autobiographically).
I certainly believe that moderate stock allocations are 'ideal' for a great many investors but certainly not all of them. And as noted by iamlucky13, virtually every target date fund out there with a distant number is at least 90% stocks, so there must be something to this notion that allocations greater than 75% are appropriate for some.
"something to this notion" are just changing trends, sometimes abruptly. The guy you're quoting has lots of great citations of how significant asset allocations changes just "show up" between editions of many edition investment book classics.
That certainly has happened.

However, some people just look at the returns of various AAs over time, see that 100% stock has beaten everything else, and go with that. If their time frame is long enough, they can handle the volatility, and the future is anything like the past, they'll probably come out ahead of a 50/50, for instance. Is there more to it than that? Of course, but that's essentially what Vanguard, Schwab, Fidelity, and all of the other target date fund providers are doing, and I think that saying that they're all way off base would be more than a little presumptuous.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by cfs » Sun Mar 25, 2018 6:05 pm

Concur with Mister Will, but then we have investors with multiple pensions (i.e. two work pensions and two social security checks) to cover all their necessities and then some, and are invested 100% in equities (note, we do have a few of those here, names withheld to protect the innocent). Good luck with your retirements, y gracias por leer ~cfs~
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool » Sun Mar 25, 2018 6:21 pm

MotoTrojan wrote:
Sun Mar 25, 2018 5:29 pm
KlangFool wrote:
Sat Mar 24, 2018 9:00 pm
premiumbananas wrote:
Sat Mar 24, 2018 2:08 pm
Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.

B) The market will be volatile. It will not be consistent in any fashion.

In summary, it is meaningless.

Please look at your own portfolio. How is the actual return of your portfolio match with the market return? It is not the same.

KlangFool
I’m not a reasonable person at 100/0? Hmm.
MotoTrojan,

If your portfolio is more than 50 times your current annual expense or retirement expense, then, you may be a reasonable person at 100/0. Otherwise.......

KlangFool

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by nisiprius » Sun Mar 25, 2018 6:51 pm

willthrill81 wrote:
Sun Mar 25, 2018 5:53 pm
However, some people just look at the returns of various AAs over time, see that 100% stock has beaten everything else, and go with that.
But it hasn't, not if you take risk into account in one way or another, and if you're not taking risk into account you're making a huge mistake.
If their time frame is long enough, they can handle the volatility, and the future is anything like the past, they'll probably come out ahead of a 50/50, for instance. Is there more to it than that?
I'm not sure exactly where to go with this, but over just about any reasonable time frame, a portfolio of 60/40 has beaten 100/0 in Sharpe ratio. In theory, at least, and making assumptions about the rate at which you can borrow, even a person who can tolerate the volatility of 100% still should not be invested in 100% stocks.

Such a person should be invested in something with a lower stock allocation, and get the desired level of risk by using leverage. The result will have the same volatility as 100% stocks but higher return.

For example, using PortfolioVisualizer, here is a comparison between 100% Vanguard Total Stock Market Index Fund (blue), and Vanguard Balanced Index Fund (60/40) leveraged to 164% stocks, -64% cash (red). As you see, they would have had about the same volatility as measured by standard deviation, but leveraged Balanced Index would have had considerably higher return.

Source
Image

Leveraged Balanced Index would have been about the same as or better than 100% stocks by literally every measure. (Higher return, same standard deviation, better best year, same worst year, same drawdown, better Sharpe ratio, better Sortino ratio).

I don't know enough about real-world costs of borrowing, and I believe mutual funds are restricted to use no more than 33% leverage, and costs of borrowing would certainly hurt, but I doubt that they would wipe out that big a difference.

The improvement in Sharpe ratio from including both stocks and bonds occurs over almost any reasonably-long period of time, not just the recent "bull market in bonds."

I do not really understand "risk parity," but note that applying risk parity to a portfolio of nothing but stocks and bonds would dictate a very low stock allocation, perhaps 20/80, and even more leverage.

If you rule out leverage, then the case for 100% stocks still means that you are accepting more risk than 75/25 without getting commensurate reward.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 7:45 pm

nisiprius wrote:
Sun Mar 25, 2018 6:51 pm
willthrill81 wrote:
Sun Mar 25, 2018 5:53 pm
However, some people just look at the returns of various AAs over time, see that 100% stock has beaten everything else, and go with that.
But it hasn't, not if you take risk into account in one way or another, and if you're not taking risk into account you're making a huge mistake.
You omitted the sentence I said immediately after the one you quoted where I said that of course there's more to it than that.

That being said, many investors aren't as concerned with risk-adjusted returns as absolute returns, and apparently every target date fund provider agrees with them. None that I'm aware of are trying to maximize risk-adjusted returns with target date funds. Aside from some hedge funds using a risk-parity approach, I'm not aware of any major fund providers trying to do this with any of their funds.

Obviously, leverage can be used, but I and many others would argue that that substantially changes the investment process as well as the risks involved.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool » Sun Mar 25, 2018 7:58 pm

willthrill81 wrote:
Sun Mar 25, 2018 7:45 pm
nisiprius wrote:
Sun Mar 25, 2018 6:51 pm
willthrill81 wrote:
Sun Mar 25, 2018 5:53 pm
However, some people just look at the returns of various AAs over time, see that 100% stock has beaten everything else, and go with that.
But it hasn't, not if you take risk into account in one way or another, and if you're not taking risk into account you're making a huge mistake.
You omitted the sentence I said immediately after the one you quoted where I said that of course there's more to it than that.

That being said, many investors aren't as concerned with risk-adjusted returns as absolute returns, and apparently every target date fund provider agrees with them. None that I'm aware of are trying to maximize risk-adjusted returns with target date funds. Aside from some hedge funds using a risk-parity approach, I'm not aware of any major fund providers trying to do this with any of their funds.

Obviously, leverage can be used, but I and many others would argue that that substantially changes the investment process as well as the risks involved.
willthrill81,

That always happened in a bull market. Then, the risk shows up.

KlangFool

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 8:01 pm

KlangFool wrote:
Sun Mar 25, 2018 7:58 pm
willthrill81 wrote:
Sun Mar 25, 2018 7:45 pm
nisiprius wrote:
Sun Mar 25, 2018 6:51 pm
willthrill81 wrote:
Sun Mar 25, 2018 5:53 pm
However, some people just look at the returns of various AAs over time, see that 100% stock has beaten everything else, and go with that.
But it hasn't, not if you take risk into account in one way or another, and if you're not taking risk into account you're making a huge mistake.
You omitted the sentence I said immediately after the one you quoted where I said that of course there's more to it than that.

That being said, many investors aren't as concerned with risk-adjusted returns as absolute returns, and apparently every target date fund provider agrees with them. None that I'm aware of are trying to maximize risk-adjusted returns with target date funds. Aside from some hedge funds using a risk-parity approach, I'm not aware of any major fund providers trying to do this with any of their funds.

Obviously, leverage can be used, but I and many others would argue that that substantially changes the investment process as well as the risks involved.
willthrill81,

That always happened in a bull market. Then, the risk shows up.

KlangFool
Certainly there are some fair weather, high stock allocation folks who will panic sell during the next bear market. But there are many here who've been 100% stocks throughout numerous bear markets, held on, and they have more money today than they would have otherwise as a result.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool » Sun Mar 25, 2018 8:45 pm

willthrill81 wrote:
Sun Mar 25, 2018 8:01 pm

Certainly there are some fair weather, high stock allocation folks who will panic sell during the next bear market. But there are many here who've been 100% stocks throughout numerous bear markets, held on, and they have more money today than they would have otherwise as a result.
willthrill81,

1) They were lucky. They weren't unemployed in the bear market.

2) Counting on being lucky is not a winning strategy.

KlangFool

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 » Sun Mar 25, 2018 8:54 pm

KlangFool wrote:
Sun Mar 25, 2018 8:45 pm
willthrill81 wrote:
Sun Mar 25, 2018 8:01 pm

Certainly there are some fair weather, high stock allocation folks who will panic sell during the next bear market. But there are many here who've been 100% stocks throughout numerous bear markets, held on, and they have more money today than they would have otherwise as a result.
willthrill81,

1) They were lucky. They weren't unemployed in the bear market.

2) Counting on being lucky is not a winning strategy.

KlangFool
I'm not sure that being one of the 90% who remain employed is merely being 'lucky'. In the U.S., the unemployment rate was much lower among college graduates than those with lower educational attainments, further stacking the 'odds' in their favor. Certain industries tend to be much more affected by macroeconomic conditions.

That being said, I understand that your experiences have made you relatively risk averse, and I can appreciate that.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Dominic » Sun Mar 25, 2018 9:11 pm

Zithron wrote:
Sat Mar 24, 2018 8:58 pm
"Hardly positive" real returns are better than negative real returns, which are also a possibility. We invest because there's not really a better alternative.
This is important. Don't start throwing money at risky assets to squeeze out extra yield. You're just putting yourself further at risk.

I am somewhat concerned about long-term expected returns. This is why I plan to save as much as I can (while still living reasonably comfortably) as early as I can. If returns are low as expected, then I'll still have enough saved at modest rates of return to have a comfortable retirement. If returns are closer to the historical average, then I'll retire earlier, save less at the end of my career, have a much better retirement, or some combination of those.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by JamalJones » Sun Mar 25, 2018 10:32 pm

S&P Total Return by year:

2017 = 21%
2018 = 5%
2019 = -44%
2020 = 12%
2021 = 20%
2022 = 8%
2023 = 13%
2024 = 6%
2025 = 11%
2026 = 10%

~4% return for the next decade
TSP + Vanguard Roth IRA + Vanguard Taxable: 80% equities / 20% bonds | "Yap, yap, yap, yap, - the bottom line is ya gotta buckle up the chin strap!" --R. Lewis

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Slacker » Sun Mar 25, 2018 11:31 pm

nisiprius wrote:
Sun Mar 25, 2018 6:51 pm
Such a person should be invested in something with a lower stock allocation, and get the desired level of risk by using leverage. The result will have the same volatility as 100% stocks but higher return.

For example, using PortfolioVisualizer, here is a comparison between 100% Vanguard Total Stock Market Index Fund (blue), and Vanguard Balanced Index Fund (60/40) leveraged to 164% stocks, -64% cash (red). As you see, they would have had about the same volatility as measured by standard deviation, but leveraged Balanced Index would have had considerably higher return.
...
I don't know enough about real-world costs of borrowing, and I believe mutual funds are restricted to use no more than 33% leverage, and costs of borrowing would certainly hurt, but I doubt that they would wipe out that big a difference.

The improvement in Sharpe ratio from including both stocks and bonds occurs over almost any reasonably-long period of time, not just the recent "bull market in bonds."

I do not really understand "risk parity," but note that applying risk parity to a portfolio of nothing but stocks and bonds would dictate a very low stock allocation, perhaps 20/80, and even more leverage.

If you rule out leverage, then the case for 100% stocks still means that you are accepting more risk than 75/25 without getting commensurate reward.
As you mentioned there are borrowing costs which are likely not reflected in your graph. Additionally, you would have been faced with a margin call in 2008.

Hard to truly evaluate the returns without accounting for these factors and what kind of risk do you assign to leverage that can be called once a certain percentage loss is encountered.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by MotoTrojan » Mon Mar 26, 2018 12:05 am

longinvest wrote:
Sun Mar 25, 2018 5:31 pm
MotoTrojan wrote:
Sun Mar 25, 2018 5:29 pm
I’m not a reasonable person at 100/0? Hmm.
Is it really 100/0? Isn't there some big emergency fund in cash, CDs, or other fixed income, somewhere? Social Security and annuities, maybe? Often, people divide their assets into buckets, then claim that one bucket is 100/0. But, I haven't often seen people claim to be really 100/0. Even Berkshire Hathaway maintains a pretty significant allocation to cash and short-term bonds.
At the moment I have less than 2% in cash (checking). Even when it was higher with a healthier emergency fund, I don't consider that in my AA.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by HomerJ » Mon Mar 26, 2018 12:20 am

willthrill81 wrote:
Sat Mar 24, 2018 10:00 pm
darrvao777 wrote:
Sat Mar 24, 2018 9:52 pm
What's the alternative though to investing like we always have?

Go to cash? Gold? Real estate?

I plan to stay the course, take what the market gives me, and continue to live frugally
Larry Swedroe would probably suggest that we should look into time-series momentum (i.e. trend following) and/or alternative investments.
Larry Swedroe also suggested we look into CCFs (commodities futures) about 10 years ago. How did that work out? It back-tested well.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by HomerJ » Mon Mar 26, 2018 12:22 am

KlangFool wrote:
Sat Mar 24, 2018 10:07 pm
OP,

I can reach my goal with the low forecasted return. So, there is no problem here.

KlangFool
This.

I always assume low returns going forward.

I'm the guy who always carries an umbrella around. The OP running up to me yelling "Oh my gosh, the chance of rain is higher today than yesterday" doesn't affect me, because I'm ALREADY CARRYING AN UMBRELLA.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by HomerJ » Mon Mar 26, 2018 12:24 am

willthrill81 wrote:
Sat Mar 24, 2018 10:24 pm
iceport wrote:
Sat Mar 24, 2018 10:15 pm
For me, just starting retirement, I am resigned to capping withdrawals at 4% maximum, with the ability to virtually suspend withdrawals in the worst case scenario. There has been a lot of research highlighting the problem of under-spending by using a constant real dollar withdrawal rate based on the 4% rule. My own response to the prospect of low future returns is to consider such an under-spending problem irrelevant for the time being.
As Homer would say, if 4% withdrawals are enough to meet your real needs and then some, you're already carrying an 'umbrella' in the event that the market 'rains' on your retirement parade. I'm sure you'll do just fine.
Ho-ho! I really liked my umbrella metaphor too when I came up with it a month or so ago, and now it's catching on!

:)

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by HomerJ » Mon Mar 26, 2018 12:29 am

tibbitts wrote:
Sun Mar 25, 2018 11:16 am
I think most Bogleheads are not too optimistic about future returns - thus all the talk of 2% SWR, living off dividends (coincidentally 2%), etc.

On the other hand I do think Bogleheads are too optimistic about other aspects of personal finances - for example telling younger people to "save their raises." Umm... what raises? What I see are a small and decreasing percentage of people receiving increasingly substantial wage increases and everybody else making in nominal dollars what they did 5 or 10 years ago. Admittedly that's anecdotal, but I just didn't see that in the 80s or 90s for example. I'm not saying the situation isn't justified, at least partly - having extraordinary skills is perhaps now being properly rewarded, I'm just saying that it has a huge effect on the broader community outside of Bogleheads.
Changing jobs is usually required to get big raises... talking 10%-30%, where the advice "saving half your raises" makes a big difference. Saving half of your 2% annual raise still helps, but you won't keep up with inflation that way.

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iceport
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iceport » Mon Mar 26, 2018 1:58 am

HomerJ wrote:
Mon Mar 26, 2018 12:24 am
willthrill81 wrote:
Sat Mar 24, 2018 10:24 pm
iceport wrote:
Sat Mar 24, 2018 10:15 pm
For me, just starting retirement, I am resigned to capping withdrawals at 4% maximum, with the ability to virtually suspend withdrawals in the worst case scenario. There has been a lot of research highlighting the problem of under-spending by using a constant real dollar withdrawal rate based on the 4% rule. My own response to the prospect of low future returns is to consider such an under-spending problem irrelevant for the time being.
As Homer would say, if 4% withdrawals are enough to meet your real needs and then some, you're already carrying an 'umbrella' in the event that the market 'rains' on your retirement parade. I'm sure you'll do just fine.
Ho-ho! I really liked my umbrella metaphor too when I came up with it a month or so ago, and now it's catching on!

:)
Even though I reported to the OP that I hadn't noticed "much" denial of the possibility of low future returns, you were actually one notable exception that came to mind as I typed that. 8-)
"Discipline matters more than allocation.” ─William Bernstein

WanderingDoc
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by WanderingDoc » Mon Mar 26, 2018 2:18 am

Zithron wrote:
Sat Mar 24, 2018 8:58 pm
"Hardly positive" real returns are better than negative real returns, which are also a possibility. We invest because there's not really a better alternative.
There are much better alternatives. You can hand select real estate deals which will cash flow 8-12% (even in "recessions"), provide principal paydown, inflation hedging, and great tax benefits. These aren't optional, it will happen. Capital appreciation is never a guarantee but real estate goes up over time, while taking advantage of the other stuff I mentioned.
I'm not looking to get rich quick (stocks), I'm not looking to get rich slow (indexing), I'm looking to get rich, for sure (real estate) | Don't wait to buy real estate. Buy real estate.. and wait.

JBTX
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by JBTX » Mon Mar 26, 2018 3:15 am

Over my 9 months here I observed a fairly diverse group in some respects. But in terms of the seasoned bogleheads here, i don’t get the sense that they think everything is “normal” and expect nominal equity returns of 10% per year. Even Bogle himself has said expect something like 4% nominal, which isn’t exactly lighting the world on fire.

The general consensus is that while returns may be lower, it is impossible to predict, and you can’t market time to do better.

I do think there is a bit of a US centric attitude among some BH, and they tend to look only at US history as the entire set of potential future outcomes, and often feel like if you just stick it out the market will eventually rebound within a reasonable amount of time.

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