Equity returns over the next 40 years

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Olemiss540
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Equity returns over the next 40 years

Post by Olemiss540 »

Bringing a sub topic from another thread (year you hit 100k networth).

What is the likelyhood of returns over the next 30-40 years? I know many intelligent folks publish information expecting real returns over the coming decade to be in 3-5% range, but thinking (guessing) longer range, what is the expected long term risk premium for equity investments? If 4% real is our goal posts, is it really worth the added risk above long term bonds and increasing savings rates considering 40-50% losses could be seen at points throughout the next 30-40 years?

On one hand, we tell young investors about the magic of compound interest and the amounts that $1 could be worth if they invest it at 18 or 22 (in order to spread a LBYM and financial stability mantra), but is it disingenuous if we then turn around and tell them to plan on 4% returns over the next 40 years and that they will have to save 40% of their income due to these projected returns if they want to retire at 65?

Curious on what the mean return projections would be and how we would even begin to project something as being "likely or unlikely" 40 years from now with regards to retirement portfolio growth. Thanks in advance for any resources or thoughts!
Last edited by Olemiss540 on Sun Jan 26, 2020 6:04 pm, edited 1 time in total.
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Triple digit golfer
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Re: Equity returns over the next 40 years

Post by Triple digit golfer »

Thanks for starting this thread. Looking forward to reading the thoughts of Bogleheads.

I personally use a 4% real return for equities and 1% real for bonds in my planning over 15-20 years. I am fully aware that it is likely very conservative. I am okay with coming out ahead and adjusting plans later on.
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Cheez-It Guy
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Re: Equity returns over the next 40 years

Post by Cheez-It Guy »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
I predict 100% likelihood of returns over the next 30-40 years.
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Re: Equity returns over the next 40 years

Post by siriusblack »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm is it really worth the added risk above long term bonds and increasing savings rates considering 40-50% losses could be seen at points throughout the next 30-40 years?
This is one of the reasons why I personally use tactical asset allocation (some call it market timing, but I disagree). At current valuations I'm comfortable shifting to lower % of my portfolio in stocks. I'm currently somewhere in the neighborhood of 55/45 when aggregated across all accounts including my emergency fund etc. Increasing the stock % is not likely to significantly enhance expected returns; meanwhile the risk of the portfolio lets me sleep better at night.
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Re: Equity returns over the next 40 years

Post by JGoneRiding »

They are all wrong and no one knows??

They have been predicting sub 5% for the last 10 years. 2018 was flat or slightly negative. 2019 was up 28%!

Most likely the future will average to about the same as the last 180 years.
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Watty
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Re: Equity returns over the next 40 years

Post by Watty »

You can play with Firecalc and the other simulators to see how they would have done in the past.

https://www.firecalc.com/

One nice thing about firecalc is that it will give you a graph which shows the ranges of past outcomes.
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Re: Equity returns over the next 40 years

Post by Olemiss540 »

Cheez-It Guy wrote: Sun Jan 26, 2020 5:28 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
I predict 100% likelihood of returns over the next 30-40 years.
Thanks. I understand this is really just a thought exercise as there is no right answer, but also acknowledge that would make it challenging for some to consider.
Last edited by Olemiss540 on Sun Jan 26, 2020 6:24 pm, edited 1 time in total.
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Re: Equity returns over the next 40 years

Post by JMitchell2020 »

I predict ~15% annual returns for the total Martian colony stock market, particularly the bike market. Hard to predict asteroid market returns yet - if there is a population explosion of flat cats that would hurt output. We’ll be getting more food from the lunar penal colony which should help prop up the Terran stock markets, provided there is no uprising on Luna.

Seriously though, for planning purposes (i.e. the numbers I plug into retirement planning software) I am using lower returns for the next five to ten years but for anything over 30 (or even 10) I use the market averages seen over the last hundred or so years. I don’t know the future, but I know the past, and have to extrapolate as best I can. Have to remain flexible.
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Re: Equity returns over the next 40 years

Post by Sandtrap »

The forum search will reveal a wealth of information and input on this.

Warren Buffet posited lower returns going forward in the long term outlook though BH has yielded 17.1% since 1985. Hmmm.

J. Bogle forecasted that over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually. Both predictions are significantly lower than historic returns since 1974 of 11.7% for stocks and 8% for bonds.

Given the input of these two wise fellows, DW and I have set our target annual withdrawal rate in retirement at a conservative 3%. This, knowing that sometimes we might end up higher for a year or more, and sometimes lower. Of course this might not work for others, just us. Every personal finance scenario is different.

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Re: Equity returns over the next 40 years

Post by Olemiss540 »

Watty wrote: Sun Jan 26, 2020 5:53 pm You can play with Firecalc and the other simulators to see how they would have done in the past.

https://www.firecalc.com/

One nice thing about firecalc is that it will give you a graph which shows the ranges of past outcomes.
Thanks Watty. Will check it out. Have used many times in the past for making sure I am on track but not really in this context. Appreciate the response.
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Re: Equity returns over the next 40 years

Post by Olemiss540 »

Sandtrap wrote: Sun Jan 26, 2020 6:06 pm The forum search will reveal a wealth of information and input on this.

Warren Buffet posited lower returns going forward in the long term outlook though BH has yielded 17.1% since 1985. Hmmm.

J. Bogle forecasted that over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually. Both predictions are significantly lower than historic returns since 1974 of 11.7% for stocks and 8% for bonds.

Given the input of these two wise fellows, DW and I have set our target annual withdrawal rate in retirement at a conservative 3%. This, knowing that sometimes we might end up higher for a year or more, and sometimes lower. Of course this might not work for others, just us. Every personal finance scenario is different.

j :happy
But what if you were 30? What would you be expecting for returns prior to retirement at 65? Think 3% real is closer to worst case or middle ground? Thanks for taking the time to respond,
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Olemiss540
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Re: Equity returns over the next 40 years

Post by Olemiss540 »

JMitchell2020 wrote: Sun Jan 26, 2020 6:04 pm I predict ~15% annual returns for the total Martian colony stock market, particularly the bike market. Hard to predict asteroid market returns yet - if there is a population explosion of flat cats that would hurt output. We’ll be getting more food from the lunar penal colony which should help prop up the Terran stock markets, provided there is no uprising on Luna.

Seriously though, for planning purposes (i.e. the numbers I plug into retirement planning software) I am using lower returns for the next five to ten years but for anything over 30 (or even 10) I use the market averages seen over the last hundred or so years. I don’t know the future, but I know the past, and have to extrapolate as best I can. Have to remain flexible.
Thanks and that makes sense. Also, I figure holding total world will make sure to capture any fluctuations in the Martian or asteroid markets, but I guess I need to bump up my ex-planet allocation once it becomes available if it's not captured in my ex-US holding.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Re: Equity returns over the next 40 years

Post by timboktoo »

I assume a real return of 3% for my portfolio over my investing lifetime. I have no idea what will actually happen.

- Tim
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Re: Equity returns over the next 40 years

Post by Sandtrap »

Olemiss540 wrote: Sun Jan 26, 2020 6:19 pm
Sandtrap wrote: Sun Jan 26, 2020 6:06 pm The forum search will reveal a wealth of information and input on this.

Warren Buffet posited lower returns going forward in the long term outlook though BH has yielded 17.1% since 1985. Hmmm.

J. Bogle forecasted that over the next decade, stocks will return an average of 4% annually while bonds will earn 3.5% annually. Both predictions are significantly lower than historic returns since 1974 of 11.7% for stocks and 8% for bonds.

Given the input of these two wise fellows, DW and I have set our target annual withdrawal rate in retirement at a conservative 3%. This, knowing that sometimes we might end up higher for a year or more, and sometimes lower. Of course this might not work for others, just us. Every personal finance scenario is different.

j :happy
But what if you were 30? What would you be expecting for returns prior to retirement at 65? Think 3% real is closer to worst case or middle ground? Thanks for taking the time to respond,
Market returns, the state of the economy, interest rates, etc, should not effect one's pursuit of "substantial wealth" at any age or time in life.
Though, striving for "enough" in retirement, or "enough" in general, according to market conditions, etc, works for many.
The idea of this is to maximize income streams and savings rate first.
More chickens = more eggs.
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Re: Equity returns over the next 40 years

Post by LongRoad »

Olemiss540 wrote: Sun Jan 26, 2020 6:23 pm
JMitchell2020 wrote: Sun Jan 26, 2020 6:04 pm I predict ~15% annual returns for the total Martian colony stock market, particularly the bike market. Hard to predict asteroid market returns yet - if there is a population explosion of flat cats that would hurt output. We’ll be getting more food from the lunar penal colony which should help prop up the Terran stock markets, provided there is no uprising on Luna.

Seriously though, for planning purposes (i.e. the numbers I plug into retirement planning software) I am using lower returns for the next five to ten years but for anything over 30 (or even 10) I use the market averages seen over the last hundred or so years. I don’t know the future, but I know the past, and have to extrapolate as best I can. Have to remain flexible.
Thanks and that makes sense. Also, I figure holding total world will make sure to capture any fluctuations in the Martian or asteroid markets, but I guess I need to bump up my ex-planet allocation once it becomes available if it's not captured in my ex-US holding.
Keep in mind that many Bogleheads see no need for an ex-planet allocation, as your all-Earth stock index includes exposure to ex-planet markets across the solar system.
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Re: Equity returns over the next 40 years

Post by Cheez-It Guy »

Olemiss540 wrote: Sun Jan 26, 2020 6:02 pm
Cheez-It Guy wrote: Sun Jan 26, 2020 5:28 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
I predict 100% likelihood of returns over the next 30-40 years.
Thanks. I understand this is really just a thought exercise as there is no right answer, but also acknowledge that would make it challenging for some to consider.
That was just a little joke. The question was phrased similarly to, "What are the chances we experience weather next week?" You will always have weather. You will always have returns. One of the few instances where 100% is a safe prediction! Of course, you are really interested in what those returns will be. Whether they be positive or negative, and how much so.
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Re: Equity returns over the next 40 years

Post by bling »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years? I know many intelligent folks publish information expecting real returns over the coming decade to be in 3-5% range...
do they say anything about variance? because if it goes down, an argument could be made to keep a larger percentage of your AA in stocks. but if stocks are in the 3-5% range, and bonds continue being in the 2-3% range than it doesn't really matter much anymore.
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Re: Equity returns over the next 40 years

Post by Cyclesafe »

FWIW I plan for 1% real equity return and zero real fixed return. Of course, I also hope to be pleasantly surprised. But for an accumulator, savings rate will be relatively more important.
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Re: Equity returns over the next 40 years

Post by siamond »

As hard (impossible?) as it is to predict the future, the question remains very valid, for obvious financial planning reasons. One has to be able to make a rough plan, while staying very adaptive about the reality of what will actually unfold.

Here is my typical answer to people who are in their 20s to 40s and need a working hypothesis:
- Forget the biased perceptions and historical differences between countries, the world will have changed dramatically by the time you retire
- Consider the historical returns tracked by the best available research for a World index (stocks, bonds and bills) - see graph below

Image

Bottomline (real, i.e. inflation-adjusted, returns): 5% for stocks; 2% for bonds; 0% for bills

For older people, I would dial back stocks a notch as we just went though a heck of a bull market, and when one's expected lifetime is shorter, the starting point may have more impact on the overall outcome.

Again, this is only a working hypothesis because one needs to start somewhere, certainly NOT a prediction or anything claiming accuracy.
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Re: Equity returns over the next 40 years

Post by AerialWombat »

I base all my planning on 0% real for both stocks and bonds, and 0% real appreciation on rental properties.

If I expect zero, save enough for expecting zero, and I get better, then great. If it does better, then a charity gets a bigger check when I’m dead.
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Re: Equity returns over the next 40 years

Post by firebirdparts »

I kind of had the same thought. If we really must think about returns, you have got to figure out why you’d care about volatility with a horizon of 40 years. It makes no sense. Without that information, we have nothing to compare. On a more basic level, if you really are going to work and invest for 40 years, then any sound investment will work.
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Re: Equity returns over the next 40 years

Post by ScubaHogg »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm Bringing a sub topic from another thread (year you hit 100k networth).

What is the likelyhood of returns over the next 30-40 years? I know many intelligent folks publish information expecting real returns over the coming decade to be in 3-5% range, but thinking (guessing) longer range, what is the expected long term risk premium for equity investments? If 4% real is our goal posts, is it really worth the added risk above long term bonds and increasing savings rates considering 40-50% losses could be seen at points throughout the next 30-40 years?

On one hand, we tell young investors about the magic of compound interest and the amounts that $1 could be worth if they invest it at 18 or 22 (in order to spread a LBYM and financial stability mantra), but is it disingenuous if we then turn around and tell them to plan on 4% returns over the next 40 years and that they will have to save 40% of their income due to these projected returns if they want to retire at 65?

Curious on what the mean return projections would be and how we would even begin to project something as being "likely or unlikely" 40 years from now with regards to retirement portfolio growth. Thanks in advance for any resources or thoughts!
Why would they need to save 40% for 45 retires to retire, even assuming 4% returns? This simple calculator says they could retire after 23.4 years, using your assumptions.

https://networthify.com/calculator/earl ... awalRate=4
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Re: Equity returns over the next 40 years

Post by zaboomafoozarg »

Cyclesafe wrote: Sun Jan 26, 2020 8:07 pm FWIW I plan for 1% real equity return and zero real fixed return. Of course, I also hope to be pleasantly surprised. But for an accumulator, savings rate will be relatively more important.
My planning for the rest of my life is about the same but slightly more optimistic, 2% real stocks and 0.5% real bonds.

I don't think I'll need to worry about 40 years though, even 30 seems optimistic at the moment.
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Re: Equity returns over the next 40 years

Post by mbasherp »

I think the responses that seem abrasive are merely making a good point: returns will be what they'll be.

I would love historical returns. I hope for 4% real over a multi-decade time horizon. I also understand that there's nothing that guarantees any positive return at all.

In my projection spreadsheet, I play with this number more than any other. It shows me just how much is out of my control, yet reinforces the importance of contributing everything I can, being allocated properly and keeping costs down. We invest 33%+ of our income because we can right now, not because estimates of future returns are low.

So to answer your question, my baseline assumption for the next 30-40 years is 7% nominal stock returns, 2.5% for bonds and 2.5% inflation. But I wouldn't even bet a dollar on it - it's just the least ridiculous guess I can make :beer
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Re: Equity returns over the next 40 years

Post by Teriyaki »

zaboomafoozarg wrote: Sun Jan 26, 2020 10:42 pm
Cyclesafe wrote: Sun Jan 26, 2020 8:07 pm FWIW I plan for 1% real equity return and zero real fixed return. Of course, I also hope to be pleasantly surprised. But for an accumulator, savings rate will be relatively more important.
My planning for the rest of my life is about the same but slightly more optimistic, 2% real stocks and 0.5% real bonds.

I don't think I'll need to worry about 40 years though, even 30 seems optimistic at the moment.
This is pretty much what I'm using in my plans as well, for a diversified global portfolio.
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Re: Equity returns over the next 40 years

Post by rascott »

US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
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Re: Equity returns over the next 40 years

Post by HomerJ »

siriusblack wrote: Sun Jan 26, 2020 5:40 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm is it really worth the added risk above long term bonds and increasing savings rates considering 40-50% losses could be seen at points throughout the next 30-40 years?
This is one of the reasons why I personally use tactical asset allocation (some call it market timing, but I disagree). At current valuations I'm comfortable shifting to lower % of my portfolio in stocks. I'm currently somewhere in the neighborhood of 55/45 when aggregated across all accounts including my emergency fund etc. Increasing the stock % is not likely to significantly enhance expected returns; meanwhile the risk of the portfolio lets me sleep better at night.
Well ACTUAL returns would be have been significantly enhanced over the past 5-10 years, where valuations were considered high, and expected returns were considered to be low.
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Re: Equity returns over the next 40 years

Post by Triple digit golfer »

rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
Do you know the highest, lowest, and average 30 year rolling return over that time frame?
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Re: Equity returns over the next 40 years

Post by junior »

rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
There's no theoretical reason to expect 6.5% real, unless you think "the future will be like the past" is a good theoretical basis for predicting returns.
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Re: Equity returns over the next 40 years

Post by willthrill81 »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm Bringing a sub topic from another thread (year you hit 100k networth).

What is the likelyhood of returns over the next 30-40 years? I know many intelligent folks publish information expecting real returns over the coming decade to be in 3-5% range, but thinking (guessing) longer range, what is the expected long term risk premium for equity investments? If 4% real is our goal posts, is it really worth the added risk above long term bonds and increasing savings rates considering 40-50% losses could be seen at points throughout the next 30-40 years?
Historically, there's a strong likelihood of at least one and probably two 40-50% drawdowns over the next 40 years.

The real yield of 30 year Treasuries right now is about 0% (2.18% nominal). So 3-5% real is a lot better than 0%. But even if stocks only return 3-5% over the next decade, that doesn't say much about what returns will be like over the subsequent 20-30 years. If anything, poor returns are followed by very good returns (e.g. 2000-2009 being very bad for stocks but 2010-2019 being very strong).
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Re: Equity returns over the next 40 years

Post by HomerJ »

I'd plan around 3%-4% real, just in case...

But I'm guessing over 40 years, we'll likely get historical averages of 7% real.

But plan low. If you get more, great. Easy to adjust to that. Spend a bit more, retire earlier. All good choices.

If we do get low returns, you're still okay because you weren't counting on high or even average returns to start with.
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Re: Equity returns over the next 40 years

Post by mptfan »

rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
I agree. Some Bogleheads claim to rely on data but for some reason they reject the long term historical stock market returns as a valid predictor of future stock market returns and instead predict returns lower than the historical averages. Interestingly they reject predictions that are higher than the historical averages as not supported by the data while at the same time making predictions that are lower than the historical averages.

According to Vanguard, the average annual returns of stocks since 1926 is 10.1%.

https://personal.vanguard.com/us/insigh ... llocations
Last edited by mptfan on Mon Jan 27, 2020 2:53 pm, edited 4 times in total.
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Re: Equity returns over the next 40 years

Post by TheDDC »

I plan on historical averages of 10-12% real... using a well diversified fund (VTSAX).

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Re: Equity returns over the next 40 years

Post by HomerJ »

junior wrote: Mon Jan 27, 2020 2:46 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
There's no theoretical reason to expect 6.5% real, unless you think "the future will be like the past" is a good theoretical basis for predicting returns.
Sure there is. Over the long-term.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Equity returns over the next 40 years

Post by HomerJ »

TheDDC wrote: Mon Jan 27, 2020 2:48 pm I plan on historical averages of 10-12% real... using a well diversified fund (VTSAX).

-TheDDC
10% nominal, 7% real.
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Re: Equity returns over the next 40 years

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Triple digit golfer wrote: Mon Jan 27, 2020 2:45 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
Do you know the highest, lowest, and average 30 year rolling return over that time frame?
90% of the time, U.S. stocks returned at least 4.456% real over 30 year periods.

50% of the time, U.S. stocks returns at least 6.663% real over 30 year periods.

The least U.S. stocks returned over 30 years was 1.894% real. The most was 11.154%.

Data were obtained from this site.
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Re: Equity returns over the next 40 years

Post by alpine_boglehead »

What will happen in the next 40 years is unknowable. Humans could build utopia or hell (likely something in-between as it's usually been). So any prediction is pretty moot.

I recently read William Bernstein's retirment calculator from hell, which was a bit of an eye-opener for me that long-term investing is a matter of best effort (invest often and early, low costs et cetera), but more importantly the good or bad luck of living in a specific period in human history.

"Stocks for the long run" is a good read regarding long-term stock performance (to balance the rather sobering predictions from the above article).
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Re: Equity returns over the next 40 years

Post by willthrill81 »

junior wrote: Mon Jan 27, 2020 2:46 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
There's no theoretical reason to expect 6.5% real, unless you think "the future will be like the past" is a good theoretical basis for predicting returns.
The theory is that over the long-term, stocks will return in the future what they've returned in the past.
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Re: Equity returns over the next 40 years

Post by rascott »

Triple digit golfer wrote: Mon Jan 27, 2020 2:45 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
Do you know the highest, lowest, and average 30 year rolling return over that time frame?


Yes..... they haven't varied that much.... nominal..... not real.... but you get the point.

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junior
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Re: Equity returns over the next 40 years

Post by junior »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm Bringing a sub topic from another thread (year you hit 100k networth).

What is the likelyhood of returns over the next 30-40 years?
What's the likelyhood of civilization collapsing in the next 30- 40 years? How does one quantify such a thing?

The premise of this forum seems to be history doesn't change, so we can use 20th century stock trends to predict the future.

If you think a nucleur war is likely to kill us all in the next 30 years, the implication is to save nothing and enjoy spending while you can.

If you think civilization might collapse, the implication is to buy physical goods and avoid stocks.

I'm not saying civilization is going to collapse, but predicting that likelyhood would seem to be a starting point for estimating stock returns.
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Re: Equity returns over the next 40 years

Post by mptfan »

TheDDC wrote: Mon Jan 27, 2020 2:48 pm I plan on historical averages of 10-12% real... using a well diversified fund (VTSAX).
This is not correct, the historical average of 10% is nominal, not real.
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Re: Equity returns over the next 40 years

Post by rascott »

junior wrote: Mon Jan 27, 2020 2:46 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
There's no theoretical reason to expect 6.5% real, unless you think "the future will be like the past" is a good theoretical basis for predicting returns.


There is certainly no theoretical reason to come up with some wild guess of a future number completely disjointed from any long term historical trend.
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Re: Equity returns over the next 40 years

Post by backofbeyond »

Ok, I'll play. As long as I can caveat that I don't know anything more than what is available to the average Joe.

Here are my predicts:

IA & Robotics will become more prevalent, causing unemployment to go up, even more so in the unskilled workforce.

China becomes America's equal and then surpasses the US as a Superpower.

White males will be a minority in the US and so the elected officials will look much different in the future, my guess, this will cause the US to become more socialist than it is now. SS will get fixed and Medicare for all will be instituted. Note this is based on my (key word) observed trends, so not putting any type of political twist on this.

Climate change will cause increase droughts, more wildfires, and stronger hurricanes.

All this will continue to cause the National Debt to rise obviously, thus, more than likely inflation will come roaring back and something will have to give, so my guess is the military expenditures (the 800lb gorilla in our national budget) will be more in line with other countries. We will force to depend on our nuclear arsenal, drones and unmanned aircraft to protect us. We rarely will put ground troops on foreign soil.

With that said, my guess is that we will have equity returns closer to those currently obtained by socialist Europe, which a quick google search shows about 5% over the last 10 years. Real could be a lot less due to inflation, say 2%. Which, oddly, is about where several other BHs seem to be guessing.
The question isn't at what age I want to retire, it is at what income. - George Foreman
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Re: Equity returns over the next 40 years

Post by Triple digit golfer »

willthrill81 wrote: Mon Jan 27, 2020 2:50 pm
Triple digit golfer wrote: Mon Jan 27, 2020 2:45 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
Do you know the highest, lowest, and average 30 year rolling return over that time frame?
90% of the time, U.S. stocks returned at least 4.456% real over 30 year periods.

50% of the time, U.S. stocks returns at least 6.663% real over 30 year periods.

The least U.S. stocks returned over 30 years was 1.894% real. The most was 11.154%.

Data were obtained from this site.
Thanks!
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Re: Equity returns over the next 40 years

Post by Portfolio7 »

Thinking of a different actionable element of this question - I admit, I've never understood planning at 4% real when the market has returned ~7% historically, it feels like a luxury of having a high income. I mean, I get the idea that you're planning for the worst case, and also that for the next decade it may be appropriate, given the past decade of returns... or it may not... but over 40 years I would l think 7% more likely. I don't think I've read that anyone plans at around 7% like I do, though my long range cash flow format allows me to plug in other assumptions to do a quick sensitivity analysis. I like to get my most likely outcome figured out before I start looking at best and worst cases... rather than making the worst case scenario my base case. I'm not saying that anybody else is wrong, but I struggle with that approach for a couple reasons.

First, frankly, I am very unlikely to reach my goals at 2-4% real. At 5-6% I have a fighting chance, and that motivates me. (...and, we're not going to starve regardless of what returns turn out to be, so in the end it will be a question of do we have to adjust our lifestyle.)

Second, part of planning (and life) is balancing the now with the future. Using 2% real can create a real imbalance in that equation, no? Unless you have cash flow to burn, it's likely to limit what you spend in the now pretty severely. We have taken some vacations that we could not afford, and put it on our Heloc. Our NW was in good shape and some things you can't go back and do when you have the cash. That Disney vacation? Ridiculously expensive, and worth every penny. I think my boys had a good childhood for many reasons, obv. not just because of money I spent on them, but yes, I think part of it would have been hard to replicate without a number of such 'questionable' money choices... but if I have any regret it's not having done more along these lines.

I appreciate any & all feedback on this, I'm not trying to criticize anyone else's choice in the matter... I guess it's more that I'm sensitive about my own financial planning process, and I'm interested in how people are rationalizing this choice.
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Re: Equity returns over the next 40 years

Post by junior »

rascott wrote: Mon Jan 27, 2020 2:55 pm
junior wrote: Mon Jan 27, 2020 2:46 pm
rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
There's no theoretical reason to expect 6.5% real, unless you think "the future will be like the past" is a good theoretical basis for predicting returns.


There is certainly no theoretical reason to come up with some wild guess of a future number completely disjointed from any long term historical trend.
Suppose you wanted to buy an individual stock. Maybe you wanted to decide if a new IPO is a good deal to buy or not. You would need a theory other than historical trend to determine which stock to buy, right?
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Re: Equity returns over the next 40 years

Post by mptfan »

junior wrote: Mon Jan 27, 2020 3:02 pm Suppose you wanted to buy an individual stock. Maybe you wanted to decide if a new IPO is a good deal to buy or not. You would need a theory other than historical trend to determine which stock to buy, right?
Buying an individual stock is different than buying a total stock market fund, and Bogleheads generally do not advocate buying individual stocks.
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Re: Equity returns over the next 40 years

Post by willthrill81 »

Portfolio7 wrote: Mon Jan 27, 2020 3:01 pm Thinking of a different actionable element of this question - I admit, I've never understood planning at 4% real when the market has returned ~7% historically, it feels like a luxury of having a high income. I mean, I get the idea that you're planning for the worst case, and also that for the next decade it may be appropriate, given the past decade of returns... or it may not... but over 40 years I would l think 7% more likely.
Historically, 7% has been far more likely than 4%, but as I noted above, the 10th percentile of historic returns over 30 years was just over 4% real. This means that almost 10% of the time, returns would have been less than 4% over 30 years. However, dollar-cost averaging into the market for 30 years will result in significantly different returns than these, which assume lump sum investing.

But it really comes down to what level of confidence you want in your own planning and how much faith you have that the future will rhyme with the past.
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Re: Equity returns over the next 40 years

Post by rascott »

Portfolio7 wrote: Mon Jan 27, 2020 3:01 pm Thinking of a different actionable element of this question - I admit, I've never understood planning at 4% real when the market has returned ~7% historically, it feels like a luxury of having a high income. I mean, I get the idea that you're planning for the worst case, and also that for the next decade it may be appropriate, given the past decade of returns... or it may not... but over 40 years I would l think 7% more likely. I don't think I've read that anyone plans at around 7% like I do, though my long range cash flow format allows me to plug in other assumptions to do a quick sensitivity analysis. I like to get my most likely outcome figured out before I start looking at best and worst cases... rather than making the worst case scenario my base case. I'm not saying that anybody else is wrong, but I struggle with that approach for a couple reasons.

First, frankly, I am very unlikely to reach my goals at 2-4% real. At 5-6% I have a fighting chance, and that motivates me. (...and, we're not going to starve regardless of what returns turn out to be, so in the end it will be a question of do we have to adjust our lifestyle.)

Second, part of planning (and life) is balancing the now with the future. Using 2% real can create a real imbalance in that equation, no? Unless you have cash flow to burn, it's likely to limit what you spend in the now pretty severely. We have taken some vacations that we could not afford, and put it on our Heloc. Our NW was in good shape and some things you can't go back and do when you have the cash. That Disney vacation? Ridiculously expensive, and worth every penny. I think my boys had a good childhood for many reasons, obv. not just because of money I spent on them, but yes, I think part of it would have been hard to replicate without a number of such 'questionable' money choices... but if I have any regret it's not having done more along these lines.

I appreciate any & all feedback on this, I'm not trying to criticize anyone else's choice in the matter... I guess it's more that I'm sensitive about my own financial planning process, and I'm interested in how people are rationalizing this choice.


If equities return 2% real over the next 40 years.... nobody will ever retire. Ok, an exaggeration..... but you'd need to save probably 30+% of your income for decades. That isn't a stretch for many BHs, maybe.... but totally unrealistic for much of the country.
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Re: Equity returns over the next 40 years

Post by Teriyaki »

rascott wrote: Mon Jan 27, 2020 2:39 pm US equities have returned 6.5% real, in a fairly consistent long term trend.. for the last 150 years. It appears that BHs is full of perma- bears.
There are some reasons to think that future returns might be much lower than past returns. One reason is that population growth is much lower than before, especially in developed countries. Also, interest rates are globally at an unprecedentedly low level. If they stay that way, we should expect to see an appreciation in asset values in the short-to-medium term and after that see prices stay high (compared to the past) so that long-term yields are much lower than in the past.
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