Equity returns over the next 40 years

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Portfolio7
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Re: Equity returns over the next 40 years

Post by Portfolio7 »

willthrill81 wrote: Mon Jan 27, 2020 3:11 pm
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.
Sure, I get that... but it seems to me that it makes sense to set a base case first, then work my sensitivity cases for 4% real or whatever one chooses, for the reasons I noted.
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jojay
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Re: Equity returns over the next 40 years

Post by jojay »

Completely agree. This topic is important for your people. We could have asked this same question 40-50 years ago for ourselves.Thank goodness someone with some credibility told me to get into the stock market and stay there.

The historical market return is just that - historical. Have investing environments changed over 40 years? Will they change over 40 years from now? Your question is valid.

I tell my under 30 children and anyone else who will listen that as far as investing options are concerned, the stock market will continue to produce returns - but we do not know how much; the basis of your question. Will it be 6%? 7% 28%. Will future inflation average 2%? 8% If we look at long term investing on comparative investment options though , what else is there which tops equities over the long haul? Real estate? Art? Hence, whatever their future returns, stocks are still the best option available. Plan conservatively but reasonably. 30 or 40 years from now, you'll probably forget this discussion.


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.
[/quote]
rascott
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Re: Equity returns over the next 40 years

Post by rascott »

Teriyaki wrote: Mon Jan 27, 2020 3:46 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 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.

The last 150 years saw a great depression, deflation, hyper- inflation, two world wars, many other lower scale wars, financial crises, and a thousand other reasons to think that investing in stocks would be foolish. That 6.5% real return came through all of that. Interest rates really aren't much lower than they were in the 1950s.

Could the next 30-40 years be wildly different? Sure.... but it would be foolish to predict that it would be. But certainly prudent to plan for conservative returns by over- saving.
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Re: Equity returns over the next 40 years

Post by Dottie57 »

We don’t know the future so any plans you make may fall by the wayside.

If I were you, I would use low, medium and high rates of return in 3 separate plans. Measure your progress against the plans each year. Up your saving if returns are low. Your saving rate is the best determiner of success.

FWIW, i never had a plan. The only thing I knew to do was to save and invest. The 2000’s were nasty and I never felt like I was making progress. The next decade blew away my expectations.

Wishing you good returns

Dottie
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Re: Equity returns over the next 40 years

Post by willthrill81 »

Portfolio7 wrote: Mon Jan 27, 2020 3:52 pm
willthrill81 wrote: Mon Jan 27, 2020 3:11 pm
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.
Sure, I get that... but it seems to me that it makes sense to set a base case first, then work my sensitivity cases for 4% real or whatever one chooses, for the reasons I noted.
But if there's been as much variability in historic returns as there has, I don't see the purpose in planning on getting historically average returns if there is, arguably, a 50% chance that your actual returns will be lower than that. A plan with a 50% chance of success isn't good enough for me or, I suspect, most BHs. I'd rather plan on getting lower than average returns and hopefully be pleasantly surprised if I get better returns.

If you need 6% real in order to make your plan work (which U.S. stocks failed to return in almost one-third of the historic 30 year periods), then your plan might not be robust enough.
Last edited by willthrill81 on Mon Jan 27, 2020 4:20 pm, edited 1 time in total.
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Re: Equity returns over the next 40 years

Post by Texanbybirth »

Teriyaki wrote: Mon Jan 27, 2020 3:46 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 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.
Vangaurd has a pretty interesting research paper on the issue of population. Of course it doesn't come to one conclusion, but I thought it was an interesting study and put my mind a little more at ease about the population growth "issue".
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Re: Equity returns over the next 40 years

Post by Teriyaki »

rascott wrote: Mon Jan 27, 2020 4:08 pm
Teriyaki wrote: Mon Jan 27, 2020 3:46 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 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.

The last 150 years saw a great depression, deflation, hyper- inflation, two world wars, many other lower scale wars, financial crises, and a thousand other reasons to think that investing in stocks would be foolish. That 6.5% real return came through all of that. Interest rates really aren't much lower than they were in the 1950s.

Could the next 30-40 years be wildly different? Sure.... but it would be foolish to predict that it would be. But certainly prudent to plan for conservative returns by over- saving.
All of the events you list were temporary, slow population growth looks to be a permanent thing (or at least one that might last for the next 30-40 years). As for interest rates, you're right in the case of the US, that's why I snuck the word "globally" in there. And I think it's possible that at some point the US will join the zero interest rate club with the rest of us.

Again, I'm not saying that the low-return future I'm arguing for here is inevitable or even probable. But it is definitely possible and I think it should be taken into account when considering future returns and safe withdrawal rates.
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Re: Equity returns over the next 40 years

Post by rascott »

Teriyaki wrote: Mon Jan 27, 2020 4:25 pm
rascott wrote: Mon Jan 27, 2020 4:08 pm
Teriyaki wrote: Mon Jan 27, 2020 3:46 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 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.

The last 150 years saw a great depression, deflation, hyper- inflation, two world wars, many other lower scale wars, financial crises, and a thousand other reasons to think that investing in stocks would be foolish. That 6.5% real return came through all of that. Interest rates really aren't much lower than they were in the 1950s.

Could the next 30-40 years be wildly different? Sure.... but it would be foolish to predict that it would be. But certainly prudent to plan for conservative returns by over- saving.
All of the events you list were temporary, slow population growth looks to be a permanent thing (or at least one that might last for the next 30-40 years). As for interest rates, you're right in the case of the US, that's why I snuck the word "globally" in there. And I think it's possible that at some point the US will join the zero interest rate club with the rest of us.

Again, I'm not saying that the low-return future I'm arguing for here is inevitable or even probable. But it is definitely possible and I think it should be taken into account when considering future returns and safe withdrawal rates.
Population growth is a long-term concern.... however in the past the US has just greatly increased immigration quotas when there has been a demand for more people, domestically. Will be determined if that occurs again.
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Re: Equity returns over the next 40 years

Post by Portfolio7 »

willthrill81 wrote: Mon Jan 27, 2020 4:18 pm
Portfolio7 wrote: Mon Jan 27, 2020 3:52 pm
willthrill81 wrote: Mon Jan 27, 2020 3:11 pm
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.
Sure, I get that... but it seems to me that it makes sense to set a base case first, then work my sensitivity cases for 4% real or whatever one chooses, for the reasons I noted.
But if there's been as much variability in historic returns as there has, I don't see the purpose in planning on getting historically average returns if there is, arguably, a 50% chance that your actual returns will be lower than that. A plan with a 50% chance of success isn't good enough for me or, I suspect, most BHs. I'd rather plan on getting lower than average returns and hopefully be pleasantly surprised if I get better returns.

If you need 6% real in order to make your plan work (which U.S. stocks failed to return in almost one-third of the historic 30 year periods), then your plan might not be robust enough.
Hmmm. So perhaps there are different view of desired certainty embedded in the thought process here.

One point of view that I think you're expressing is that it's better to pick the failure point and plan from there. That approach works great, for example, when constructing a bridge. You not only pick the worst case scenario, but build in extra tolerances, because the worst case outcome is so intolerable. The additional cost and effort is worth it. It also helps to have plenty of resources available to you to build the bridge with. Back to saving, if you can't save enough to retire as you desire, you save what you can and make it work. But using 4% or less is going to keep you prioritizing retirement over current spending in a way that I interpret as imbalanced, i.e. the two points I made in my first post that you have not specifically addressed (or consider irrelevant?)

Another approach is to pick the most likely point, but understand the range of potential outcomes around that point. When there are trade-offs, and the difference is perhaps between a likely retirement at 105% of income with a worst case 95%, or using current cash flow a different way may mean one most likely retires with 95% of current income with a worst case at 85% of current income... well, then one can gauge the actual risks inherent in the trade off. In doing so, one can acknowledge the risk of poorer returns, but also note the relatively low odds of that outcome (and have backup actions unique to that outcome as appropriate.)

I suppose some people might say that their retirement goals outweigh all or virtually all other considerations, in which case the first approach makes a lot more sense. I am realizing that this isn't true for me. I think a 50% chance of lower returns really doesn't equate to a 50% chance of 'failure'. If I never earned another cent, I'd be able to retire right now and live on my money, I'd just have to downsize. I much prefer to avoid that outcome, but I've already achieved some measure of success, if you get my drift. Falling short of my goal does not strike me as disaster. I will still have very significant resources. I suppose this less about methodologies and more about how one chooses to resolve the conflict between current and future needs.
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Re: Equity returns over the next 40 years

Post by willthrill81 »

Portfolio7 wrote: Mon Jan 27, 2020 4:59 pm
willthrill81 wrote: Mon Jan 27, 2020 4:18 pm
Portfolio7 wrote: Mon Jan 27, 2020 3:52 pm
willthrill81 wrote: Mon Jan 27, 2020 3:11 pm
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.
Sure, I get that... but it seems to me that it makes sense to set a base case first, then work my sensitivity cases for 4% real or whatever one chooses, for the reasons I noted.
But if there's been as much variability in historic returns as there has, I don't see the purpose in planning on getting historically average returns if there is, arguably, a 50% chance that your actual returns will be lower than that. A plan with a 50% chance of success isn't good enough for me or, I suspect, most BHs. I'd rather plan on getting lower than average returns and hopefully be pleasantly surprised if I get better returns.

If you need 6% real in order to make your plan work (which U.S. stocks failed to return in almost one-third of the historic 30 year periods), then your plan might not be robust enough.
Hmmm. So perhaps there are different view of desired certainty embedded in the thought process here.

One point of view that I think you're expressing is that it's better to pick the failure point and plan from there. That approach works great, for example, when constructing a bridge. You not only pick the worst case scenario, but build in extra tolerances, because the worst case outcome is so intolerable. The additional cost and effort is worth it. It also helps to have plenty of resources available to you to build the bridge with. Back to saving, if you can't save enough to retire as you desire, you save what you can and make it work. But using 4% or less is going to keep you prioritizing retirement over current spending in a way that I interpret as imbalanced, i.e. the two points I made in my first post that you have not specifically addressed (or consider irrelevant?)

Another approach is to pick the most likely point, but understand the range of potential outcomes around that point. When there are trade-offs, and the difference is perhaps between a likely retirement at 105% of income with a worst case 95%, or using current cash flow a different way may mean one most likely retires with 95% of current income with a worst case at 85% of current income... well, then one can gauge the actual risks inherent in the trade off. In doing so, one can acknowledge the risk of poorer returns, but also note the relatively low odds of that outcome (and have backup actions unique to that outcome as appropriate.)

I suppose some people might say that their retirement goals outweigh all or virtually all other considerations, in which case the first approach makes a lot more sense. I am realizing that this isn't true for me. I think a 50% chance of lower returns really doesn't equate to a 50% chance of 'failure'. If I never earned another cent, I'd be able to retire right now and live on my money, I'd just have to downsize. I much prefer to avoid that outcome, but I've already achieved some measure of success, if you get my drift. Falling short of my goal does not strike me as disaster. I will still have very significant resources. I suppose this less about methodologies and more about how one chooses to resolve the conflict between current and future needs.
Your earlier post indicated that you needed 5-6% returns in order to make your plan work, but it seems that that isn't the case. If you can fall short of your desired goal but still have a good enough outcome, that's obviously fine.
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Re: Equity returns over the next 40 years

Post by Portfolio7 »

rascott wrote: Mon Jan 27, 2020 3:13 pm
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

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.

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?

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.
Yes, exactly... and if you're trying to save that 30%+ anyways, then you are really squeezing your current living situation, and likely not paying for things that could mean a lot in the long run to your family, from safe transportation to medication and other things of importance. I don't mean to overstate the case either, I can imagine a statistical argument that this under-values the likelihood of 'failure', and am open to that. In the meanting, I still think something closer to average allows one to better gauge the likely risks in spending trade-offs.
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Re: Equity returns over the next 40 years

Post by Portfolio7 »

willthrill81 wrote: Mon Jan 27, 2020 5:09 pm Your earlier post indicated that you needed 5-6% returns in order to make your plan work, but it seems that that isn't the case. If you can fall short of your desired goal but still have a good enough outcome, that's obviously fine.
Yes, so both approaches may achieve similar results, but maintain uncertainty within the assumptions for different variables or within the goals, that makes sense. I appreciate the engagement, thanks for a good discussion.
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Re: Equity returns over the next 40 years

Post by visualguy »

willthrill81 wrote: Mon Jan 27, 2020 2:50 pm 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.
That illustrates the problem well... There's a lot of variation. There's a huge difference between 1.894% and 11.154%, and that's just looking at the past; who knows about the future.
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Re: Equity returns over the next 40 years

Post by Olemiss540 »

[Off- topic quote removed by Moderator Misenplace]

My apologies. I thought the head slap emoji showed that you ACTUALLY meant it WASN'T a worthwhile exercise after stating it WAS a worthwhile exercise in an attempt to mock.

I misunderstood and have learned a bunch so far thanks to all of the wonderful replies.
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Re: Equity returns over the next 40 years

Post by TomCat96 »

10% nominal 7% real.

I'm actually very optimistic about the future growth prospects of equities.
VFINX, or the vanguard SP fund has returned 10.8% a year since its inception in 1970.

I don't believe all the words that we should expect lower returns going forward.

I have yet to see a single strong cogent argument as to why. What I see is alot of when it come to macroscopic predictions is this style of reasoning.

"The market has done too much of one thing. Surely it must soon do the other thing!"


That argument comes in many forms, but it's just not a cogent reason to me.
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Re: Equity returns over the next 40 years

Post by Triple digit golfer »

A couple years old, but good reasons for his guess.
Bogle believes the U.S. stock market will enter a period of relatively low returns. He reached his estimate by looking at 2 percent dividend yield, a "deadweight loss from the 4.4 percent it has been historically," and earnings growth of about 4 percent, which matches typical economic growth, to predict future investment return of 6 percent. He also looked at the difference between today's price/earnings ratio of about 24, and the historic P/E ratio to estimate the speculative return.

"My guess — an informed guess, but still a guess — is that by decade's end the P/E ratio might ease down to, say, 20 times or even less. Such a revaluation would reduce the market's return by about 2 percentage points per year, resulting in an annual rate of return of 4 percent for the U.S. stock market," he wrote in the Little Book of Common Sense Investing.

That doesn't include fees, of course, which would tend to reduce investors' actual return more.
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4803
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Re: Equity returns over the next 40 years

Post by 4803 »

Hello,

In constructing a long-term 60-year plan, we assumed 4% real return for a diversified global equity portfolio.

So far, for the 15 years 1/2005 - 12/2019, the portfolio is showing 5.85% return, although throughout most of the period I would say 4.5% or so real return would have been a better representative rate.

Best wishes,

:) 4803.
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Re: Equity returns over the next 40 years

Post by HomerJ »

Teriyaki wrote: Mon Jan 27, 2020 3:46 pmAlso, interest rates are globally at an unprecedentedly low level. If they stay that way
Do things "stay that way" over 40 years? Someone in 1980 could easily have talked about how inflation had been high for the past 4-5 years and if things "stay that way", returns over the next 40 years would continue to be terrible.

The one thing I can predict over the next 40 years is change.
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Re: Equity returns over the next 40 years

Post by LadyGeek »

I removed a contentious interchange which may be the result of a misunderstanding (worthwhile to predict returns, or not). As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
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Re: Equity returns over the next 40 years

Post by milktoast »

I honestly have no idea.

But I use the following formula for real yields on a 70/30 portfolio: CAGR = 70% * 0.8/CAPE + 30% * 10yrTIPS

In other words, I assume equities yield 80% of 1/CAPE and bonds yield same as 10yr TIPS.

Is that right? Definitely not.
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Re: Equity returns over the next 40 years

Post by willthrill81 »

HomerJ wrote: Mon Jan 27, 2020 8:22 pm
Teriyaki wrote: Mon Jan 27, 2020 3:46 pmAlso, interest rates are globally at an unprecedentedly low level. If they stay that way
Do things "stay that way" over 40 years? Someone in 1980 could easily have talked about how inflation had been high for the past 4-5 years and if things "stay that way", returns over the next 40 years would continue to be terrible.

The one thing I can predict over the next 40 years is change.
That's why flexibility is key.
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Re: Equity returns over the next 40 years

Post by WildCat48 »

I'm predicting about 2%, maybe a bit less.
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Re: Equity returns over the next 40 years

Post by JoMoney »

It may be wishful thinking, but I'd like to think it's at least possible for the "long-term" trend to continue :greedy
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Re: Equity returns over the next 40 years

Post by Teriyaki »

HomerJ wrote: Mon Jan 27, 2020 8:22 pm
Teriyaki wrote: Mon Jan 27, 2020 3:46 pmAlso, interest rates are globally at an unprecedentedly low level. If they stay that way
Do things "stay that way" over 40 years? Someone in 1980 could easily have talked about how inflation had been high for the past 4-5 years and if things "stay that way", returns over the next 40 years would continue to be terrible.

The one thing I can predict over the next 40 years is change.
Sure, some things will change and some will stay the same and we don't know which things will do what. All I'm saying is that a while ago nobody thought that nominal interest rates would ever go negative (like they have in Europe, for example), so we've got an entirely novel phenomenon and that we should at least consider what it would mean for returns if it were to continue into the future.
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Re: Equity returns over the next 40 years

Post by Stef »

I'm assuming 5.5% real in my Excel spreadsheet.

3-4% just doesn't make sense. The data doesn't suggest that this might be possible.
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Re: Equity returns over the next 40 years

Post by CyclingDuo »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pmOn 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?
What's wrong with telling them to save 40% of their income? :beer

Half-joking aside, focusing on the amount you sock away will end up being more important than predicting equity returns over a time frame of 40 years.

I think Jonathan Clements nailed it in his blog post at the Humble Dollar...

"HERE’S A SOBERING thought: Much—and perhaps most—of the money you’ll accumulate for retirement will reflect the raw dollars you sock away and not the investment returns you earn."

Show Me The Money...

https://humbledollar.com/2019/09/show-me-the-money/

"That brings us to a perverse conclusion—one I’m almost reluctant to mention: Because savings are so crucial, and because they’re the key driver of your ultimate nest egg, how you invest is somewhat less important."

Going with the premise that we don't get to choose our birth date for the time frame of our investing journey, focusing on how much we can save and invest through the time frame that we are given seems to be what we can control when compared to equity returns during a 40 year time frame.

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Re: Equity returns over the next 40 years

Post by JoeRetire »

Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
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Re: Equity returns over the next 40 years

Post by willthrill81 »

JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Equity returns over the next 40 years

Post by Triple digit golfer »

willthrill81 wrote: Tue Jan 28, 2020 2:52 pm
JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
How should one make allocation decisions?
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Re: Equity returns over the next 40 years

Post by Schlabba »

Teriyaki wrote: Mon Jan 27, 2020 3:46 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 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.
You can also turn that reasoning around. The 20th century had some absolutely horrible events (world wars, communism, poverty in africa, and so on), as long as we don't repeat those same mistakes we'll come out ahead compared to last century.
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Re: Equity returns over the next 40 years

Post by TheDDC »

HomerJ wrote: Mon Jan 27, 2020 2:49 pm 10% nominal, 7% real.
mptfan wrote: Mon Jan 27, 2020 2:55 pm This is not correct, the historical average of 10% is nominal, not real.
You got it. I stand corrected.

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Re: Equity returns over the next 40 years

Post by willthrill81 »

Triple digit golfer wrote: Tue Jan 28, 2020 3:37 pm
willthrill81 wrote: Tue Jan 28, 2020 2:52 pm
JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
How should one make allocation decisions?
Certainly not on the basis of one person's guess as to what will happen in the markets over the next 30 years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Equity returns over the next 40 years

Post by abuss368 »

There is no point in guessing or speculating as no one has a crystal ball that knows. We can focus on keeping costs low, diversification, looking for ways to save and invest more, and living below our means.

Vanguard has said there could be lower returns ahead so focus on these areas.

The rest is just noise.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Equity returns over the next 40 years

Post by HomerJ »

Triple digit golfer wrote: Tue Jan 28, 2020 3:37 pm
willthrill81 wrote: Tue Jan 28, 2020 2:52 pm
JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
How should one make allocation decisions?
Based on your need, ability, and willingness to take risk. If you're close to retirement, go more conservative.

Valuations and predictions of expected returns should have nothing to do with allocation decisions. You're going get what you get. I suppose one could try to save more based on predictions of low expected returns, but no need to change your allocations.

"Age in bonds" isn't a bad rule to follow, to be honest.

(This whole website could probably be replaced with a single page that says "Age in bonds, stay the course, 4% withdrawals in retirement") :)
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 Triple digit golfer »

HomerJ wrote: Tue Jan 28, 2020 4:56 pm
Triple digit golfer wrote: Tue Jan 28, 2020 3:37 pm
willthrill81 wrote: Tue Jan 28, 2020 2:52 pm
JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
How should one make allocation decisions?
Based on your need, ability, and willingness to take risk. If you're close to retirement, go more conservative.

Valuations and predictions of expected returns should have nothing to do with allocation decisions. You're going get what you get. I suppose one could try to save more based on predictions of low expected returns, but no need to change your allocations.

"Age in bonds" isn't a bad rule to follow, to be honest.

(This whole website could probably be replaced with a single page that says "Age in bonds, stay the course, 4% withdrawals in retirement") :)
But how do you know how conservative to be? Use past performance to see how big losses have been and back into the number? For example, maximum equity is 2x tolerable loss?
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Re: Equity returns over the next 40 years

Post by Financologist »

How much wheat will farmland produce per acre over the next 40 years vs. the last 40 years?

What are you willing to pay per acre? What will you be willing to pay over the next 40 years?

What is your approach to answering the question?

No one knows the answer and the answers will be based on factors we can't foresee.

In the meanwhile.. as far as I can see, stock in public companies remains the greatest chance at sustained wealth creation outside of education in terms of dollars in vs. dollars out.

Until there is a better way, my money will stay invested in equities regardless of the rainbow array of predictions.
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Re: Equity returns over the next 40 years

Post by abuss368 »

Triple digit golfer wrote: Tue Jan 28, 2020 5:04 pm
HomerJ wrote: Tue Jan 28, 2020 4:56 pm
Triple digit golfer wrote: Tue Jan 28, 2020 3:37 pm
willthrill81 wrote: Tue Jan 28, 2020 2:52 pm
JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
How should one make allocation decisions?
Based on your need, ability, and willingness to take risk. If you're close to retirement, go more conservative.

Valuations and predictions of expected returns should have nothing to do with allocation decisions. You're going get what you get. I suppose one could try to save more based on predictions of low expected returns, but no need to change your allocations.

"Age in bonds" isn't a bad rule to follow, to be honest.

(This whole website could probably be replaced with a single page that says "Age in bonds, stay the course, 4% withdrawals in retirement") :)
But how do you know how conservative to be? Use past performance to see how big losses have been and back into the number? For example, maximum equity is 2x tolerable loss?
No chance. Ignore all that. Expect up to 50% (or more) decline in a bad bear market. If that is a risk you can live with then your asset allocation is fine. If not, consider more bonds.
John C. Bogle: “Simplicity is the master key to financial success."
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JoeRetire
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Re: Equity returns over the next 40 years

Post by JoeRetire »

willthrill81 wrote: Tue Jan 28, 2020 2:52 pm
JoeRetire wrote: Tue Jan 28, 2020 1:06 pm
Olemiss540 wrote: Sun Jan 26, 2020 4:31 pm What is the likelyhood of returns over the next 30-40 years?
A 30-40 year projection?

Let me check my long term financial projection machine... hmm, it says "Reply hazy, try again."

Oh well.
Sadly, that hasn't stopped Rick Ferri from making such projections and then advising his clients to make allocation decisions on the basis of said projections. When I read that on his site, my respect for him fell several notches.
Well I'm sure his projections from 40 years ago were completely accurate. No?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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