Confused, bummed, and concerned

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: Confused, bummed, and concerned

Post by Bacchus01 » Thu Aug 15, 2019 7:07 am

lazyday wrote:
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
Some interesting comments in there. Most interesting that the author says you can’t rely on historical returns, then relies heavily on historical data.

I think what is missing from that analysis is he assumes that future returns (actual $ in terms of dividends, etc) are known and fixed. When in fact they are not. That is where the risk comes in.

I’ll add to my point above. In addition to risk profiles, is there something to suggest that the broad market is expected to have lower profitability? Lower dividend rates? A different capital structure?

Money finds risk. If there are low risk, low return assets out there, something will rise up that is high-risk, possibly high-reward and drive the market (think FANG in the last decade).

I think picking two exact points in time could very well see a 0% or even negative return. But I don’t have any evidence to suggest that the future will be dramatically different as it apples to the risk profile of a basket of equities more the risk tolerance of investors. Nor do I think future profit levels will be somehow diminished across the board.

I’ll stick to the fact that returns will still run nominal 7-8% +/- 4%.

Stormbringer
Posts: 863
Joined: Sun Jun 14, 2015 7:07 am

Re: Confused, bummed, and concerned

Post by Stormbringer » Thu Aug 15, 2019 7:45 am

typicalmillenial wrote:
Wed Aug 14, 2019 10:03 am
I hear this and, as the title states, feel confused, bummed, and concerned.

Should I be?
Focus on how many shares you are accumulating and ignore the quoted market price.

Consider three paths a stock might take from $10 a share to $100 a share:

Image
  • The green path feels great. You buy, and the stock immediately shoots up and never looks back.
  • The grey path feels good. You buy, and it steadily increases.
  • The red path feels miserable for a long time. You bought, and the stock does nothing for years.
Yet, all three paths lead to the same place. Or do they?

Assume you are reinvesting dividends. Along the green path, the share price is consistently higher, so your dividends buy fewer shares. Along the red path, you get far more shares for the same dividend, so by the time the share price reaches $100, the red path has accumulated more shares, and you are wealthier.

Now assume you are dollar cost averaging into the market, buying a fixed dollar amount of shares each month. Again, the red path gets you far more shares for your money than the green path, leaving you far wealthier when the shares reach $100. The share price is the same, but you've accumulated many more of them.

When the market offers you the red path, get excited. Be greedy when others are fearful, and be fearful when others are greedy.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Call_Me_Op
Posts: 7383
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Confused, bummed, and concerned

Post by Call_Me_Op » Thu Aug 15, 2019 7:58 am

These low (4.5% - 5%) returns estimates are for the next decade. Over your investing lifetime, they are likely to be more in line with long-term historical averages.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

foxglove
Posts: 4
Joined: Thu Feb 09, 2017 6:03 pm

Re: Confused, bummed, and concerned

Post by foxglove » Thu Aug 15, 2019 12:26 pm

There's an abundance of great advice in this thread, so I won't try to duplicate it. I'd like to add one more thought: saving and investing now while you are young will pay huge dividends later in life. It's a simple matter of compounding. I'm retired now after working for roughly 40 years. The money I invested my retirement account in the first 15 years of my career is worth 60% more than all the money I saved in my 401k's after that. And my salary was much lower in those first 15 years. I can't overemphasize the importance of socking away money in your early years.

protagonist
Posts: 6039
Joined: Sun Dec 26, 2010 12:47 pm

Re: Confused, bummed, and concerned

Post by protagonist » Thu Aug 15, 2019 1:02 pm

OP: The only reason to be "Confused, bummed and concerned" is if you believe the financial porn, and thus have expectations for returns that are not met.

If you just accept the fact that nobody has a crystal ball and returns can lie anywhere on the map, it is liberating. You will let the chips fall as they may, which is what they will do regardless.

Which is not to say that you should not make plans....you need to do so given the information available....but to also admit that the best laid plans of mice and men often go astray. It really is a house of cards, but it is the only one we have, so live in it, enjoy the ride, and be the joyful player.

User avatar
hagridshut
Posts: 48
Joined: Tue Apr 10, 2012 6:54 pm

Re: Confused, bummed, and concerned

Post by hagridshut » Thu Aug 15, 2019 2:50 pm

I started investing right before the .com bubble burst.

Saw my meagre S&P 500 fund holdings crushed in 2001, which took years to recover. Kept investing and built up a modest sum by 2008, which again lost about 50% of its value in the panic of the GFC. Through both crashes, I held my shares and added more via workplace 401(k). What I managed to sock away in my 401(k) has grown tremendously in the past 10 years, which makes up for the dismal showing of 2000-2009.

What I have learned is that there are no guarantees, and that John Bogle was right: nobody really knows what will happen in the markets. We can only guess at what CAGR (compound annual growth rate) will be over the next 10 years or more. The projections of 5% annual real return are just educated guesses. The returns could be much worse than this, or much better. As investors, there are limited levers within our control: (1) the Expense Ratios of the investments we buy (2) how much we choose to save (3) making appropriate asset allocation (4) Resisting fear during panics and gloomy times.
First Principles: (1) Diversify (2) Low Cost (3) Stay the Course | 3-Fund Index Portfolio: S&P500; Intl; U.S.Bonds

lazyday
Posts: 3587
Joined: Wed Mar 14, 2007 10:27 pm

Re: Confused, bummed, and concerned

Post by lazyday » Thu Aug 15, 2019 5:20 pm

Bacchus01 wrote:
Thu Aug 15, 2019 7:07 am
lazyday wrote:
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
Some interesting comments in there. Most interesting that the author says you can’t rely on historical returns, then relies heavily on historical data.
I think what's important here is that past returns aren't a good starting point to guess what future returns will be. In making a prediction, we probably need to use historical data of various kinds, but in my opinion this isn't as bad as starting with an assumption like future returns = past returns.
In addition to risk profiles, is there something to suggest that the broad market is expected to have lower profitability? Lower dividend rates? A different capital structure?
Compared to 1975, US stocks today have lower dividend yield. They also have much lower earnings yield, or earnings per dollar invested in stocks. https://www.multpl.com/s-p-500-dividend ... le/by-year https://www.multpl.com/shiller-pe/table/by-year
Nor do I think future profit levels will be somehow diminished across the board.
Profits might be high, but you are paying more for them now than you did in 1975.

aristotelian
Posts: 6464
Joined: Wed Jan 11, 2017 8:05 pm

Re: Confused, bummed, and concerned

Post by aristotelian » Thu Aug 15, 2019 8:16 pm

If it makes you feel better, you can root for a stock market crash. Then (if you are employed) you can buy them at much lower valuations and expect average historical returns back in the 8-10% range.

lotusflower
Posts: 256
Joined: Thu Oct 24, 2013 12:32 am

Re: Confused, bummed, and concerned

Post by lotusflower » Thu Aug 15, 2019 8:33 pm

Absolute returns don't really matter! Repeat that again, absolute returns don't matter! What matters is how your returns compare with inflation. The reason forecasted returns are shrinking is because inflation is shrinking too.

The only thing you can do with your invested money is spend it on goods and services (or give it away for others to do that). When you want to buy a house someday, the price of that house will be related to what other people are willing and able to pay for it and at a macro level they have all been participating in the same economy as you with the same overall investment performance.

So if your investments doubled, most of theirs probably will have too, and you'll all be willing to pay twice as much for the same house you are all bidding on. (Grossly oversimplified but basically true). So just do the right Boglehead things and don't worry about it.

make_a_better_world
Posts: 64
Joined: Mon Mar 18, 2013 11:55 pm

Re: Confused, bummed, and concerned

Post by make_a_better_world » Thu Aug 15, 2019 9:01 pm

This is how I think of it, which is simplistic compared to many of the very intelligent people on this board:

Man began with a pointed stick and an 18-hour-per-day job chasing lizards. One hundred years ago many cities in my home state of Texas were mostly fields. Today there are incredible skyscrapers, technology, and immense wealth. In your lifetime with artificial intelligence and robotics you will probably see an increase in wealth greater than what happened in the Industrial Revolution in 1760.

My advice is do not worry about the exact growth figures on a timeline of 10 years. Whatever they are they will change. If the total wealth increases over a span of 30 years and you are invested along for the ride, you will benefit in spectacular fashion.

https://blogs.wsj.com/cio/2018/11/16/th ... d-economy/

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: Confused, bummed, and concerned

Post by Bacchus01 » Mon Aug 19, 2019 6:57 am

lazyday wrote:
Thu Aug 15, 2019 5:20 pm
Bacchus01 wrote:
Thu Aug 15, 2019 7:07 am
lazyday wrote:
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
Some interesting comments in there. Most interesting that the author says you can’t rely on historical returns, then relies heavily on historical data.
I think what's important here is that past returns aren't a good starting point to guess what future returns will be. In making a prediction, we probably need to use historical data of various kinds, but in my opinion this isn't as bad as starting with an assumption like future returns = past returns.
In addition to risk profiles, is there something to suggest that the broad market is expected to have lower profitability? Lower dividend rates? A different capital structure?
Compared to 1975, US stocks today have lower dividend yield. They also have much lower earnings yield, or earnings per dollar invested in stocks. https://www.multpl.com/s-p-500-dividend ... le/by-year https://www.multpl.com/shiller-pe/table/by-year
Nor do I think future profit levels will be somehow diminished across the board.
Profits might be high, but you are paying more for them now than you did in 1975.
I think it’s pretty irresponsible to look at a single year in the past and consider it inclusive of the past. Considering the discussion is around long-term returns, I’d suggest looking at a period no shorter than 10 years.

Again, I see no reason to believe that the fundamentals of investing in equities has changed nor the results of the underlying companies nor the risk behavior of the investors. Over the longer term. While the future MAY not look like the past, I see no reason why it won’t look like the past. Given the data we have, you can’t conclude that the future will be radically different (and the pundits are throwing out numbers that are radically different) than the past.

lazyday
Posts: 3587
Joined: Wed Mar 14, 2007 10:27 pm

Re: Confused, bummed, and concerned

Post by lazyday » Mon Aug 19, 2019 7:39 am

Bacchus01 wrote:
Mon Aug 19, 2019 6:57 am
I think it’s pretty irresponsible to look at a single year in the past and consider it inclusive of the past.
The year 1975 comes from the top post in this thread, which shows returns if you invested for 40 years starting in 1975. To compare that to investing for 40 years starting today, we could compare the environment of 1975 to that of today.

Or forget 1975. Click on the last link in your quote, it shows price/10yr earnings for over 100 years. Investors are willing to take on equity risk for a lower earnings yield (EP10, or 1/PE10) than typical in the past.
Again, I see no reason to believe that the fundamentals of investing in equities has changed nor the results of the underlying companies nor the risk behavior of the investors.
Can we say that risk behavior hasn’t changed, given that people are willing to pay more for stock earnings now?

(Or using the risk premium concept: If EP10 - bill or bond yield today is lower than it was in most of the historical data, then we could say that risk behavior seems to have changed. We could also say that what changed is interest rates, and even with the same risk premium, stocks will return less than in the past.)
Last edited by lazyday on Mon Aug 19, 2019 7:50 am, edited 1 time in total.

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: Confused, bummed, and concerned

Post by Bacchus01 » Mon Aug 19, 2019 7:47 am

lazyday wrote:
Mon Aug 19, 2019 7:39 am
Bacchus01 wrote:
Mon Aug 19, 2019 6:57 am
I think it’s pretty irresponsible to look at a single year in the past and consider it inclusive of the past.
The year 1975 comes from the top post in this thread, which shows returns if you invested for 40 years starting in 1975. To compare that to investing for 40 years starting today, we could compare the environment of 1975 to that of today.

Or forget 1975. Click on the last link in your quote, it shows price/10yr earnings for over 100 years. Investors are willing to take on equity risk for a lower earnings yield (EP10, or 1/PE10) than typical in the past.
Again, I see no reason to believe that the fundamentals of investing in equities has changed nor the results of the underlying companies nor the risk behavior of the investors.
Can we say that risk behavior hasn’t changed, given that people are willing to pay more for stock earnings now?

(Maybe I should make that argument using risk premium, but am being lazy. I’m assuming that EP10 - bill or bond yield today is lower than it was in most of the historical data. If not, then I'd say that what changed is interest rates, and even with the same risk premium, stocks will return less than in the past.)
The irony of your argument is that you are basing this analysis on the Schiller ratio, which measures historical returns to current prices. Hmmmm.

lazyday
Posts: 3587
Joined: Wed Mar 14, 2007 10:27 pm

Re: Confused, bummed, and concerned

Post by lazyday » Mon Aug 19, 2019 7:54 am

Bacchus01 wrote:
Mon Aug 19, 2019 7:47 am
The irony of your argument is that you are basing this analysis on the Schiller ratio, which measures historical returns to current prices. Hmmmm.
I don't think that Shiller PE (he called it CAPE, many call it PE10) measures returns.

User avatar
firebirdparts
Posts: 348
Joined: Thu Jun 13, 2019 4:21 pm

Re: Confused, bummed, and concerned

Post by firebirdparts » Mon Aug 19, 2019 8:35 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%.

it has me feeling very discouraged.

Should I be?
You shouldn't believe any prediction, but if you did, then you should be happy. Low returns early in your career are actually good. Do I expect a dip in stock prices? Yes. My great concern right now is that stocks will go up another 30% before the dip. They might or might not.

When I was your age, I figured it would be smart of me to hold the most volatile investments possible, because I was young. I guess nowadays we could call this "dumb beta" if it needed a name. I never talked to anybody much who had a dumb beta strategy like I did. It worked for me.

I always tell young guys I have lost half my net worth twice and I don't regret it. I regret plenty but not that. I regret buying individual stocks. That is not a temptation for me at all.
Last edited by firebirdparts on Mon Aug 19, 2019 11:26 am, edited 1 time in total.
A fool and your money are soon partners

dspencer
Posts: 202
Joined: Wed Jul 06, 2016 11:29 am

Re: Confused, bummed, and concerned

Post by dspencer » Mon Aug 19, 2019 9:09 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.

This is what matters. You can't know the future of market returns for the next 5 decades, but you can know whether your current lifestyle is responsible and whether you are saving a healthy percentage of your income. I don't typically think that comparing yourself to others is advisable, but this might be the exception where it's useful to think about. If other people are saving 8% of their income and you are saving 15%, you are going to much better off on a relative basis later on. This is true whether the market returns 4% or 10%. One beauty of the Boglehead philosophy is you have the option to pretty much set your investing on autopilot, stop worrying about it and live your life.

Another thought experiment: If you could know for certain that stocks would return 4% over your lifetime, what would you be willing to give up to live in a different time period with better returns? Would it be worth it to live without air conditioning, computers, antibiotics, etc if you could earn 11% on your money? Of all the decades in human history, how many could you honestly say you would have rather been born in? For me, the number is extraordinarily small.

johnz1001
Posts: 178
Joined: Tue Jan 01, 2013 7:41 am

Re: Confused, bummed, and concerned

Post by johnz1001 » Mon Aug 19, 2019 10:46 am

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. 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.
This is an excellent post, and the OP should take it to heart. The OP is lucky to have all the good guidance available to him today at an early age and thereby miss the mistakes most of us have already made.

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: Confused, bummed, and concerned

Post by Bacchus01 » Tue Aug 20, 2019 7:01 am

lazyday wrote:
Mon Aug 19, 2019 7:54 am
Bacchus01 wrote:
Mon Aug 19, 2019 7:47 am
The irony of your argument is that you are basing this analysis on the Schiller ratio, which measures historical returns to current prices. Hmmmm.
I don't think that Shiller PE (he called it CAPE, many call it PE10) measures returns.
Huh? The PE stands for prior earnings. As in business returns.

goblue100
Posts: 1022
Joined: Sun Dec 01, 2013 10:31 am

Re: Confused, bummed, and concerned

Post by goblue100 » Tue Aug 20, 2019 7:16 am

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%.

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.
If you believe that returns will eventually return to "normal" than the expected low returns over the next few years will have no more impact than if they occurred 15 years from now.

https://charteredadvisorygroup.com/_ima ... eturns.pdf
"Impact during savings Three unique return scenarios
The sequence of returns has no impact on the final portfolio value when you are saving.
• All had an average annual return of 7% over 25 years. However, each experienced a different sequence
of returns.
• At age 65, all had the same portfolio value, although they had experienced different valuations along
the way"
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

deltaneutral83
Posts: 1338
Joined: Tue Mar 07, 2017 4:25 pm

Re: Confused, bummed, and concerned

Post by deltaneutral83 » Tue Aug 20, 2019 7:52 am

OP, if you are in your early 20's and take care of business and stay away from consumer debt the return of the market in your 3F will not be an issue when you're 60 if you invest early and often. If things don't work out for you that will be the case for the other 95% of the country too which could happen, but you've done all you can do to plan ahead.
These low (4.5% - 5%) returns estimates are for the next decade. Over your investing lifetime, they are likely to be more in line with long-term historical averages.
This is still a big deal as we are at 5.5% since 2000. Another 10 years of 4.5-5% would be the worst 30 year period on record....by far.
Last edited by deltaneutral83 on Tue Aug 20, 2019 8:00 am, edited 1 time in total.

User avatar
Sandtrap
Posts: 8473
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Confused, bummed, and concerned

Post by Sandtrap » Tue Aug 20, 2019 7:59 am

OP:
Regarding "confused, bummed, and concerned"

Focusing "only" on investment returns at an early age is defensive. Yes, you have to pay attention to that. But, to an exponential degree, focus on "maximizing your income" and, over time, diversifying your income stream.

For example: One worries about how to optimize the interest rate of $1000 saved while not passionately pursuing making (and saving) the most money you can every working year of one's career.

Personal "investment finance" is one part of things.
Maximizing "net income and savings of that net income" is an area where efforts can be rewarded exponentially!
(But, it's sometimes taken for granted that one makes what one makes and that's that.)

Make hay while the sun shines, and lots and lots of it.

Some randome actionable thougts going forward.
j :D
Wiki Bogleheads Wiki: Everything You Need to Know

Lee_WSP
Posts: 1208
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Confused, bummed, and concerned

Post by Lee_WSP » Tue Aug 20, 2019 10:30 am

Bacchus01 wrote:
Tue Aug 20, 2019 7:01 am
lazyday wrote:
Mon Aug 19, 2019 7:54 am
Bacchus01 wrote:
Mon Aug 19, 2019 7:47 am
The irony of your argument is that you are basing this analysis on the Schiller ratio, which measures historical returns to current prices. Hmmmm.
I don't think that Shiller PE (he called it CAPE, many call it PE10) measures returns.
Huh? The PE stands for prior earnings. As in business returns.
It means price to earnings.

https://www.acronymfinder.com/Business/PE.html

https://www.google.com/search?rlz=1C1CH ... CAo&uact=5

fujiters
Posts: 283
Joined: Tue Mar 06, 2018 2:17 pm

Re: Confused, bummed, and concerned

Post by fujiters » Tue Aug 20, 2019 2:03 pm

deltaneutral83 wrote:
Tue Aug 20, 2019 7:52 am
This is still a big deal as we are at 5.5% since 2000. Another 10 years of 4.5-5% would be the worst 30 year period on record....by far.
Some 30 year period will end up being the worst. It might be this one.

Even 4.5% beats the pants off the Japanese market over its most recent 30 year period: https://www.macrotrends.net/2593/nikkei ... chart-data
“The purpose of the margin of safety is to render the forecast unnecessary.” -Benjamin Graham

Bacchus01
Posts: 3182
Joined: Mon Dec 24, 2012 9:35 pm

Re: Confused, bummed, and concerned

Post by Bacchus01 » Tue Aug 20, 2019 4:58 pm

Lee_WSP wrote:
Tue Aug 20, 2019 10:30 am
Bacchus01 wrote:
Tue Aug 20, 2019 7:01 am
lazyday wrote:
Mon Aug 19, 2019 7:54 am
Bacchus01 wrote:
Mon Aug 19, 2019 7:47 am
The irony of your argument is that you are basing this analysis on the Schiller ratio, which measures historical returns to current prices. Hmmmm.
I don't think that Shiller PE (he called it CAPE, many call it PE10) measures returns.
Huh? The PE stands for prior earnings. As in business returns.
It means price to earnings.

https://www.acronymfinder.com/Business/PE.html

https://www.google.com/search?rlz=1C1CH ... CAo&uact=5
I should have been clear. Yes, you are right. It's "Price to Earnings" but the measure is cyclically adjusted PE, as in PAST earnings.

The argument doesn't change.

User avatar
White Coat Investor
Posts: 14267
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Confused, bummed, and concerned

Post by White Coat Investor » Tue Aug 20, 2019 5:20 pm

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.
Why would you buy stocks instead of the rental property down the street if you really thought you were only going to get 3% real out of them in the long run? Does that make sense to you? These are the cap rates in my area right now:

Cap Rates for Multifamily Apartment properties are relatively flat for 2019 in this market. Averaging 4.60 for newer Luxury Metro properties, 4.87 for A Class, 5.24 for B Class, 6.02 for C Class and 6.40 for Value Added Acquisitions

On an unleveraged, paid for rental, that's 4.6-6.4% real.

Why are you buying those highly volatile stocks instead of apartment buildings (with a manager doing EVERYTHING for you) if you don't think you can do better than 3% real with stocks?

Either you don't really believe it or you're not very wise. I'll leave you to decide. But if you save $25K a year at 6% versus 3%, you end up with $2M versus $1.2M. Seems like a pretty consequential decision to me.

Personally, I expect 5-7% real out of stocks in the long run (i.e. my 50 year investing horizon.) Incidentally, historical returns on the S&P 500 are 6.87% real, at the high end of that range.

I have no idea why you think long run returns are higher for developed markets than US markets. Maybe in the next decade given their returns the last decade and a bit of a return to mean, but in the long run? I don't think I'd bet against the US that way.
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

Post Reply