US Bond returns to exceed or match US Equity returns over next decade

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Elysium
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US Bond returns to exceed or match US Equity returns over next decade

Post by Elysium »

According to latest forecasts by some of the notable firms involved in forecasting models, US large cap equity returns are likely to be less than US Bond returns over the next decade. Research affiliates is the most notable in this that places US bonds to return 2.1% while US Equity returns 1.6%. GMO has the most pessimistic of course and while both are negative in their models, Bonds are better than US LC. Morningstar places US LC and US Bonds at same expected returns over the next decade.

I've been one of the few proponents around here for buying bonds and/or to keep your bond allocation intact amidst all this doom & gloom talk for bonds. TIPS is another nice addition if folks are really concerned about inflation protection. The forecasts place slightly better results for them. I believe that maintaining and/or even buying more bonds by selling equities that are appreciating is a good risk control measure, regardless of whether the forecasts say come true or not. Especially for those who are on a glidepath to retirement, and while retirees may be concerned about the low rates today, they are still better off maintaining a balanced allocation of bonds with some equities to fight off inflation effects.

I have increased my bond allocation this year since my glidepath was screaming for it, while it was hard to see them drop in prices again soon after, in the long run I believe this is the best course of action to do. Younger investors with longer time horizon may not need much of bonds, but anyone else with fair amount accumulated should pay attention to their portfolio balance if they haven't already.

link to article

Note: there are other predictions such as Developed markets and Emerging equities to perform better than US Large, and Value to outperform Growth. I am not drawing attention to those since they are discussed here ad nauseum in other threads. I wanted to bring attention to risk control by focusing on bonds which are getting a bad rap here of late.
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David Jay
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by David Jay »

From your linked article, a minority of forecasts have US bonds outperforming US equities.
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000
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by 000 »

David Jay wrote: Mon Jan 17, 2022 3:29 pm From your linked article, a minority of forecasts have US bonds outperforming US equities.
All the more reason to be bullish on bonds.

Forecasts by "notable firms" are a contrarian signal.
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dogagility
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by dogagility »

David Jay wrote: Mon Jan 17, 2022 3:29 pm From your linked article, a minority of forecasts have US bonds outperforming US equities.
+1 The article doesn't support the OP's headline.

In any event, these forecasts are chatter.
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nisiprius
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by nisiprius »

I am not going to pay one minute's attention to forecasts that don't show ranges.

This is particularly true when the original reports are honest enough to show them, but journalists don't pass them on.

That's probably because if you saw the ranges you'd see that even on the face of it these predictions aren't worth much.

Vanguard economic and market outlook report 2021

I had to rescale the charts to get them on the same axis.

The problem is, who would bother to read an article with a headline "Vanguard forecasts that over the next decade, maybe stocks will beat bonds or, then again, maybe not?"

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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by tennisplyr »

Click bait
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MattB
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by MattB »

I'm curious how "cash" is expected to return between 0 and 3%?

Doesn't cash return 0% by default; or does "cash" mean some other short term debt instrument?
nisiprius wrote: Mon Jan 17, 2022 5:38 pm Image
Makefile
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Makefile »

MattB wrote: Mon Jan 17, 2022 6:12 pm I'm curious how "cash" is expected to return between 0 and 3%?

Doesn't cash return 0% by default; or does "cash" mean some other short term debt instrument?
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UpperNwGuy
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by UpperNwGuy »

Do people still read these forecasts?
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Taylor Larimore
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Taylor Larimore »

Bogleheads:

No one, absolutely no one, can forecast future stock returns or bond fund returns (except by luck). If they could, they would become millionaires very quickly and give-up writing click-bait articles.

Thankfully, I gave up market-timing years ago. Read the results of investors who tried market-timing (forecasting) here:

https://www.bogleheads.org/wiki/Taylor_ ... ing_quotes

Best wishes.
Taylor
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dan7800
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by dan7800 »

Maintain your desired AA and stay the course.

Simple
TropikThunder
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by TropikThunder »

Elysium wrote: Mon Jan 17, 2022 10:12 am According to latest forecasts by some of the notable firms involved in forecasting models, US large cap equity returns are likely to be less than US Bond returns over the next decade.
Sorry but this is a ridiculous misstatement of the information in the article. Benz lists predictions from six firms, and only two of them say bonds will be higher. One says they’ll be equal, and the other three say equity will be higher. And I’m tempered to just dismiss the GMO prediction out of hand given their track record of saying every year will be a disaster for equities. That and Grantham now thinks he can predict inflation, too (GMO are the only predictions in real terms rather than nominal).

This article does not say what you think it says.
Makefile
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Makefile »

By the end of April 2020, $10,000 invested in a January 2000 Series I Savings Bond was worth $30,992, while $10,000 invested in Vanguard Total Stock Market at the beginning of January 2000 was worth $30,383 according to Portfolio Visualizer.

Would we say "all the US stock market outperformance in the past 22 years has been since May 2020" though?
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by drk »

How did RA and GMO’s predictions fare the last 10-15 years? :twisted:
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by arcticpineapplecorp. »

If I have noticed anything over these sixty years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market.

Benjamin Graham
Thus, the conclusion I draw, and I hope you will agree, is that you should ignore — or at least treat only as entertainment (because their crystal balls certainly are not clear) — the market forecasts of Wall Street strategists. Perhaps my example will help you appreciate the old joke that there are only three types of market forecasters: those that don’t know where the market is going, those that don’t know they don’t know where the market is going, and those that know they don’t know but get paid a lot of money to pretend that they do.

We’ve developed a well-thought-out plan, and we should not allow, now or ever, the noise of the market to distract us from that plan.

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William Sherden is the author of a wonderful book, The Fortune Sellers.

Sherden was inspired by personal experience to write his book. In 1985, when preparing testimony as an expert witness, he analysed the track records of inflation projections by different forecasting methods. He then compared those forecasts to what is called the “naïve” forecast — simply projecting today’s inflation rate into the future. He was surprised to learn that the simple naive forecast proved to be the most accurate, beating the forecasts of the most prestigious economic forecasting firms equipped with their PhDs from leading universities and thousand-equation computer models.

Sherden then reviewed the leading research on forecasting accuracy from 1979 to 1995, covering forecasts made from 1970 to 1995. He concluded that:

• Economists can’t predict the turning points in the economy. Of the 48 predictions made by economists, 46 missed the turning points.

• Economists’ forecasting skill is about as good as guessing. For example, even the economists who directly or indirectly run the economy — the Federal Reserve, the Council of Economic Advisors and the Congressional Budget — had forecasting records that were worse than pure chance.

• There are no economic forecasters who consistently lead the pack in forecasting accuracy.

• There are no economic ideologies whose adherents produce consistently superior economic forecasts.

• Increased sophistication provides no improvement in economic forecasting accuracy.

• Consensus forecasts offer little improvement.

• Forecasts may be affected by psychological bias. Some economists are perpetually optimistic and others perpetually pessimistic.

Since the underlying basis of most stock market forecasts is an economic forecast, the evidence suggests that stock market strategists who predict bull and bear markets will have no greater success than the economists.

source: source: https://www.evidenceinvestor.com/even-a ... wont-help/
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Elysium
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Elysium »

I made it clear in my footnote this is my interpretation using one set of data point (minority it may be) and not the entire point of the article, which goes on to show range of outcomes. I am not asking anyone to change their asset allocations based on any forecast, instead I am urging folks to continue staying with their AA, and consider Bonds as an important component of their portfolios, since there are many threads from people fearful of rising rates will make their bond returns negative. Many folks have drifted from their original planned AA in the last year or two, for two reasons, one fear of rates rising, and two equities have gone up. This has made many portfolios out of balance, and folks are hesitant to rebalance out from equities into bonds. This is evident from many threads on this forum. If you're not one of them, then move on, nothing to see here. My point is others who are hesitating to keep their portfolio risk under control, should look at this and stay with their bond allocation. Interest rates going up could in fact may be a good outcome for bonds is another point that can be inferred from the article.
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Beensabu
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Beensabu »

Wow. People around here usually love a Christine Benz article... Touchy, touchy...

Here are some good bits unlikely to offend any sensibilities:
...every firm in our compilation expects that U.S. equity returns over the next seven to 10 years will be well below the 16% annualized return that the S&P 500 has posted over the past decade.
And with the Federal Reserve indicating that it's planning to lift the federal-funds rate starting this year, firms are crediting bonds with slightly higher return expectations than has been the case in the past several surveys.
Low return expectations for U.S. stocks and bonds are key reasons that recent research from our team suggested that new retirees start off conservatively with respect to their withdrawals.
So, maybe....

- don't rely on the next decade to look like the last
- rising rates actually mean higher bond returns
- don't overestimate SWR if you're a new retiree

Nothing too radical. Seems fairly sensible.
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TropikThunder
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by TropikThunder »

Beensabu wrote: Mon Jan 17, 2022 7:36 pm Wow. People around here usually love a Christine Benz article... Touchy, touchy...
The article is not the source of disagreement or consternation.
Beensabu wrote: Mon Jan 17, 2022 7:36 pm Nothing too radical. Seems fairly sensible.
Totally agree. But that’s not what the headline of this thread would have you think.
retiredflyboy
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by retiredflyboy »

No body knows what the next 10 years will bring.
Set your AA based on your goal and risk tolerance and stay the course. 70/30 to 30/70 stocks and bonds in broad based index funds, and don’t do something just stand there.
Facts are stubborn things. Everything works until it doesn’t.
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theac
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by theac »

I asked a dumb question, I think I'll withdraw it. :happy
Last edited by theac on Tue Jan 18, 2022 3:17 pm, edited 5 times in total.
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Beensabu
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Beensabu »

TropikThunder wrote: Mon Jan 17, 2022 8:39 pm
Beensabu wrote: Mon Jan 17, 2022 7:36 pm Wow. People around here usually love a Christine Benz article... Touchy, touchy...
The article is not the source of disagreement or consternation.
Beensabu wrote: Mon Jan 17, 2022 7:36 pm Nothing too radical. Seems fairly sensible.
Totally agree. But that’s not what the headline of this thread would have you think.
It has been wearying to beat the bond drum of late. The capitulation (and accompanying rationalization) has been unreal.

If the subject line of the thread at least gets people to read the part of the article prior to the individual forecast section, then good.

There have been a number of very well respected people who have recently essentially been saying "maybe don't be too aggressive, especially if you're retiring soon". It's kind of impossible to ignore. That's people who tend not to make "predictions" going ahead and putting themselves out there because they'd hate themselves if they didn't say anything. That's not noise. There is a huge difference between someone with $5m being too aggressive vs. someone with $500k or less. One of those people will be fine, regardless; the other might not be.

It's entirely possible that US bond returns may exceed or match US equity returns over the next 7-10 years. It's actually possible. Whether or not that will happen? Who knows. But it's a possibility. And if the success of someone's plan hinges on completely discounting that possibility, that's not a good plan.
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Taylor Larimore
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by Taylor Larimore »

Bogleheads:

I wince when I see posts concentrating on bond returns.

"Returns" are not what bonds are for. Bonds are for portfolio "safety." Bonds with the highest returns are usually the bonds that do worst when stocks decline.

Bogleheads seeking higher returns should simply increase their stock allocation.

Best wishes.
Taylor
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by seajay »

Stocks have provided 13.8% annualized real gains over the last 10 years, total bonds 0.6%. Even if stocks rewarded 0% real over the next 10 years that's still a 20 year 6.6% real rate of return.

To me the thread title is just suggesting that after such great stock gains they're more inclined to be more bond like for a while.
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Re: US Bond returns to exceed or match US Equity returns over next decade

Post by dboeger1 »

Not having clicked on OP's link, I'll just take it at face value and not critique it despite valid concerns from others. One thing that people tend to forget is that for the average investor buying into stocks with part of each paycheck, the exact return from one arbitrary point in time to another arbitrary future point in time is largely meaningless. Stocks can return 0% over the next 40 years and still make or lose money for someone like me based on volatility alone. I think people are way too concerned with smooth graphs over many years and making long-term predictions given that much of their money likely won't be invested for many years anyway. I consider myself a pretty aggressive FIRE type who would definitely like to semi-retire by 40, and even I would be accumulating over the course of 18 years if that were the case, with presumably higher income towards the end of that range. Likewise, I intend to spend down the portfolio gradually over many, many years. Thus, stock returns from today to some arbitrary point in the future only matter to the extent which I am buying today and will sell at that point in the future... in other words, a tiny fraction of my portfolio. If stocks have low returns going forward, it's highly likely that I will be buying cheaper (with subsequently higher expected returns) at various points in the future. Yay for me. There's just not much point to worrying about this kind of stuff unless you need to spend money in the short-to-medium term or no longer believe stocks will have greater returns in the long run.
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