Confused, bummed, and concerned

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typicalmillenial
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Confused, bummed, and concerned

Post by typicalmillenial » Wed Aug 14, 2019 10:03 am

Hi all and thanks for reading,

Since getting my undergrad degree and subsequent first job 2 years ago, I immediately delved into the topic of personal finance to better understand investing/not blowing my paycheck every other week and letting my lifestyle increase. (Doing a good job of this overall, but will spare the details as they are not relevant to the question.

Recently read JL Collins Simple Path to Wealth where he basically recommends the Bogleheadian (?) portfolio of simple indexes of stocks and bonds, keeping cost low, and staying the course. He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.

***Disclaimer: I am not asking, nor expecting, anyone to waste time predicting market returns, I know this is not possible***

I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.

Silk McCue
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Re: Confused, bummed, and concerned

Post by Silk McCue » Wed Aug 14, 2019 10:09 am

Our investing philosophy allows us to earn what the total market has to offer without unnecessary risk and at a low ER. Don't spend another minute worrying about what that may be. Just take it as it comes. It isn't that our investing approach will possibly return less for some period of time but that the entire market may do so. Nothing you can do about that without trying to pick winners and losers which no one can do consistently.

Stay the course.

Cheers

02nz
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Re: Confused, bummed, and concerned

Post by 02nz » Wed Aug 14, 2019 10:12 am

What are you "confused" about?

Bummed? Why be bummed about somebody else's expectations about future returns, which may or may not be correct, and about which you can do nothing (besides ensuring that your own investments are well-diversified and low-cost)?

Concerned how? That you won't be able to reach your financial goals? Then save more.

(Also: Did you have these same thoughts two weeks ago, when the S&P 500 was hitting all-time highs? No? Then you're just reacting to market ups and downs.)

H-Town
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Re: Confused, bummed, and concerned

Post by H-Town » Wed Aug 14, 2019 10:18 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
When you hear something too good to be true, it ain't. It's better to have low expectations and be surprised with good results.

StandingRock
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Re: Confused, bummed, and concerned

Post by StandingRock » Wed Aug 14, 2019 10:23 am

Nobody knows the future. When you look at interest rates, does 4.5 to 5% return look so bad for equities?

alex_686
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Re: Confused, bummed, and concerned

Post by alex_686 » Wed Aug 14, 2019 10:34 am

See this Secular Stagnation/ This time is different.

viewtopic.php?f=10&t=288050

The question is if the 21st century is going to look more like 20th century USA (7% real returns) or 19th century England (2% real returns). These are pretty big macro questions on the structure of the economy. These are mostly out your hands.

Regardless of what returns will be, the answer is time in the market, save more than you spend, and following your plan.

These are separate questions. Don’t let one confuse you on the other.

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whodidntante
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Re: Confused, bummed, and concerned

Post by whodidntante » Wed Aug 14, 2019 10:36 am

You are a new investor who is starting to invest in a mature bull market. Larry Swedroe believes like me and many others that valuations matter, and that's why he has more modest expectations.

You may think you want expected returns to be higher. But it's a case of being careful what you wish for. Markets tend to have strong reactions to bad news, maybe overreacting. A nice, gut wrenching downturn will very likely happen at some point. When the dust settles and if economic expansion begins anew as it always has so far, expected returns could be much higher than today. There could also be a significant technological advancement that dramatically improves corporate profitability, though possibly leaving swaths of the current labor force worse off. But that could also increase expected returns. This has happened in the past and could repeat.

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iceport
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Re: Confused, bummed, and concerned

Post by iceport » Wed Aug 14, 2019 10:43 am

Hi typicalmillenial,

Your feelings are understandable, but you are actually in a fantastic position! If you've already adopted the passive investing strategy consistent with the Boglehead philosophy at your age, you're way ahead of the game! Seriously. 8-)

First, expected market returns are enormously crude. The range of outcomes may have shifted towards lower stock market returns based on current valuations, but that range is still huge. Also, those expectations will change as market valuations change. If you're lucky, a deep market crash early in your career will slam down market valuations and expected returns will rise — all as you keep plowing all available savings into your portfolio. If you hold target asset allocations and maintain them over the long term, a market crash can also offer the possibility of greatly enhanced returns as you rebalance back into cheap(er) equities and direct new contributions towards the assets below their targets. In other words, in a long accumulation stage the use of a passive buy-hold-rebalance approach offers the possibility that your dollar-weighted returns — the returns you actually experience with the timing of your ongoing periodic contributions and rebalancing — will exceed the time-weighted market returns.

Yet aside from the potential benefits of passive investing, market returns are largely out of your control. Thus, you should focus hard on the things you can control. Those certainly include expenses and tax efficiency. But at your age there's probably something even more powerful: your savings rate!

You just got out of school, where you probably lived on very little income while still enjoying your life. Now is your chance to resist lifestyle creep. Keep your spending down to the same order of magnitude as when your were a student. Resist the urge to buy an expensive car, rent an expensive apartment, or buy a house at the limit of your ability. I even lived in houses with roommates for the first 5 or so years to minimize living expenses.

Then take all the income you save and plow all you can spare into your portfolio. Do this now, and 10 years down the road I guarantee you will be in a far better place, and well along the path towards financial security.
"Discipline matters more than allocation.” ─William Bernstein

megabad
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Re: Confused, bummed, and concerned

Post by megabad » Wed Aug 14, 2019 10:44 am

02nz wrote:
Wed Aug 14, 2019 10:12 am
Bummed? Why be bummed about somebody else's expectations about future returns, which may or may not be correct, and about which you can do nothing (besides ensuring that your own investments are well-diversified and low-cost)?

Concerned how? That you won't be able to reach your financial goals? Then save more.
+1

MotoTrojan
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Re: Confused, bummed, and concerned

Post by MotoTrojan » Wed Aug 14, 2019 10:45 am

whodidntante wrote:
Wed Aug 14, 2019 10:36 am
You are a new investor who is starting to invest in a mature bull market. Larry Swedroe believes like me and many others that valuations matter, and that's why he has more modest expectations.

You may think you want expected returns to be higher. But it's a case of being careful what you wish for. Markets tend to have strong reactions to bad news, maybe overreacting. A nice, gut wrenching downturn will very likely happen at some point. When the dust settles and if economic expansion begins anew as it always has so far, expected returns could be much higher than today. There could also be a significant technological advancement that dramatically improves corporate profitability, though possibly leaving swaths of the current labor force worse off. But that could also increase expected returns. This has happened in the past and could repeat.
+1. Frankly you should hope for flat or even declining returns so you can acquire as many shares as possible, then have the market pop just before your retire :).

Fallible
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Re: Confused, bummed, and concerned

Post by Fallible » Wed Aug 14, 2019 10:48 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
...
Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%. ...

I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
What is it about the 4.5%-5% that confuses and concerns you? I assume you expected higher figures, but how much higher and based on what?
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

dbr
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Re: Confused, bummed, and concerned

Post by dbr » Wed Aug 14, 2019 10:51 am

Don't be so concerned. There are far more things in life that won't be what you might have expected than the next ten years investment returns.

bloom2708
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Re: Confused, bummed, and concerned

Post by bloom2708 » Wed Aug 14, 2019 10:55 am

The market will return what the market returns.

Your goal is to get as close to the market return as possible.

Most investors will under-perform the market by 1-2%, maybe more. (Easy to do because of fees and tinkering, selling low, buying high)

A few select investors will beat the market by picking the right individual stocks or slice/dice funds (Hard to do and repeat).

Most Bogleheads want to reduce fees and be tax efficient to the point they are getting very close to market returns. If the market returns 5% for your mix of stocks and bonds, can I get 4.9%? If so, you will out perform everyone making 1-2% less.

Market returns are not average returns. Average is all the winners and losers averaged together. That is different from market returns.

These are not easy concepts, but the implementation can be quite easy. 2 or 3 fund, Target or Lifestrategy funds with age/tolerance appropriate risk.

Good luck!
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words. Whole food, plant based. Bing it.

cherijoh
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Re: Confused, bummed, and concerned

Post by cherijoh » Wed Aug 14, 2019 11:08 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
Hi all and thanks for reading,

Since getting my undergrad degree and subsequent first job 2 years ago, I immediately delved into the topic of personal finance to better understand investing/not blowing my paycheck every other week and letting my lifestyle increase. (Doing a good job of this overall, but will spare the details as they are not relevant to the question.

Recently read JL Collins Simple Path to Wealth where he basically recommends the Bogleheadian (?) portfolio of simple indexes of stocks and bonds, keeping cost low, and staying the course. He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.

***Disclaimer: I am not asking, nor expecting, anyone to waste time predicting market returns, I know this is not possible***

I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
First off, part of the discrepancy may be the difference between "real" and "nominal" returns. Real returns discount the return for the impact of inflation - and inflation was pretty darn high between 1975 and the mid 80s. I'm reasonable sure that Larry Swedroe was talking about real returns, but the other guy probably was not because anyone who titles their book "Simple Path to Wealth" is going to make it look as easy as possible. Have you ever heard the expression "a million dollars ain't what it used to be"? Well Collins is probably talking in 1975 millions! :oops:

I also think you need an attitude adjustment and I don't mean that in a pejorative way.

Many people fritter away their 20's and 30's without giving a thought to their financial future. Then they are in the position of having to save an incredible amount of their salary (after having gotten in the habit of spending it no less) or hoping and praying for the investing equivalent of winning the lottery - e.g., getting in on the ground floor of the next Google, Facebook,etc.

Bogleheads don't believe in being overly optimistic about future returns (over which you have no control) and depending on what you can control - living below you means (LBYM), paying yourself first (by setting savings on autopilot), minimizing expenses (by using low-cost index mutual funds) and staying the course. Many people lose a lot of time and make many mistakes before they stumble on Bogleheads - you did it quite early in your investing career. So instead of being bummed you should be elated that you aren't one of those people I just mentioned. :wink:

Good Luck!

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Nate79
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Re: Confused, bummed, and concerned

Post by Nate79 » Wed Aug 14, 2019 11:09 am

There is a huge difference between a 10 year prediction and average returns calculated over decades of returns. If you look at the annual return of the S&P500 you will see a wide dispersion of results.

dbr
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Re: Confused, bummed, and concerned

Post by dbr » Wed Aug 14, 2019 11:27 am

Nate79 wrote:
Wed Aug 14, 2019 11:09 am
There is a huge difference between a 10 year prediction and average returns calculated over decades of returns. If you look at the annual return of the S&P500 you will see a wide dispersion of results.
Absolutely. A person starting investing in mid-20's should be paying no attention at all to this stuff.

lazyday
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Re: Confused, bummed, and concerned

Post by lazyday » Wed Aug 14, 2019 11:39 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.
If you buy a convenience store at a bargain price, you might make a lot of money over the years, relative to your initial investment. Or if you overpay, you will make less money. Stocks are partial ownership in businesses, so it matters how much you pay for stocks, like when buying an entire business.

Compared to 1975, US stocks aren’t cheap today. We should expect lower returns than in the past.

The good news is that ex-US stocks aren’t as expensive. So investing globally should help.

Here’s two predictions for stocks both US and abroad, with detailed “methodology” explanations of where the predictions come from:

Research Affiliates
https://interactive.researchaffiliates. ... e=Equities
Methodology: https://www.researchaffiliates.com/en_u ... urces.html

AQR
2019 Capital Market Assumptions for Major Asset Classes: https://www.aqr.com/Insights/Research/A ... et-Classes (click the Download button)

LiterallyIronic
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Re: Confused, bummed, and concerned

Post by LiterallyIronic » Wed Aug 14, 2019 11:50 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.
Yep. I calculated how much I want to retire and when I want to retire, and then worked backwards, using 4% annual returns, to determine how much I need to invest monthly. So I invest that much. If I get 7% or 8% or whatever, then all the better. But I can't control what the market returns, I can only control how much I invest. Investing more increases the odds that the part I can't control (market returns) end up being at least what I need.

Dottie57
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Re: Confused, bummed, and concerned

Post by Dottie57 » Wed Aug 14, 2019 11:56 am

megabad wrote:
Wed Aug 14, 2019 10:44 am
02nz wrote:
Wed Aug 14, 2019 10:12 am
Bummed? Why be bummed about somebody else's expectations about future returns, which may or may not be correct, and about which you can do nothing (besides ensuring that your own investments are well-diversified and low-cost)?

Concerned how? That you won't be able to reach your financial goals? Then save more.
+1
+1. Set a savings goal of 15-20% of gross income. If really concerned bump it to 25%. The rest is yours to use as you wish. Monitor your progress yearly.

PVW
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Re: Confused, bummed, and concerned

Post by PVW » Wed Aug 14, 2019 12:09 pm

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.
With investing, there is always some prediction to worry about. Look on the bright side - there is a 20% chance you won't even make it to retirement age, then the market returns are irrelevant.

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Svensk Anga
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Re: Confused, bummed, and concerned

Post by Svensk Anga » Wed Aug 14, 2019 12:55 pm

I suspect that someone adopting the investing principles of this board early in their career will do about as well over the next decade of presumed 4 -5% returns as boomers did without sound guidance 40 years ago. There were (and still are) a whole lot of ways to go astray when good guidance was harder to come by. Whole life insurance, load mutual funds, chasing the latest hot actively-managed funds, poor allocation decisions, poor tax planning, etc. etc. I suspect I could have retired five years earlier (or more?) if I had available the Bogleheads program 35 years ago.

You're bummed about the forecast low returns. I am a bit bummed by the opportunity costs of spending a good decade bumbling my way to a sound investing program.

Lee_WSP
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Re: Confused, bummed, and concerned

Post by Lee_WSP » Wed Aug 14, 2019 1:00 pm

The 5% ROR assumes one of two things will happen:

A big drop, followed by a rebound, netting a sum total of 5% ROI

OR

Flat growth

Personally I think the drop is more likely.

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Elric
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Re: Confused, bummed, and concerned

Post by Elric » Wed Aug 14, 2019 1:19 pm

For sake of example, f you invest just $10K per year, and earn 4.5% per year, flat, then in 40 years you'll have over $1M saved. I don't think that's too discouraging. Initially, your annual contributions will far exceed the annual earnings, but at that rate, around the 17th year, you'll be earning more than $10K per year on the investments, and that just continues to compound.

Of course, if you can invest more per year, and/or the rate of return is higher, than so much the better!
"No man is free who works for a living." | Illya Kuryakin

abc132
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Re: Confused, bummed, and concerned

Post by abc132 » Wed Aug 14, 2019 1:34 pm

Lower expected returns means you can buy stocks for cheaper over an extended period - this is good for you, even if the market drops 30%.

If you can learn to invest when the market is down, or doing poorly, you will be very likely to be successful in the long term.

What better option do you have than investing in the market?

lazyday
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Re: Confused, bummed, and concerned

Post by lazyday » Wed Aug 14, 2019 1:37 pm

Svensk Anga wrote:
Wed Aug 14, 2019 12:55 pm
There were (and still are) a whole lot of ways to go astray when good guidance was harder to come by. Whole life insurance, load mutual funds,
Good point. There's probably few people who in 1975 invested directly in US stocks and then let it sit for 40 years.

thx1138
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Re: Confused, bummed, and concerned

Post by thx1138 » Wed Aug 14, 2019 2:03 pm

Right now people who are near retirement (i.e. done saving) have to look at the very high market valuations and very low interest rates and think “hmmm.... returns might not be so hot for a bit”. This isn’t a big deal if they’ve been saving and investing properly because markets have been on a tear for a decade meaning they’ve hopefully got really big balances. But they need to pay attention to this and not make rosy estimates of what they can draw from their retirement - especially early in retirement. Look up “sequence of returns risk” for details.

You being two years in the work force have saved essentially nothing. Basically you are establishing a habit right now but your portfolio is puny compared to what it will be. Thus returns right now for you are practically irrelevant. What will really matter is what are the returns later in your career when you have more saved. Again look into “sequence of returns”.

So really by most measures things are probably great for you. Valuations are likely to crash in the next handful of years. You’ll get to experience a crash early in you savings career when it is much less painful to watch your portfolio value get cut in half or more. But then hurray assets will be cheap as you continue to save an invest for the remainder of your career.

If I were you I’d just keep saving into a very high equity allocation because that’s what a young person should do. Then start rooting for a massive downturn. When it inevitably happens (it always does every few decades) enjoy watching the bodies fall from the upper stories in Wall Street (well this never really happens, but you do get to watch people walk out the front doors with their depressing little cardboard boxes of desk knick knacks). Watch the talking heads on CNBC talk about the end times. Enjoy watching the author who by dumb luck happened to release yet another history of the Great Depression just as the markets crashed get interviewed by every news show for about a week. Sit back in your chair, hold your hands slightly in front of your chest, drum your fingers together and say “Excellent!” in a low voice just like Mr. Burns. Because as a young investor this is exactly what you are going to want to have happen.

The rest is easy, just keep contributing to your accounts still buying almost all equities - now on super sale! Prices haven’t been this low in a decade! Buy, buy, buy!

Then just hope everything recovers and grows hugely over the next 20 years as usual and you’ll be sitting pretty. Or it could turn out to be a Japan scenario. Ah well, nothing is 100% certain.

longinvest
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Re: Confused, bummed, and concerned

Post by longinvest » Wed Aug 14, 2019 6:17 pm

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
I wouldn't believe prognostications. Nobody knows what future returns will really be over our lifetimes.

Here's an actionable approach to deal with the uncertainty of future returns:
  1. (optional) Put all investments into a single identical low-cost all-in-one index fund in all accounts. See the thread "The One-Fund Portfolio as a default suggestion" for details. I suggest choosing portfolio 1, the Vanguard LifeStrategy Moderate Growth Fund (VSMGX); it's widely diversified and good enough at all ages, in all markets, and at all wealth levels.
  2. Use Neurosphere's Social Security Estimator to project future Social Security (SS) payments at age 70, assuming a reasonably early retirement (somewhere between age 50 and 60).
  3. Fill the Accumulation sheet of the VPW Accumulation And Retirement Worksheet assuming Social Security is delayed to age 70 to get a (biweekly, semimonthly, or monthly) savings amount suggestion for 2019.
  4. Set up an automatic process to save the suggested amount from every paycheck and send it into the selected all-in-one investment.
  5. Update the information in the Accumulation sheet every year to get a new (biweekly, semimonthly, or monthly) savings amount suggestion adapted to the evolving situation (new salary, new portfolio balance, etc.) until retirement. Adjust automatic savings accordingly.
  6. Once in retirement, switch to the Retirement sheet.
Note that the Accumulation sheet is only concerned with retirement savings. Any other savings (house downpayment, college funding, etc.) has to be done in addition to retirement savings.

The savings amount suggestion is approximate, but as calculations are redone every year, the process is self-correcting. There's no need to worry about future returns.
Last edited by longinvest on Wed Aug 14, 2019 7:56 pm, edited 8 times in total.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW

bluquark
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Re: Confused, bummed, and concerned

Post by bluquark » Wed Aug 14, 2019 6:41 pm

Svensk Anga wrote:
Wed Aug 14, 2019 12:55 pm
I suspect that someone adopting the investing principles of this board early in their career will do about as well over the next decade of presumed 4 -5% returns as boomers did without sound guidance 40 years ago.
I'm not so sure about that. Most boomer wealth is in the form of home equity, which has appreciated on a similar pace to the stock market, and is harder to get siphoned away by mistakes and fees. Further housing appreciation is something I also wouldn't count on in the 21st century.

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abuss368
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Re: Confused, bummed, and concerned

Post by abuss368 » Wed Aug 14, 2019 7:07 pm

Returns are outside of your control. Focus on what you can control such as costs and asset allocation.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

tibbitts
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Re: Confused, bummed, and concerned

Post by tibbitts » Wed Aug 14, 2019 7:32 pm

02nz wrote:
Wed Aug 14, 2019 10:12 am
What are you "confused" about?

Bummed? Why be bummed about somebody else's expectations about future returns, which may or may not be correct, and about which you can do nothing (besides ensuring that your own investments are well-diversified and low-cost)?

Concerned how? That you won't be able to reach your financial goals? Then save more.

(Also: Did you have these same thoughts two weeks ago, when the S&P 500 was hitting all-time highs? No? Then you're just reacting to market ups and downs.)
I think saying "save more" is not practical considering the OP is envisioning a world where real earnings will probably decrease over his career, bringing a reduced standard of living as time goes on. Taken alone, low-to-no investment earnings aren't the end of the world, but they're much worse when combined with no gains from other non-passive income sources.

tesuzuki2002
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Re: Confused, bummed, and concerned

Post by tesuzuki2002 » Wed Aug 14, 2019 7:55 pm

We are in a shifting dynamic of market returns... and let's be honest here.. NO ONE knows what is going to happen... 12%....14%... 5% take it in stride with a balanced set of index funds...

I would encourage you starting out to focus on streamlining expenses and putting an emphasis on your savings rate. (That is something you can control) I know I made a healthy shift and which I would have done that sooner.

I'm in my late 30s now and the money my portfolio along generates every year is catching up to what I make at my day job.. My only complaint is not putting more in sooner.

Keep reading and expanding your knowledge in finance!!

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siamond
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Re: Confused, bummed, and concerned

Post by siamond » Wed Aug 14, 2019 8:32 pm

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
Recently read JL Collins Simple Path to Wealth where he basically recommends the Bogleheadian (?) portfolio of simple indexes of stocks and bonds, keeping cost low, and staying the course. He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.
Let me put things a little bit in perspective.

Collins is correct that the S&P 500 (stocks only) returned 11.9% between 1975 (Jan 1st) and 2014 (Dec 31st), I just double-checked. But those are NOMINAL returns. When converting to REAL (inflation-adjusted) returns, the 1975-2014 number was actually 7.8%.

Now I am afraid that Collins cherry-picked the starting date to make things look good. 1975 was right after the oil crisis unfolded and right at the beginning of an unprecedented bull market which lasted until the end of the century...

Let's look at the 1965-2014 numbers for the S&P 500. Nominal returns were 9.7%. Real (inflation-adjusted) returns were 5.3%. Not very far from the 5% (real) expected returns you heard of (which, by the way, is a very rough probabilistic concept, NOT a precise prediction). Sure, I cherry-picked the starting date to make things look bad, but fact is we are now a full decade in a bull market and a deep crisis might very well be around the corner (when and how? no clue!).

Bottomline: it is really useful to learn more about the history of the stock market (and then the bonds market) and to develop a better appreciation of how numbers can change depending on the start and end date of the time period being looked at.

OP, let me suggest you take a good look at the PortfolioCharts.com web site and notably the truly excellent heat map chart. This should be an effective way for you to start developing such better appreciation of history. Note that ALL numbers on this Web site are inflation-adjusted.

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Re: Confused, bummed, and concerned

Post by 02nz » Wed Aug 14, 2019 8:47 pm

tibbitts wrote:
Wed Aug 14, 2019 7:32 pm
02nz wrote:
Wed Aug 14, 2019 10:12 am
What are you "confused" about?

Bummed? Why be bummed about somebody else's expectations about future returns, which may or may not be correct, and about which you can do nothing (besides ensuring that your own investments are well-diversified and low-cost)?

Concerned how? That you won't be able to reach your financial goals? Then save more.

(Also: Did you have these same thoughts two weeks ago, when the S&P 500 was hitting all-time highs? No? Then you're just reacting to market ups and downs.)
I think saying "save more" is not practical considering the OP is envisioning a world where real earnings will probably decrease over his career, bringing a reduced standard of living as time goes on. Taken alone, low-to-no investment earnings aren't the end of the world, but they're much worse when combined with no gains from other non-passive income sources.
I re-read the OP's post just to be sure but see no reference to wage earnings. The only source of his emotion is the expectation of 4.5-5% returns going forward.

Even if wage earnings were a source of concern, the only thing one can do is to build job skills and work hard. Hand-wringing doesn't improve outcomes in either investment or work.

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Re: Confused, bummed, and concerned

Post by Stinky » Wed Aug 14, 2019 8:51 pm

abuss368 wrote:
Wed Aug 14, 2019 7:07 pm
Returns are outside of your control. Focus on what you can control such as costs and asset allocation.
+1

Add “savings rate” as a key thing to focus on.
It's a GREAT day to be alive - Travis Tritt

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Re: Confused, bummed, and concerned

Post by abuss368 » Wed Aug 14, 2019 8:53 pm

Stinky wrote:
Wed Aug 14, 2019 8:51 pm
abuss368 wrote:
Wed Aug 14, 2019 7:07 pm
Returns are outside of your control. Focus on what you can control such as costs and asset allocation.
+1

Add “savings rate” as a key thing to focus on.
Good investors block that out.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Confused, bummed, and concerned

Post by jello_nailer » Wed Aug 14, 2019 9:24 pm

Hi OP.
This is a lively post tonight so I will throw out a comment. The comments posted are just terrific, really good.
It's great you're thinking about this and proactively taking your future into your very own hands. But maybe you are over thinking it. Especially about the unknowns.
- A bunch of posts ^ say the same thing. Whether it's 1, 2, 4, 7, or 11% average return over the next 40 years the 2 rules are: reduce your costs and spend less. If you focus on those 2 things we guarantee no matter what the return is you will be hugely better off than if you don't do those 2 things.
- Whats more important? Time or Return? Time in the market, Here's a link that I like: https://www.getrichslowly.org/building-wealth/
- In my opinion, here's something you will have to learn to deal with - you live in real time (minute by minute) but you evaluate returns over glacier time (40 year horizon). That's tough to swallow and keep your head in the game. Maybe use tricks that make it easier to calibrate the two to each other - like weekly, monthly, yearly plans... a reverse debt snowball. When you're 25 those 40 years are inconceivable, it's tough.

Jello thinks that of ALL the things you will be challenged with over the next 40 years, controllable or not, your average return will be way down on that list. Someone posted this question last month: How long did it take to you reach $1M net worth. I answered - which time? Do you think that was controllable or average returns that caused that answer? Stay the course.

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Re: Confused, bummed, and concerned

Post by Beehave » Wed Aug 14, 2019 9:50 pm

Your investments two years into your career are relatively small. Down markets while you are employed are your friend.

You are on a website here where much of the discussion involves retirees (myself included) who are employed part-time or not at all and are in the exact opposite situation relative to you.

We (the now retired) may have reason to be "confused, bummed, and concerned" about market volatility and so on. But you should be happy, be positive, put blinders on relative to investing (automatic pilot) and maintain steady focus on retaining steady employment and steadily increasing your skills and responsibility at your place of work. Be a positive contributor to changes and problem resolution at work. That's your human capital, which is huge. You will do outstanding.

Best wishes.

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Re: Confused, bummed, and concerned

Post by Bacchus01 » Wed Aug 14, 2019 10:02 pm

I have not seen any evidence to suggest
- equities are less risky
- alternatives to equities are less risky
- risk profiles of investors have changed

Given that, there is no reason to believe future returns will look any different than past returns. Over a long period of time, expect about 8% nominal +/- 4% sounds about right.

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Re: Confused, bummed, and concerned

Post by JBTX » Wed Aug 14, 2019 10:20 pm

Lee_WSP wrote:
Wed Aug 14, 2019 1:00 pm
The 5% ROR assumes one of two things will happen:

A big drop, followed by a rebound, netting a sum total of 5% ROI

OR

Flat growth

Personally I think the drop is more likely.
Jeremy Granthams hell vs purgatory.

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Re: Confused, bummed, and concerned

Post by protagonist » Wed Aug 14, 2019 10:28 pm

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
Hi all and thanks for reading,

Since getting my undergrad degree and subsequent first job 2 years ago, I immediately delved into the topic of personal finance to better understand investing/not blowing my paycheck every other week and letting my lifestyle increase. (Doing a good job of this overall, but will spare the details as they are not relevant to the question.

Recently read JL Collins Simple Path to Wealth where he basically recommends the Bogleheadian (?) portfolio of simple indexes of stocks and bonds, keeping cost low, and staying the course. He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.

***Disclaimer: I am not asking, nor expecting, anyone to waste time predicting market returns, I know this is not possible***

I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
Larry Swedroe has no clue what market return will be in coming decades. Neither does any other expert, and I certainly don't either.
The previous 40 years has little predictive value regarding the next 40 (as a millenial that seems to be a reasonable horizon for retirement...perhaps a bit high). Just as (applying symmetry of scale), yesterday's stock market returns have little value predicting today's.
Don't be discouraged ...the future is...well....the future....uncertain by its very nature. That can be disturbing but it can also be liberating, depending on how you take it.

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Re: Confused, bummed, and concerned

Post by owenmia » Wed Aug 14, 2019 10:58 pm

I felt the same way. I am a new investor. I received an inheritance and Looked up index fund returns and saw 8%, 10% and 15%.

Then I read it was actually 6%-7% and Vanguard expects 4-5 moving forward.

Yes, it sucks and I won’t tell you no one knows what will happen. I believe them.

But, in the end you get used to it and accept it. Just do the best you can and at your age you have all the time in the world,
.

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Re: Confused, bummed, and concerned

Post by usagi » Wed Aug 14, 2019 11:03 pm

The market will return what the market will return, there is little sense and fretting over that which you do not have control over. Concentrate on what you have control over.

You have huge advantage over preceding generations in term of we know know what works. We now know smoking is bad for you, drinking is overall negative, dope smoking and recreational drug use is a fools game. We know that plethora of food choices are bad for you and fresh is good for you. Exercise is good for you, physically and mentally. So right there with just this list, you can see the impact it can have on your finances. You will save a small fortune compared to your peer group by not drinking, smoking, or doing drugs. You will save a small fortune in food bills by eating at home, preparing healthy meals vs eating out, as there is very little in a restaurant that is actually good for you. If you are spending your time making meals in and at the gym you will find you spend very little.

We know that divorce is a financial disaster, generally solves nothing, is disaster for children, so spend your time carefully selecting a partner who shares your values and interests to navigate life with.

If you do the above you will likely find your savings rate will be astounding and even meager market returns will allow you to build a substantial asset base over time.

Once again, concern yourself over that which you can control.

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Re: Confused, bummed, and concerned

Post by White Coat Investor » Wed Aug 14, 2019 11:10 pm

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
Hi all and thanks for reading,

Since getting my undergrad degree and subsequent first job 2 years ago, I immediately delved into the topic of personal finance to better understand investing/not blowing my paycheck every other week and letting my lifestyle increase. (Doing a good job of this overall, but will spare the details as they are not relevant to the question.

Recently read JL Collins Simple Path to Wealth where he basically recommends the Bogleheadian (?) portfolio of simple indexes of stocks and bonds, keeping cost low, and staying the course. He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.

***Disclaimer: I am not asking, nor expecting, anyone to waste time predicting market returns, I know this is not possible***

I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
Bogleheads are notoriously pessimistic/conservative. They've been saying that for the last decade while they all made 12-15%. Also, a lot of the time they're adjusting those numbers for inflation, so watch out for that. 5% real with 3% inflation = 8%, which doesn't sound so bad.

Personally, I make my projections using 5% real and over the last 15 years I think I'm at 6.5% real or so.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Confused, bummed, and concerned

Post by firebirdparts » Wed Aug 14, 2019 11:26 pm

Nobody knows nothing. You should be concerned, but we always are. Even in the biggest bull market times there was plenty of concern.
A fool and your money are soon partners

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Re: Confused, bummed, and concerned

Post by lazyday » Thu Aug 15, 2019 5:38 am

Bacchus01 wrote:
Wed Aug 14, 2019 10:02 pm
I have not seen any evidence to suggest
- equities are less risky
- alternatives to equities are less risky
- risk profiles of investors have changed

Given that, there is no reason to believe future returns will look any different than past returns.
Here's a counterargument: http://www.efficientfrontier.com/ef/403/fairy.htm

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Re: Confused, bummed, and concerned

Post by Forester » Thu Aug 15, 2019 6:00 am

3% US real, 4% Developed real, 6% Emerging real. Probably consensus expected returns are in that ballpark. You might want to tilt away from US megacap and own some gold/gold miners.

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Re: Confused, bummed, and concerned

Post by abuss368 » Thu Aug 15, 2019 6:15 am

Forester wrote:
Thu Aug 15, 2019 6:00 am
3% US real, 4% Developed real, 6% Emerging real. Probably consensus expected returns are in that ballpark. You might want to tilt away from US megacap and own some gold/gold miners.
Gold is speculative.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Forester
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Re: Confused, bummed, and concerned

Post by Forester » Thu Aug 15, 2019 6:19 am

abuss368 wrote:
Thu Aug 15, 2019 6:15 am
Forester wrote:
Thu Aug 15, 2019 6:00 am
3% US real, 4% Developed real, 6% Emerging real. Probably consensus expected returns are in that ballpark. You might want to tilt away from US megacap and own some gold/gold miners.
Gold is speculative.
Investing is speculative. All that matters is how gold behaves as part of a portfolio, it's not about winning an academic beauty contest.

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CyclingDuo
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Re: Confused, bummed, and concerned

Post by CyclingDuo » Thu Aug 15, 2019 7:00 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
Hi all and thanks for reading,

Since getting my undergrad degree and subsequent first job 2 years ago, I immediately delved into the topic of personal finance to better understand investing/not blowing my paycheck every other week and letting my lifestyle increase. (Doing a good job of this overall, but will spare the details as they are not relevant to the question.

Recently read JL Collins Simple Path to Wealth where he basically recommends the Bogleheadian (?) portfolio of simple indexes of stocks and bonds, keeping cost low, and staying the course. He touts "Over the 40 years from January 1975- January 2015 the market has averaged an annual return of ~11.9% with dividends reinvested" many times throughout as well as on his site.

Recently, I have been seeing & hearing, including Episode 012 of Bogleheads on investing podcast with Larry Swedroe, that they (and others) "expect" around 4.5%-5%.

***Disclaimer: I am not asking, nor expecting, anyone to waste time predicting market returns, I know this is not possible***

I have just heard these figures so many times, it has me feeling very discouraged. As someone newly-ish in the workforce, and invested in low cost Vanguard indexes, I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be? Am I misrepresenting what I am hearing/learning? Am I just confused? Thank you for reading this far, any responses are hugely appreciated.
Many of us on these boards have been working and investing for decades. We have been through the full gamut of the business cycles throughout the years and all of the emotional pulls, tugs and elations associated with them. You will get to experience all of that as well throughout your working and investing career. Regardless of what any year, or decade provides via market returns, just follow the Boglehead investment philosophy and you will be fine come 30-40 years from now...

https://www.bogleheads.org/wiki/Boglehe ... philosophy

Focus on the things that you can impact: your rate of savings, your career, your relationships, family, exercise, nutrition, passions. The rest will take care of itself...

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Re: Confused, bummed, and concerned

Post by abuss368 » Thu Aug 15, 2019 7:02 am

Forester wrote:
Thu Aug 15, 2019 6:19 am
abuss368 wrote:
Thu Aug 15, 2019 6:15 am
Forester wrote:
Thu Aug 15, 2019 6:00 am
3% US real, 4% Developed real, 6% Emerging real. Probably consensus expected returns are in that ballpark. You might want to tilt away from US megacap and own some gold/gold miners.
Gold is speculative.
Investing is speculative. All that matters is how gold behaves as part of a portfolio, it's not about winning an academic beauty contest.
Read Jack Bogle’s book on speculation!
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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