this time it's different

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feh
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this time it's different

Post by feh » Tue Aug 13, 2019 7:40 am

An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: this time it's different

Post by KlangFool » Tue Aug 13, 2019 7:45 am

feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool

andypanda
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Re: this time it's different

Post by andypanda » Tue Aug 13, 2019 7:49 am

I gave up trying to predict the future years ago. I'm a month away from turning 69 and I started investing in the mid-60s. Here's what I've learned about the economy. We'll find out when it happens and there probably won't be much if any warning. It's sort of like watching a herd of cattle or horses... a stampede can start in a heartbeat. Or not. But don't turn your back on them because they're not going to just stand around grazing forever.

heyeaglefn
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Re: this time it's different

Post by heyeaglefn » Tue Aug 13, 2019 7:50 am

At some point someone will get it right.

Iorek
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Re: this time it's different

Post by Iorek » Tue Aug 13, 2019 7:51 am

I am not confident we will see long term equities returns at the levels frequently quoted for historic rates, but I am even more sceptical any time someone says "this time it's different"

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Sandtrap
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Re: this time it's different

Post by Sandtrap » Tue Aug 13, 2019 7:52 am

feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
Since before 1929, how many investors (and financial experts, and article/news writers) have felt that the future will be different from the past?

Can you post data that would compel you (and others here) to invest more heavily overseas and EM?

"Secular stagnationistas."
So often these new "catchy words" come up in financial articles/news.

. . . . like Charley Brown. . . I'm no longer going to kick that football no matter how Lucy promises that "this time it's different".. . :shock:
j
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Topic Author
feh
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Re: this time it's different

Post by feh » Tue Aug 13, 2019 7:55 am

KlangFool wrote:
Tue Aug 13, 2019 7:45 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool
My reasoning for 1) is that less developed economies probably have a higher birth rate and less automation.

My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?

tibbitts
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Re: this time it's different

Post by tibbitts » Tue Aug 13, 2019 7:58 am

feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
The future has always been different, just not always in the direction and timing that people predicted. So yes, I think the future will again be different.

livesoft
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Re: this time it's different

Post by livesoft » Tue Aug 13, 2019 8:01 am

Whenever stocks are up 20% in 6 months, I think people get a little worried. So no increase for the next year would not be out of the ordinary. Even a pullback would be normal.

However, whenever old dying industries are not put out of their misery because they have friends in the government that means they keep using up capital that would be better used to bootstrap new industries and innovation.

Do I worry about it? No, I don't.
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Top99%
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Re: this time it's different

Post by Top99% » Tue Aug 13, 2019 8:04 am

This article ponders the same things I do (IE things seem upside down) but it certainly doesn't convince me to change my AA. Lots of things (most of which we can't discuss without getting threads locked) could happen that could change our trajectory. There is always the possibility (probability actually) some new major technical break through could alter our course. For example, if a battery breakthrough lead to really cheap energy storage.
Adapt or perish

alex_686
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Re: this time it's different

Post by alex_686 » Tue Aug 13, 2019 8:15 am

KlangFool wrote:
Tue Aug 13, 2019 7:45 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool
I do believe in secular stagnation and its cousin “The New Normal”. I think the title is off - normally this is used to justify new and continuing highs, not predicting doom and gloom.

To KlanfFool, I don’t see overseas doing any better. Today EM is dominated by large multinational companies that act just like their DM counterparts.

Its not the 60/40 that you is going to change, it is the rate of return. So think higher savings rate and lower goals.

And for those who claim they don’t try to predict the future I assume you are 100% TIPS. Because if you are not, your making a prediction about the future.

KlangFool
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Re: this time it's different

Post by KlangFool » Tue Aug 13, 2019 8:27 am

feh wrote:
Tue Aug 13, 2019 7:55 am
KlangFool wrote:
Tue Aug 13, 2019 7:45 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool
My reasoning for 1) is that less developed economies probably have a higher birth rate and less automation.

My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
feh,

<<My reasoning for 1) is that less developed economies probably have a higher birth rate and less automation.>>

That does not translate into a higher growth rate.

<<My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?>>

Necessary for you. Not necessary for me. At my saving rate of 1 year of expense every year, it won't matter.

The answer is very simple. At a higher saving rate, return rate does not matter. But, this is not the answer that many folks like to hear. They would like an easy way out. Aka, silver bullet.

KlangFool

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dwickenh
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Re: this time it's different

Post by dwickenh » Tue Aug 13, 2019 8:37 am

KlangFool wrote:
Tue Aug 13, 2019 8:27 am
feh wrote:
Tue Aug 13, 2019 7:55 am
KlangFool wrote:
Tue Aug 13, 2019 7:45 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool
My reasoning for 1) is that less developed economies probably have a higher birth rate and less automation.

My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
feh,

<<My reasoning for 1) is that less developed economies probably have a higher birth rate and less automation.>>

That does not translate into a higher growth rate.

<<My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?>>

Necessary for you. Not necessary for me. At my saving rate of 1 year of expense every year, it won't matter.

The answer is very simple. At a higher saving rate, return rate does not matter. But, this is not the answer that many folks like to hear. They would like an easy way out. Aka, silver bullet.

KlangFool
I agree with KlangFool, savings rate is the way to secure your withdrawal rate if you feel a change is necessary. Save more and keep a good
diversified plan in place.

Best to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

dziuniek
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Re: this time it's different

Post by dziuniek » Tue Aug 13, 2019 8:42 am

It really wouldn't be surprising. Was 2000-2010 not a lost decade with the return being essentially flat for US equities?

If you haven't already, throw in some international to your portfolio for good measure - it certainly helped in that time period.

We could have a repeat of the 2000s. It's happened before, it can happen again.

Pretty sure 3-fund had a decent return in that time-frame.

So maybe it's not different this time, but more of the same?

mbasherp
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Re: this time it's different

Post by mbasherp » Tue Aug 13, 2019 8:51 am

One of the wisest observations ever made:

The more things change, the more they stay the same.

Of course this time is different. It always is. We are always in unprecedented times. However, the wisdom of living below your means and investing the difference in a diversified manner will always be applicable.

minesweep
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Re: this time it's different

Post by minesweep » Tue Aug 13, 2019 8:56 am

tibbitts wrote:
Tue Aug 13, 2019 7:58 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
The future has always been different, just not always in the direction and timing that people predicted. So yes, I think the future will again be different.
Well said.

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ReformedSpender
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Re: this time it's different

Post by ReformedSpender » Tue Aug 13, 2019 9:08 am

KlangFool wrote:
Tue Aug 13, 2019 7:45 am

feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

KlangFool
And you know this how?
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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SimpleGift
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Re: this time it's different

Post by SimpleGift » Tue Aug 13, 2019 9:18 am

feh wrote:
Tue Aug 13, 2019 7:40 am
Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.
The fundamental difference to my mind is that the large majority of the world's economic growth in the decades ahead will be in Asia (China, India, Indonesia, etc.) — rather than the past engines of economic growth in the developed countries. Demographics alone make this almost a certainty.
How investors might capitalize on this shift in global growth toward Asia is an open question — but owning a small share of ALL global companies through broadly diversified index funds is likely about the best one can do.

KlangFool
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Re: this time it's different

Post by KlangFool » Tue Aug 13, 2019 9:25 am

ReformedSpender wrote:
Tue Aug 13, 2019 9:08 am
KlangFool wrote:
Tue Aug 13, 2019 7:45 am

feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

KlangFool
And you know this how?
I do not need to know. I invest both in the USA and the world.

KlangFool

Seasonal
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Re: this time it's different

Post by Seasonal » Tue Aug 13, 2019 9:39 am

1) The market is well aware of information regarding demographics and economic growth. I don't believe I'm better at estimating the effects of these things than the market is. Are you? It is likely all markets have similar risk adjusted expected returns (if one had higher, the market would allocate more to it, raising prices and lowering returns).

2) If the return on investments will be lower than it has been, people will have to save more or spend less in retirement than history suggests. People who rely on history may be disappointed. Or not, it's hard to say, but the possibility should be taken into account.

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HomerJ
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Re: this time it's different

Post by HomerJ » Tue Aug 13, 2019 9:43 am

feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
The J stands for Jay

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HomerJ
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Re: this time it's different

Post by HomerJ » Tue Aug 13, 2019 9:53 am

alex_686 wrote:
Tue Aug 13, 2019 8:15 am
Its not the 60/40 that you is going to change, it is the rate of return. So think higher savings rate and lower goals.

And for those who claim they don’t try to predict the future I assume you are 100% TIPS. Because if you are not, your making a prediction about the future.

Well, I've never "planned" around ANY rate of return. Except I guess a positive return.

You get what you get, and you make it work.

I would never recommend anyone assume we're going to get historical average returns while accumulating. Just like we tell people to not assume average historical returns in retirement.

So if we do get 2%-3% lower than normal going forward, this shouldn't be an issue (assuming people have been listening to me on these boards all these years) :)
The J stands for Jay

alex_686
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Re: this time it's different

Post by alex_686 » Tue Aug 13, 2019 9:59 am

SimpleGift wrote:
Tue Aug 13, 2019 9:18 am
feh wrote:
Tue Aug 13, 2019 7:40 am
Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.
The fundamental difference to my mind is that the large majority of the world's economic growth in the decades ahead will be in Asia (China, India, Indonesia, etc.) — rather than the past engines of economic growth in the developed countries. Demographics alone make this almost a certainty.
I will modestly take the other side. The linkage between GNP growth and investment returns is indirect. Secular Stagnation is based on the assumption of low personal productivity growth and surplus savings. Maybe increased wealth disparity. Anyways, even if we have the right type of growth that promotes investment returns, surplus savings will depress returns.

YRT70
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Re: this time it's different

Post by YRT70 » Tue Aug 13, 2019 10:00 am

HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.

For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709

UpperNwGuy
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Re: this time it's different

Post by UpperNwGuy » Tue Aug 13, 2019 10:02 am

It isn’t different. You just think it is.

Independent George
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Re: this time it's different

Post by Independent George » Tue Aug 13, 2019 10:13 am

UpperNwGuy wrote:
Tue Aug 13, 2019 10:02 am
It isn’t different. You just think it is.
I'd say the opposite - it will be different, because it's always different. In the last century, we had two world wars (well, ok, the first one ended almost exactly one hundred years ago), the breakup of European colonial empires, and the rise and fall of international communism; none of those big things had been predicted by contemporaries, let alone something as mundane as smartphones (or the microchips and sattelites they are predicated on). I would expect the next hundred years to look a lot different.

Maybe we'll capture an asteroid and crash the precious metals market (while also spurring a revolution in manufacturing because platinum is now cheaper than aluminum). Maybe life extension will take hold and change the fundamental concept of retirement. Maybe we'll have commercial fusion power (and with it, the ability to 3D print everything we could ever possibly want, on demand).

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Re: this time it's different

Post by Fallible » Tue Aug 13, 2019 10:17 am

This time it may be different and this time it may not be. It's food for thought, but still nobody knows.

From the article: "...It's "possible that we're not living in the Upside Down. This is the Right-Side Up. The normal place. And those roaring periods of the past — when job-creating technologies, baby booms and expanding frontiers all rocketed our economy to good times — were, in fact, the alternate dimension."
"John Bogle has changed a basic industry in the optimal direction. Of very few can this be said." ~Paul A. Samuelson

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HomerJ
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Re: this time it's different

Post by HomerJ » Tue Aug 13, 2019 10:22 am

YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.
This is correct. Thank you for correcting me. I don't know that 4% will work in the future... But in the past, lower returns than normal (which is what the OP is worried about), did not stop 4% from working. If returns are 2%-3% lower than historical, 4% will very likely still work (depending on sequence of returns).
For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
It's a guess for Larry too. He predicted 4.5% real going forward in 2011. Instead we've gotten around 12% real.
The J stands for Jay

YRT70
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Re: this time it's different

Post by YRT70 » Tue Aug 13, 2019 10:29 am

HomerJ wrote:
Tue Aug 13, 2019 10:22 am
YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.
This is correct. Thank you for correcting me. I don't know that 4% will work in the future... But in the past, lower returns than normal (which is what the OP is worried about), did not stop 4% from working. If returns are 2%-3% lower than historical, 4% will very likely still work (depending on sequence of returns).
For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
It's a guess for Larry too. He predicted 4.5% real going forward in 2011. Instead we've gotten around 12% real.
IMO the very low yields on bonds and the high stock valuations make it plausible that 4% may be too high in the future. But I hope I'm wrong.

The 4% is also based on 30 year retirement, which might not be long enough for some people. 4% for 40 years has a lower success rate.

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SimpleGift
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Re: this time it's different

Post by SimpleGift » Tue Aug 13, 2019 11:07 am

alex_686 wrote:
Tue Aug 13, 2019 9:59 am
I will modestly take the other side. The linkage between GNP growth and investment returns is indirect. Secular Stagnation is based on the assumption of low personal productivity growth and surplus savings. Maybe increased wealth disparity. Anyways, even if we have the right type of growth that promotes investment returns, surplus savings will depress returns.
I do agree. It's hard to ignore the argument and evidence for Secular Stagnation in the developed economies of the world — and that investment returns in the decades ahead are likely to be lower than in the past. Just wanted to point out, though, that the problems of the developed world (aging populations, shrinking workforces, slow growth, negative interest rates) are not necessarily those of the emerging economies — though China may arrive near here eventually.

One big concern I have is that the problems of the developed world will indirectly work to disrupt the emerging economies as well though. Super low interest rates in the advanced economies feed strong capital flows into emerging markets, driven by yield-seeking behavior. Then when there's any kind of economic shock (say, trade or currency disputes), the inevitable flight-back-to-safety leaves emerging economies in the lurch. This back-and-forth flow of capital can't be healthy for sustained growth.

The only sense I can make of it is to invest in a broad diversity of global index companies — then hope for the best.

UpperNwGuy
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Re: this time it's different

Post by UpperNwGuy » Tue Aug 13, 2019 11:26 am

Independent George wrote:
Tue Aug 13, 2019 10:13 am
UpperNwGuy wrote:
Tue Aug 13, 2019 10:02 am
It isn’t different. You just think it is.
I'd say the opposite - it will be different, because it's always different. In the last century, we had two world wars (well, ok, the first one ended almost exactly one hundred years ago), the breakup of European colonial empires, and the rise and fall of international communism; none of those big things had been predicted by contemporaries, let alone something as mundane as smartphones (or the microchips and sattelites they are predicated on). I would expect the next hundred years to look a lot different.

Maybe we'll capture an asteroid and crash the precious metals market (while also spurring a revolution in manufacturing because platinum is now cheaper than aluminum). Maybe life extension will take hold and change the fundamental concept of retirement. Maybe we'll have commercial fusion power (and with it, the ability to 3D print everything we could ever possibly want, on demand).
All you've said is that constant change has been the norm for the last century. So more constant change in the coming century will not be at all different. The only difference will be in the details. Throughout these constant changes in the background, the stock and bond markets have continued to function, and so they will through the next round of changes.

EnjoyIt
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Re: this time it's different

Post by EnjoyIt » Tue Aug 13, 2019 11:36 am

SimpleGift wrote:
Tue Aug 13, 2019 11:07 am
alex_686 wrote:
Tue Aug 13, 2019 9:59 am
I will modestly take the other side. The linkage between GNP growth and investment returns is indirect. Secular Stagnation is based on the assumption of low personal productivity growth and surplus savings. Maybe increased wealth disparity. Anyways, even if we have the right type of growth that promotes investment returns, surplus savings will depress returns.
I do agree. It's hard to ignore the argument and evidence for Secular Stagnation in the developed economies of the world — and that investment returns in the decades ahead are likely to be lower than in the past. Just wanted to point out, though, that the problems of the developed world (aging populations, shrinking workforces, slow growth, negative interest rates) are not necessarily those of the emerging economies — though China may arrive near here eventually.

One big concern I have is that the problems of the developed world will indirectly work to disrupt the emerging economies as well though. Super low interest rates in the advanced economies feed strong capital flows into emerging markets, driven by yield-seeking behavior. Then when there's any kind of economic shock (say, trade or currency disputes), the inevitable flight-back-to-safety leaves emerging economies in the lurch. This back-and-forth flow of capital can't be healthy for sustained growth.

The only sense I can make of it is to invest in a broad diversity of global index companies — then hope for the best.
Economies grow with increased efficiency as well. Even if population stagnates, efficiency due to technology and robotics can overcome the decrease in population growth.

hoops777
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Re: this time it's different

Post by hoops777 » Tue Aug 13, 2019 11:38 am

HomerJ wrote:
Tue Aug 13, 2019 10:22 am
YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.
This is correct. Thank you for correcting me. I don't know that 4% will work in the future... But in the past, lower returns than normal (which is what the OP is worried about), did not stop 4% from working. If returns are 2%-3% lower than historical, 4% will very likely still work (depending on sequence of returns).
For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
It's a guess for Larry too. He predicted 4.5% real going forward in 2011. Instead we've gotten around 12% real.
Larry doesn’t know.He was off by a huge amount in that 2011 prediction,so far,but I do not know how far out he went years wise.The 4 pct rule is no magic bullet.Common sense and the ability to adjust to circumstances is the magic bullet.
K.I.S.S........so easy to say so difficult to do.

firebirdparts
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Re: this time it's different

Post by firebirdparts » Tue Aug 13, 2019 11:49 am

HomerJ wrote:
Tue Aug 13, 2019 10:22 am
It's a guess for Larry too. He predicted 4.5% real going forward in 2011. Instead we've gotten around 12% real.
Right. It may well be true that the worst case scenario going forward is not exactly going to match up with 4%. FWIW. The good news is that you don't necessarily have to live through the worst case scenario. People keep forgetting what we are talking about when we talk about 4%.

If I was looking at the world, it seems to me that there is enormous opportunity for economic growth, and right now we have the resources and technology to do it all so much more easily than the way the established countries did it. I am not sure we know how to get the wheels turning, or how to invest in it, but there is a lot of undeveloped world out there where the consumption of productivity is tiny.

This is going to look like stagnation for societies who are already rich. Naturally it would. The population is not going to grow. I don't need any more stuff. I'll continue to eat every day and I'll buy toothpaste when I run out.

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SimpleGift
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Re: this time it's different

Post by SimpleGift » Tue Aug 13, 2019 12:28 pm

EnjoyIt wrote:
Tue Aug 13, 2019 11:36 am
Economies grow with increased efficiency as well. Even if population stagnates, efficiency due to technology and robotics can overcome the decrease in population growth.
Yes. As I understand it: GDP growth rate = workforce growth rate + productivity growth rate.

The demographic factor in this equation (workforce growth) is mostly already baked in for nearly all of the developed countries, unless they decide to dramatically alter their immigration policies. The critical unanswered question then is the future of productivity growth.

Some folks are wildly optimistic about future technological breakthroughs that will drive growth and efficiencies in the decades ahead. Certainly productivity growth will not stop, but my own guess is it will continue to grow only modestly in the developed economies, even with automation advances — something close to 1% per year.

garlandwhizzer
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Re: this time it's different

Post by garlandwhizzer » Tue Aug 13, 2019 12:40 pm

SimpleGift wrote:

The only sense I can make of it is to invest in a broad diversity of global index companies — then hope for the best.
1+

This is my approach as well, covering all bases, 50 US/50 INTL. Wide diversification seems to me a reasonable response to high levels of future uncertainty. If I knew the winners and losers in advance I'd load up on the winners and drop the losers, but my crystal ball is as usual cloudy.

Garland Whizzer

alex_686
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Re: this time it's different

Post by alex_686 » Tue Aug 13, 2019 12:56 pm

SimpleGift wrote:
Tue Aug 13, 2019 12:28 pm
EnjoyIt wrote:
Tue Aug 13, 2019 11:36 am
Economies grow with increased efficiency as well. Even if population stagnates, efficiency due to technology and robotics can overcome the decrease in population growth.
Yes. As I understand it: GDP growth rate = workforce growth rate + productivity growth rate.

The demographic factor in this equation (workforce growth) is mostly already baked in for nearly all of the developed countries, unless they decide to dramatically alter their immigration policies. The critical unanswered question then is the future of productivity growth.

Some folks are wildly optimistic about future technological breakthroughs that will drive growth and efficiencies in the decades ahead. Certainly productivity growth will not stop, but my own guess is it will continue to grow only modestly in the developed economies, even with automation advances — something close to 1% per year.
That being said, I can be optimistic about productivity growth and pessimistic about investment returns. Growth is split between producers and consumers. Gains by producers have yo be split between labor, management, and capital.

Technological improvements won’t treat all of these classes equally, and it is easy to conceive where capital will get less.

And then there is the surplus savings. IIRC, the net flow of capital has been from EM to DM for the past 20 years, not the other way around. And the favorite destination are Treasuries and the like. Kind of perverse but there it is.

heyyou
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Re: this time it's different

Post by heyyou » Tue Aug 13, 2019 1:24 pm

The solution is to save more, just in case it is needed, since uncertainty about the future is pretty much permanent. When has having more money than you need, ever been a problem? Trying to optimize spending for the next thirty years, from now forward, is a subtle form of greed. The 4% SWR was determined at a 95% confidence level so a couple of failures are to be expected.

It might be wise to expect to adapt retirement spending to remaining asset value, as retirement progresses. IOW, continue to live within your means in retirement. Does anyone think that spending a precise historical average will perfectly fit the next thirty years? "Adapt or perish" is not used in financial discourse, but may apply to retirement spending.

How long of a bear market would be expected after a decade of only briefly interrupted bullish markets? It is not uncommon for new retirees to have stopped working near market peaks, since their portfolios have grown past the special number.

randomguy
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Re: this time it's different

Post by randomguy » Tue Aug 13, 2019 1:43 pm

YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.

For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
Sure but the general point is that 4% SWR require ~1% real returns which is way lower than what is being predicated . Odds are the returns over the next 30 years will be plenty to support a 4% swr. The sequence of returns might not.

In a lot of ways it screws the person saving for retirement more. Getting 3% real versus say 6% really ups the amount of savings you need to. The normal 15-20% doesn't get you there in 30-40 years anymore. And for the FIRE crowd where savings does get you there pretty quickly, you might not have enough with 3% returns to support a 50-60 year retirement.

Predicting the future is hard. Past trends hold until they don't.

Godot
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Re: this time it's different

Post by Godot » Tue Aug 13, 2019 1:53 pm

heyeaglefn wrote:
Tue Aug 13, 2019 7:50 am
At some point someone will get it right.
Big assumption.
“There is man in his entirety, blaming his shoe when his foot is guilty.” ― Samuel Beckett, Waiting for Godot

hoops777
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Re: this time it's different

Post by hoops777 » Tue Aug 13, 2019 2:14 pm

randomguy wrote:
Tue Aug 13, 2019 1:43 pm
YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.

For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
Sure but the general point is that 4% SWR require ~1% real returns which is way lower than what is being predicated . Odds are the returns over the next 30 years will be plenty to support a 4% swr. The sequence of returns might not.

In a lot of ways it screws the person saving for retirement more. Getting 3% real versus say 6% really ups the amount of savings you need to. The normal 15-20% doesn't get you there in 30-40 years anymore. And for the FIRE crowd where savings does get you there pretty quickly, you might not have enough with 3% returns to support a 50-60 year retirement.

Predicting the future is hard. Past trends hold until they don't.
To be real,I can care less about the financial problems for someone seeking a 50 year retirement who retires at a young age through choice,not health reasons.Go ahead and take the risk and don”t cry about if you are running out of money when you are 70. :(
K.I.S.S........so easy to say so difficult to do.

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Phineas J. Whoopee
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Re: this time it's different

Post by Phineas J. Whoopee » Tue Aug 13, 2019 2:21 pm

I predict that in the future I will stop trying to predict the future. :happy
PJW

YRT70
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Re: this time it's different

Post by YRT70 » Tue Aug 13, 2019 2:36 pm

randomguy wrote:
Tue Aug 13, 2019 1:43 pm
YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.

For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
Sure but the general point is that 4% SWR require ~1% real returns which is way lower than what is being predicated . Odds are the returns over the next 30 years will be plenty to support a 4% swr. The sequence of returns might not.
Chances of 4% WR making it for the next 30 years: 92% according to Vanguard MC tool for 50/50. 60/40 gets 91%.

Personally I'd like higher odds; at least 95%. 3.5% WR makes it 96%.

https://retirementplans.vanguard.com/VG ... ggCalc.jsf

EnjoyIt
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Re: this time it's different

Post by EnjoyIt » Tue Aug 13, 2019 2:57 pm

YRT70 wrote:
Tue Aug 13, 2019 2:36 pm
randomguy wrote:
Tue Aug 13, 2019 1:43 pm
YRT70 wrote:
Tue Aug 13, 2019 10:00 am
HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
4% worked in the past. If it will work in the future is anyone's guess.

For what it's worth, Larry Swedroe thinks 4% is probably too optimistic for the future.
viewtopic.php?t=271709
Sure but the general point is that 4% SWR require ~1% real returns which is way lower than what is being predicated . Odds are the returns over the next 30 years will be plenty to support a 4% swr. The sequence of returns might not.
Chances of 4% WR making it for the next 30 years: 92% according to Vanguard MC tool for 50/50. 60/40 gets 91%.

Personally I'd like higher odds; at least 95%. 3.5% WR makes it 96%.

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
You can achieve those higher odds with a little flexibility in spending during down times.
Our plan is 4%, Actually it is probably closer to 3.5% with bursts that average out to 4%. Those bursts are things like new car, or a large home project. I am pretty sure if need be we can delay such expenditures plus a few other belt tightening and we should be fine. This is us, everyone is different, everyone needs what they need to sleep well and enjoy life.

Next, nothing against Mr. Swedroe as he is proven to be very intelligent and financially savvy guy, but Larry Swedroe is not an authority on predictions. He like everyone else has been wrong plenty. Plus he has a product to sell so I'm not sure what value his predictions provide us.

BTW, all those predictions about lower returns, how long are those predictions to last? Is it for 5 years, 10 years, or 30 years? Will we have reversion to the mean after 15 years of lower returns and then we should have higher expected returns. Let's be honest, no one knows a damn thing.

The only thing definite is how much you save, how much you spend, and how flexible you are in your plan. Expected returns is an unknown variable. But hey, we have 3 known variable and 1 unknown variable which puts us in significant control over our future. So save plenty, don't jump to conclusions, and have some flexibility in your plan.

Cody6136
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Re: this time it's different

Post by Cody6136 » Tue Aug 13, 2019 4:10 pm

andypanda wrote:
Tue Aug 13, 2019 7:49 am
I gave up trying to predict the future years ago. I'm a month away from turning 69 and I started investing in the mid-60s. Here's what I've learned about the economy. We'll find out when it happens and there probably won't be much if any warning. It's sort of like watching a herd of cattle or horses... a stampede can start in a heartbeat. Or not. But don't turn your back on them because they're not going to just stand around grazing forever.
As someone who worked in a beef packing plant, trained horses, and invested money for many decades, I can say this is an excellent analogy. :beer

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dogagility
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Re: this time it's different

Post by dogagility » Tue Aug 13, 2019 4:43 pm

"this time it's different"... so said everyone with a incorrect forecast in the past 150 years.
Taking "risk" since 1995.

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mrspock
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Re: this time it's different

Post by mrspock » Tue Aug 13, 2019 4:57 pm

This “secular stagnation” dogma has been hocked by the likes of Bill Bonner and John Mauldin for the last *20 years* . I’m still waiting.

In the meantime, I suspect they sold lots of books on their theories and predictions.

Get out of your own way and ignore the charlatans.
Last edited by mrspock on Tue Aug 13, 2019 4:58 pm, edited 1 time in total.

CoastalWinds
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Re: this time it's different

Post by CoastalWinds » Tue Aug 13, 2019 4:58 pm

feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
A fun read, & good for magazine sales, jokes, and coffeehouse convos, but not actionable.

Grt2bOutdoors
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Re: this time it's different

Post by Grt2bOutdoors » Tue Aug 13, 2019 5:05 pm

feh wrote:
Tue Aug 13, 2019 7:55 am
KlangFool wrote:
Tue Aug 13, 2019 7:45 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool
My reasoning for 1) is that less developed economies probably have a higher birth rate and less automation.
Take a look at African nations, less developed, high birth rates, less automation. Contrast your theory with the ongoing issues in many less developed economies including unstable governments, many are not democracies, incredible inflation, closed currencies, undeveloped financial markets. Is that your ideal place to invest?
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
Save more or spend less, you can still have a 4% withdrawal rate. I'm not saying that it's easy or what you may want, but if there are no returns to be had elsewhere with decent levels of risk, what are you going to do? You think investing in say, Zimbabwe is a good risk to make your 4% SWR? Being rational pays dividends too.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Watty
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Re: this time it's different

Post by Watty » Tue Aug 13, 2019 5:11 pm

feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why:
"The only thing that is constant is change."

Even if the article is right about the current situation the likelihood that it will last for a significant period of time is negligible. The problem is that there are an almost unlimited number of unpredictable things which can quickly upset any equilibrium that is reached.

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