[Vanguard cuts expected stock market returns over the next decade]

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wootwoot
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Re: Vanguard Cuts Expectations

Post by wootwoot » Mon Feb 11, 2019 4:02 pm

This has 0 impact on my investment strategy.

barnaclebob
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Re: Vanguard Cuts Expectations

Post by barnaclebob » Mon Feb 11, 2019 4:07 pm

I'd like to see what all of the previous 5 year projections were and how that lined up with reality.

skor99
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Vanguard cuts expected return for stocks

Post by skor99 » Mon Feb 11, 2019 4:19 pm

[Post merged into here, see below. --admin LadyGeek]

https://www.cnbc.com/2019/02/11/vanguar ... ecade.html?

Is this before or after inflation ? 5% after inflation is still not too bad

bluquark
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Re: Vanguard Cuts Expectations

Post by bluquark » Mon Feb 11, 2019 4:25 pm

This is just an allusion to the whitepaper they published a month ago. Here it is with their reasoning (mostly, a CAPE and interest rate model) what you should do about it (no surprise: they think you should stay the course on a world market cap + Total Bond portfolio)

https://pressroom.vanguard.com/nonindex ... 120618.pdf

H-Town
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Re: Vanguard Cuts Expectations

Post by H-Town » Mon Feb 11, 2019 4:28 pm

5% median. After 3% inflation, it's about 2% real return median.

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Re: Vanguard Cuts Expectations

Post by LadyGeek » Mon Feb 11, 2019 4:29 pm

I merged skor99's post into the on-going discussion.
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midareff
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Re: Vanguard cuts expected return for stocks

Post by midareff » Mon Feb 11, 2019 4:29 pm

skor99 wrote:
Mon Feb 11, 2019 4:19 pm
https://www.cnbc.com/2019/02/11/vanguar ... ecade.html?

Is this before or after inflation ? 5% after inflation is still not too bad
Since we don't know what inflation will be that's a tough question to answer by any measure. Jack seemed fond of saying (forward looking) 4 -6 for equities and 0 - 2 for fixed income, if memory serves. That's 3% (more or less) on a 50/50 portfolio. If inflation is 2% you have 1%. If you have a 1% advisor you have zip. It definitely will not be as good as it has been, and it's just the return to reality.

Broken Man 1999
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Re: Vanguard Cuts Expectations

Post by Broken Man 1999 » Mon Feb 11, 2019 4:37 pm

I always have low expectations on market returns. The last few years have been a pleasant surprise.

If returns are lower, they are lower. I've had larger than I expected returns in the past, so I'm not going to worry about it. And, the grandchildren are too young to know they might receive less if the lower returns affect their legacy gifts, if that is what happens. I don't see it harming our retirement any.

I do prefer lower expectations of returns info more than very hyped up crazy returns.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Vulcan
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Re: Vanguard Cuts Expectations

Post by Vulcan » Mon Feb 11, 2019 4:40 pm

bluquark wrote:
Mon Feb 11, 2019 4:25 pm
This is just an allusion to the whitepaper they published a month ago. Here it is with their reasoning (mostly, a CAPE and interest rate model) what you should do about it (no surprise: they think you should stay the course on a world market cap + Total Bond portfolio)

https://pressroom.vanguard.com/nonindex ... 120618.pdf
"Expected returns for the U.S. stock market are lower than those for international markets, underscoring the benefits of global equity strategies in this environment."

Thank god for VTWAX!
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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fortfun
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Re: Vanguard Cuts Expectations

Post by fortfun » Mon Feb 11, 2019 4:45 pm

Vulcan wrote:
Mon Feb 11, 2019 4:40 pm
bluquark wrote:
Mon Feb 11, 2019 4:25 pm
This is just an allusion to the whitepaper they published a month ago. Here it is with their reasoning (mostly, a CAPE and interest rate model) what you should do about it (no surprise: they think you should stay the course on a world market cap + Total Bond portfolio)

https://pressroom.vanguard.com/nonindex ... 120618.pdf
"Expected returns for the U.S. stock market are lower than those for international markets, underscoring the benefits of global equity strategies in this environment."

Thank god for VTWAX!
Is it tax efficient?

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Vulcan
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Re: Vanguard Cuts Expectations

Post by Vulcan » Mon Feb 11, 2019 4:58 pm

fortfun wrote:
Mon Feb 11, 2019 4:45 pm
Vulcan wrote:
Mon Feb 11, 2019 4:40 pm
Thank god for VTWAX!
Is it tax efficient?
It is tax efficient enough.
Image
If you torture the data long enough, it will confess to anything. ~Ronald Coase

minimalistmarc
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by minimalistmarc » Mon Feb 11, 2019 5:03 pm

Duplicate
Last edited by minimalistmarc on Mon Feb 11, 2019 5:04 pm, edited 1 time in total.

minimalistmarc
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by minimalistmarc » Mon Feb 11, 2019 5:03 pm

It’s noise, put your earplugs in and ignore it

pdavi21
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by pdavi21 » Mon Feb 11, 2019 5:06 pm

That means after crashing 50%, it will return 14% annually (after inflation).
So about the same as October 2007 to October 2017 (slightly worse, actually).
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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gmaynardkrebs
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by gmaynardkrebs » Mon Feb 11, 2019 5:10 pm

So, it looks like in their view that the only market that is not over-valued is non-US developed.... Am I reading that correctly?

bluquark
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by bluquark » Mon Feb 11, 2019 5:52 pm

gmaynardkrebs wrote:
Mon Feb 11, 2019 5:10 pm
So, it looks like in their view that the only market that is not over-valued is non-US developed.... Am I reading that correctly?
Yes, I think so. The logical conclusion of their reasoning seems like it should be 100% of your equity in VTMGX (Vanguard Developed Index), but I surmise they aren't confident enough in their model to actually recommend that (they don't even present a Developed tilt in their portfolio comparison chart, where would appear obviously the best and demand explanation).

2015
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by 2015 » Mon Feb 11, 2019 8:09 pm

"Vanguard Does An Excellent Job With Marketing Disguised As Financial Information Click Bait"

Monetizing CNBC must by necessity come at the expense of attention devoted to massively more important decisions. Like..."Man/Woman Fails to Properly Monitor Their Diet/Exercise"

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ginmqi
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by ginmqi » Mon Feb 11, 2019 8:32 pm

So now Vanguard itself joints the many future-seers pontificating lower equity returns for the next 10 years.

I too wish I had a crystal ball. (no offense to many many knowledgeable, some including those on this very board and indeed Mr. Bogle himeself, IIRC, has cautioned against a lower equity return for the future)

Remind me, who in 2008/2009/2010 predicted a record bull market for the decade of 2010-2019? :D

Let's revisit this thread in 2029. Should be interesting.
Last edited by ginmqi on Mon Feb 11, 2019 8:42 pm, edited 1 time in total.

dknightd
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by dknightd » Mon Feb 11, 2019 8:37 pm

I guess we'll all retire poor. Darn!

mindboggling
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by mindboggling » Mon Feb 11, 2019 8:41 pm

I'm not sure I understand why anyone cares what Vanguard thinks. Are you desperately searching for some hidden nugget of wisdom that will help you optimize your portfolio and pave the way to untold riches?

I'm there for the low-cost index funds and the allegedly conflict-free corporate structure.
In broken mathematics, We estimate our prize, --Emily Dickinson

anil686
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by anil686 » Mon Feb 11, 2019 8:53 pm

If you are accumulating - this is a welcomed thought IMHO. Referencing Buffett...

Dec. 10, 2001: Warren Buffett on the stock market
“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”

H-Town
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by H-Town » Mon Feb 11, 2019 8:56 pm

dknightd wrote:
Mon Feb 11, 2019 8:37 pm
I guess we'll all retire poor. Darn!
Not if you save a little bit more.

Lower your expectation to 2% real growth in your projection. Increase saving rate. Problem solved :mrgreen:

dknightd
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by dknightd » Mon Feb 11, 2019 9:43 pm

H-Town wrote:
Mon Feb 11, 2019 8:56 pm
dknightd wrote:
Mon Feb 11, 2019 8:37 pm
I guess we'll all retire poor. Darn!
Not if you save a little bit more.

Lower your expectation to 2% real growth in your projection. Increase saving rate. Problem solved :mrgreen:
I think I'll be OK with 2% real growth. I'd probably be OK with 0% real growth. I think if I can keep up with inflation I'll be OK. Who knows what the future might bring.

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gmaynardkrebs
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by gmaynardkrebs » Mon Feb 11, 2019 10:12 pm

dknightd wrote:
Mon Feb 11, 2019 9:43 pm
H-Town wrote:
Mon Feb 11, 2019 8:56 pm
dknightd wrote:
Mon Feb 11, 2019 8:37 pm
I guess we'll all retire poor. Darn!
Not if you save a little bit more.

Lower your expectation to 2% real growth in your projection. Increase saving rate. Problem solved :mrgreen:
I think I'll be OK with 2% real growth. I'd probably be OK with 0% real growth. I think if I can keep up with inflation I'll be OK. Who knows what the future might bring.
It could bring -40% real growth. I don't think I would be Ok with that, or -20%. I am Ok with +1%.That's why I put about 70% in TIPS. The other 30% is in stocks. However, I feel like a total fool at times having seen what the market has done.

typical.investor
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by typical.investor » Mon Feb 11, 2019 10:54 pm

bluquark wrote:
Mon Feb 11, 2019 5:52 pm
gmaynardkrebs wrote:
Mon Feb 11, 2019 5:10 pm
So, it looks like in their view that the only market that is not over-valued is non-US developed.... Am I reading that correctly?
Yes, I think so. The logical conclusion of their reasoning seems like it should be 100% of your equity in VTMGX (Vanguard Developed Index), but I surmise they aren't confident enough in their model to actually recommend that (they don't even present a Developed tilt in their portfolio comparison chart, where would appear obviously the best and demand explanation).
Is their proprietary Valuation method document anywhere? I’m curious how they conclude EM is over valued.

Morgan Stanley and others seem to have a different view.
Against this backdrop—and in light of the extreme valuation differences between U.S. and emerging-markets equities—Morgan Stanley strategists have issued a double upgrade for emerging markets, moving from underweight to overweight. Their base case forecast calls for an 8% price return for the MSCI EM index in 2019.
Research Affiliates expects 7% real from EM with 1.2% of that being from valuation. (0.7% boost from equity valuation and 0.5% from currency)

T. Rowe Price has a similar view:
“We think emerging-market equities have attractive valuation levels compared to history and think there are other factors that can be appreciated by the market,” he said. These factors include fear of political disruption (including the trade conflict between the U.S. and China) being already priced into stocks, the recent change in Federal Reserve policy and the expectations of a declining dollar.

typical.investor
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Re: [Vanguard cuts expected stock market returns over the next decade]

Post by typical.investor » Tue Feb 12, 2019 7:10 pm

bump - does anyone understand Vanguard's methodology?

The US and developed markets are easy.

Why does U.S. price-to-earnings get included in emerging valuation method, and if as Vanguard claims, emerging should have lower (fair value) valuations due to it's riskiness, is Vanguard adjusting to account for the boom in US share buybacks which when fueled by debt will increase earnings (affecting p/e) while increasing riskiness.

I doubt Vanguard has that in their model and think debt fueled earnings (EPS increases with buybacks) in the US could be affecting their estimation of whether emerging is overvalued.
The U.S. valuation measure is the current CAPE percentile relative to fair-value CAPE for the S&P 500 Index from January 1940–September 2018.
The developed markets valuation measure is the weighted average of each region’s (Australia, United Kingdom, Germany, Japan, and Canada) current CAPE percentile relative to its own fair-value CAPE. The fair-value CAPE for the regions is a five- variable vector error correction (VEC) with equity earnings yield (MSCI index), ten- year trailing inflation, ten-year government bond yield, equity volatility, and bond volatility estimated over the period January 1970 to September 2018.
The emerging markets valuation measure is a composite of emerging markets-to-U.S. relative valuations and current U.S. CAPE percentile relative to fair-value CAPE. The relative valuation is the current ratio of emerging markets-to-U.S. price-to-earnings metrics relative to its historical average, using three-year trailing average earnings from January 1990 to September 2018.
https://pressroom.vanguard.com/nonindex ... 120618.pdf

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