Seasoned bogleheads repressing the thought of lower expected returns

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premiumbananas
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Seasoned bogleheads repressing the thought of lower expected returns

Post by premiumbananas »

Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by RadAudit »

There are a number of BHers who are willing to accept what the markets provide. Some of those believe in LBYM.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by bengal22 »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
not painful to acknowledge because the one thing we know is that you cannot predict future returns. as long as I match the market I have done the best I can.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Zithron »

"Hardly positive" real returns are better than negative real returns, which are also a possibility. We invest because there's not really a better alternative.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.

B) The market will be volatile. It will not be consistent in any fashion.

In summary, it is meaningless.

Please look at your own portfolio. How is the actual return of your portfolio match with the market return? It is not the same.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by cfs »

Nothing to repress and nothing to hide, just accepting what Miss Market provides. Good luck y gracias por leer / cfs
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iceport »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
It's possible, but I haven't noticed much denial of the possibility.

Do you have any specific examples? Or is this purely a rhetorical question?
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by wootwoot »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Please tell me premiumbananas, what crystal ball are you looking at?
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Investors' current equity allocation suggests about a 3% nominal return for the next decade (+/- 2%), most valuation models are around 4%, interest rates are rising (increasing the cost of capital, usually lowering future stock returns), and the current bull market is very long in the tooth. Frankly, I'd be surprised to see equities return more than 5% nominal annualized over the next decade. It's hard for many, I think, to accept that the next decade's returns may barely keep ahead of inflation. That's not much of a reward for holding a volatile asset.
iceport wrote: Sat Mar 24, 2018 9:12 pmIt's possible, but I haven't noticed much denial of the possibility.
There are some here who, I think, are in denial. Depending on one's situation, the distinct possibility of another 'lost decade' is a hard pill to swallow.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 »

wootwoot wrote: Sat Mar 24, 2018 9:34 pm
premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Please tell me premiumbananas, what crystal ball are you looking at?
It's hard to find many 'experts' who are predicting strong equity returns over the next decade, including this forum's namesake (though he's nearly always been low in his prior estimates). They might all be wrong though; it wouldn't be the first time.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by darrvao777 »

What's the alternative though to investing like we always have?

Go to cash? Gold? Real estate?

I plan to stay the course, take what the market gives me, and continue to live frugally
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 »

darrvao777 wrote: Sat Mar 24, 2018 9:52 pm What's the alternative though to investing like we always have?

Go to cash? Gold? Real estate?

I plan to stay the course, take what the market gives me, and continue to live frugally
Larry Swedroe would probably suggest that we should look into time-series momentum (i.e. trend following) and/or alternative investments.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by eye.surgeon »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Predicting future returns is impossible. I worry about what I can control. I can survive on aggressive savings if I have to, but I doubt I will have to.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool »

OP,

I can reach my goal with the low forecasted return. So, there is no problem here.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iceport »

darrvao777 wrote: Sat Mar 24, 2018 9:52 pm What's the alternative though to investing like we always have?

Go to cash? Gold? Real estate?

I plan to stay the course, take what the market gives me, and continue to live frugally
Asset allocation is only part of the story. For accumulators, the prospect of low returns could lead to higher savings rates. For retirees, it could mean lower withdrawal rates.

Meaningful adjustments can be made apart from asset allocation.

For me, just starting retirement, I am resigned to capping withdrawals at 4% maximum, with the ability to virtually suspend withdrawals in the worst case scenario. There has been a lot of research highlighting the problem of under-spending by using a constant real dollar withdrawal rate based on the 4% rule. My own response to the prospect of low future returns is to consider such an under-spending problem irrelevant for the time being.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 »

iceport wrote: Sat Mar 24, 2018 10:15 pmFor me, just starting retirement, I am resigned to capping withdrawals at 4% maximum, with the ability to virtually suspend withdrawals in the worst case scenario. There has been a lot of research highlighting the problem of under-spending by using a constant real dollar withdrawal rate based on the 4% rule. My own response to the prospect of low future returns is to consider such an under-spending problem irrelevant for the time being.
As Homer would say, if 4% withdrawals are enough to meet your real needs and then some, you're already carrying an 'umbrella' in the event that the market 'rains' on your retirement parade. I'm sure you'll do just fine.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by nisiprius »

No, not repressing the thought. First, I put very little weight on any predictions. Second, I've never been a cheerleader for stocks and never expected them to be a magic key to wealth without work. Third, life is uncertain. Fourth, we're currently retired and we were always careful spenders and I think we can probably hack it without too much dislocation on zero real return, if Social Security and Medicare don't get cut too much and remain more or less recognizable.

The market never promised us anything and the market doesn't care what we "need." And we never thought it did. I've never believed in "Siegel's constant."

P.S. The Fidelity Retirement Income Planner, silly and overprecise, nevertheless did all the planning assuming 10th percentile market returns, i.e. returns that historically would have been exceeded 90% of the time. I think that's conservative enough to include the current low predictions.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iamlucky13 »

KlangFool wrote: Sat Mar 24, 2018 9:00 pm
premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.
Are you saying this in regards to investors who have a decade or shorter investment horizons, or are you saying you consider even those of us with 20+ year horizons before withdrawals even begin unreasonable if we have 100/0 or even 90/10?

I do see a point to the latter if you mean to challenge people to be honest about their ability to stick to their plans throughout a potential decade long series of losses. That's hard to conceptualize and give due credence to, while assuming a constant 8% nominal makes for such comforting numbers and doesn't involve continuing to invest in funds that have been making your nest egg shrink for years at a stretch.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Mlm »

I actually like beans and rice so I am not overly concerned. Plus there are ways to cut back on expenses if necessary or work longer if able.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by willthrill81 »

iamlucky13 wrote: Sat Mar 24, 2018 10:34 pm
KlangFool wrote: Sat Mar 24, 2018 9:00 pm
premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.
Are you saying this in regards to investors who have a decade or shorter investment horizons, or are you saying you consider even those of us with 20+ year horizons before withdrawals even begin unreasonable if we have 100/0 or even 90/10?

I do see a point to the latter if you mean to challenge people to be honest about their ability to stick to their plans throughout a potential decade long series of losses. That's hard to conceptualize and give due credence to, while assuming a constant 8% nominal makes for such comforting numbers and doesn't involve continuing to invest in funds that have been making your nest egg shrink for years at a stretch.
KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs.

Even the most die-hard believer in equity forecasts won't try to predict equity returns 20+ years into the future. Historically, 20+ year periods with equities have trounced bonds in virtually every situation save a couple where long-term (30 year) bonds just edged them out.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool »

iamlucky13 wrote: Sat Mar 24, 2018 10:34 pm
KlangFool wrote: Sat Mar 24, 2018 9:00 pm
premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.
Are you saying this in regards to investors who have a decade or shorter investment horizons, or are you saying you consider even those of us with 20+ year horizons before withdrawals even begin unreasonable if we have 100/0 or even 90/10?
iamlucky13,

<<those of us with 20+ year horizons before withdrawals >>

1) How do you know that you will survive every single recession over next 20+ years? And, you do not need to withdraw. Can you see the future?

2) If you understand risk-adjusted return and efficient frontier, you will never pick 100/0 or 90/10. 70/30 to 30/70 has the best tradeoff.

Counting on being lucky for 20+ years is not a strategy.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by fennewaldaj »

When I started getting serious about planning for retirement and figuring out what I needed to save I used 2-3% real as my projection for a 25 year timeframe till retirement. I also plotted results from -6% real to 8% real. The 2-3% assumption of course leads to high savings rate (an possibly higher than needed) but I figured the consequences of over saving are less severe than the consequences of undersaving. For the next decade I would actually be surprised to get 2-3% real.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool »

willthrill81 wrote: Sat Mar 24, 2018 10:36 pm
iamlucky13 wrote: Sat Mar 24, 2018 10:34 pm
KlangFool wrote: Sat Mar 24, 2018 9:00 pm
premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.
Are you saying this in regards to investors who have a decade or shorter investment horizons, or are you saying you consider even those of us with 20+ year horizons before withdrawals even begin unreasonable if we have 100/0 or even 90/10?

I do see a point to the latter if you mean to challenge people to be honest about their ability to stick to their plans throughout a potential decade long series of losses. That's hard to conceptualize and give due credence to, while assuming a constant 8% nominal makes for such comforting numbers and doesn't involve continuing to invest in funds that have been making your nest egg shrink for years at a stretch.
KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs.
willthrill81,

<<his belief that our portfolios should be 'retirement recession ready' from an AA perspective all the time, >>

I would like to correct one word.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by tibbitts »

iamlucky13 wrote: Sat Mar 24, 2018 10:34 pm
KlangFool wrote: Sat Mar 24, 2018 9:00 pm
premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
premiumbananas,

Please explain how is that relevant to the portfolio return of any individual?

A) A reasonable person will be 70/30 to 30/70. It is not 100/0.
Are you saying this in regards to investors who have a decade or shorter investment horizons, or are you saying you consider even those of us with 20+ year horizons before withdrawals even begin unreasonable if we have 100/0 or even 90/10?

I do see a point to the latter if you mean to challenge people to be honest about their ability to stick to their plans throughout a potential decade long series of losses. That's hard to conceptualize and give due credence to, while assuming a constant 8% nominal makes for such comforting numbers and doesn't involve continuing to invest in funds that have been making your nest egg shrink for years at a stretch.
I believe Benjamin Graham suggested everyone be between 75/25 and 25/75, so this is just a slight deviation on that.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by scorcher31 »

Frankly I've heard this for at least the past 4 years about returns ~4% real. Well S&P500 has returned about 48% in that time. That's about 5%/year for 10 years provided we just stay even overall for the next 6. Frankly, I don't ever really remember a time since the last crash where people said the market would do well, so I don't put any faith in any future predictions. Besides if it all comes crashing down, everyone else will be screwed anyways.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by premiumbananas »

How are institutional investors (pension funds etc.) able to handle said prospect?

They are in all seriousness relying on like 7% annual return...
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Ron Scott »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Some are and some get annoyed at posts that explore this.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Grt2bOutdoors »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
Nope, take what the market gives, use widely diversified low cost funds, stay the course.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Grt2bOutdoors »

premiumbananas wrote: Sat Mar 24, 2018 11:24 pm How are institutional investors (pension funds etc.) able to handle said prospect?

They are in all seriousness relying on like 7% annual return...
Private equity, alternative funds, kick the can down the road to taxpayers and/or modify pension benefits for new comers.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Nate79 »

I'm investing for the next 50 years, assuming I live that long. Who cares about a decade.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iceport »

premiumbananas wrote: Sat Mar 24, 2018 11:24 pm How are institutional investors (pension funds etc.) able to handle said prospect?

They are in all seriousness relying on like 7% annual return...
How are they paying their employees? They are able to handle said prospect the same way.

A pension is part of total compensation, typically accrued monthly. There's nothing that says an institution has to hold a pension fund and/or invest it in the market at all. It promises a pension just exactly the same way it promises to pay a wage — in return for services rendered.

It just so happens that pre-funding pensions and investing the pooled resources over the long term is a great way of helping to defray the cost of the long term obligations. But they are really only "relying on" a certain market return to help them figure out how big the pre-payment should be. If their estimate is wrong and that leads to under-funding, at some point they'll need to boost their contribution rate to account for the error.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iamlucky13 »

KlangFool wrote: Sat Mar 24, 2018 10:43 pm iamlucky13,

<<those of us with 20+ year horizons before withdrawals >>

1) How do you know that you will survive every single recession over next 20+ years? And, you do not need to withdraw. Can you see the future?

2) If you understand risk-adjusted return and efficient frontier, you will never pick 100/0 or 90/10. 70/30 to 30/70 has the best tradeoff.

Counting on being lucky for 20+ years is not a strategy.

KlangFool
I don't know I will survive every single recession. My record so far is poor - I've had long unemployed periods in 100% of the recessions since I entered the full time workforce.

My record for being recession ready is decent though. I withdrew from retirement savings during 0% of those recessions, due to being pretty well-prepared for the situation. I definitely don't plan on being lucky for 20+ years, and I haven't been lucky over the last 10.

Perhaps I should be counting the non-retirement funds I fell back on in my overall allocation, and that may be a difference in how we're discussing this, but I don't like lumping them together. That would effectively be planning for retirement based on money I expect to spend before retirement (if not on emergencies, then on a more comfortable lifestyle when those savings comfortably exceed my target).

Worse than a layoff during a recession can happen, of course, such as disability leading to permanent decrease in income. That will affect my retirement timeline and/or quality of life in retirement. But that can be a severe situation in any market, so savings rate I think is the real key there. Allocation of those savings trades off worst case against the most likely, and even the worst case leaves me better off than most people who encounter such unfortunate circumstances, who typically have no savings.

I see little case to claim any specific allocation is the single "best" tradeoff for all households across all scenarios. I also was startled that you seemed to be labeling people who likely understand risk-adjusted return, etc. much better than I do, such as Vanguard's target date fund managers, "unreasonable" for advertising funds with 90/10 allocations as all-in-one solutions.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by iamlucky13 »

premiumbananas wrote: Sat Mar 24, 2018 11:24 pm How are institutional investors (pension funds etc.) able to handle said prospect?

They are in all seriousness relying on like 7% annual return...
When pension obligations exceed the resources they have allocated, they make additional allocations. These often show up in filings as one-time expenses to bolster pension funds.

If they got far enough behind that they don't have the resources to make enough additional contributions to those funds to fulfill their contractual obligation to pay those pensions, then they're probably going to go through a bankruptcy, and the pension beneficiaries will fight against the other creditors to enforce the obligation. If even then it is reduced or terminated, the Pension Benefit Guaranty Corporation, an independent federal agency, will pay the difference up to a certain amount.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by wootwoot »

iamlucky13 wrote: Sun Mar 25, 2018 1:36 am I don't know I will survive every single recession. My record so far is poor - I've had long unemployed periods in 100% of the recessions since I entered the full time workforce.
Just curious but what type of industry are you in that you lost your job through multiple recessions?
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by VinhoVerde »

There are some common sense lifestyle changes and investment adjustments one can make if you suspect you'll be in a low return environment in the near or medium term. While the times are still good prepay for as much as you can:
(1)-own your house, car, or any major capital expense. Don't owe no money to anyone. This also puts you in a lower nominal tax rate as you don't have to rely on investment returns to pay off these loans.
(2)- Move to a low tax state with a strong fiscal position. Many states and counties are "kind" to seniors with lower tax rates too.Take advantage of these.
(3)-Buy actual bonds not bond funds. Opportunity loss doesn't sting nearly as much as realized capital losses from a bear bond market. CD and TIPS ladders return your principal.
(4)-Diversity your equity risk to the world. Vanguard Total Stock Market is essentially a sector fund. Over time, there can be meaningful divergences between returns for international and domestic stocks. See Japan.
(5)-Assuming one feels the government will continue to pay its bills, put off taking Social Security until 70 and use a stable value fund, CD ladder, or Treasury ladder to finance a bridge to maximum Social Security benefits.
I know, a lot of this sounds like " eat your vegetables" but it works. The worst case scenario is that you'll leave money on the table and enjoy a less glamorous life style. You probably won't end up a dependent of the state or family though.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by msk »

I have heard of "the market will have very low returns over the next decade" several times during the last 5 decades that I was invested in the stock market. None of such statements were timely. When the markets collapsed it was always a surprise. And with judicious investing, such times turned out to be bonanzas. All BHs have heard of "be fearful when others are greedy and greedy when others are fearful" or words to that effect. I also have difficulties imagining an economic environment when low returns (<< 5% real terms) would be acceptable and persist worldwide for any significant period. But then no sane person ever expected that we will ever suffer collective insanity that led to previous world wars either. Humans never actually behaved in their own collective best interests for many decades at a time, throughout history... For the past 300 years humans expected 5% real returns for their capital investment (be it as passive as renting out productive RE, or Trade and Industry that delivered 1 to 2% more, Pickett 'Capital in the 21st Century'). So say, interest rates shoot up to 10% because inflation is also shooting up. Nobody in his right mind will invest his capital unless he sees a good chance of making >>10%. I.e. thriving businesses will still thrive, many will also go bankrupt. But if you are indexing, your weighting adjusts automatically. IMHO any one country (or a small group of countries) can make the wrong choices and find themselves in a major enduring mess (cf Japan) but not the entire world simultaneously. Yes, a short, temporary, worldwide, slide as major investors withdraw their capital, but saner minds will prevail and we will go back to the 5+% real returns quickly enough. DIVERSIFY and quit worrying :mrgreen:
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by whodidntante »

I don't find low expected returns painful to acknowledge, but the side items that come with that steak are pretty unappetizing. Instead of mostly sideways gentle uptrend we are likely to go down some pretty steep drops to get there. Some people don't really understand the risk of their portfolio, and the amounts invested are probably bigger than in 2008. When the risk shows up we'll see some weak hands fold.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by telemark »

I ignore all prospects (aka predictions) of future market behavior, except in hindsight, because in hindsight it's hilarious to notice how wrong they turned out to be.

But maybe this time is different?
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Socal77 »

The lump sum allocation you have right now may have low 10 year returns due to current market valuations.

But if stocks drop materially the money you invest at better valuations will not have low 10 yer returns.

So you cannot think, "My whole portfolio is going to have low future 10 year returns," because the future stock investments at better valuations will make the total return better than expected.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by nisiprius »

willthrill81 wrote: Sat Mar 24, 2018 10:36 pm...KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs...
1) It's not unique. There are at least two people in this forum who believe it. It's at least duplique.

2) Benjamin Graham (Warren Buffett's guru) believed it, too. My summary of Graham's words (show below):
  • "Fundamental guiding principle:" everyone, always, stay within the range of 25%-75% stocks.
  • "Standard division:" 50% stocks.
  • "In general" don't go above 50% stocks unless you are sure you could "view a market decline of the 1969-70 type with equanimity."
  • For "most of our readers," 50-50.
(The 1969-70 market decline was about -35%). Graham's actual words:
In 'The Intelligent Investor,' Benjamin Graham wrote:We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high....

[However] we can give the investor no reliable rules by which to reduce his common-stock holdings toward the 25% minimum and then rebuild them later to the 75% maximum. We can urge that in general the investor should not have more than one-half in equities unless he is has strong confidence in the soundness of his stock position and is sure that he could view a market decline of the 1969-70 type with equanimity....

We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula...
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by TwstdSista »

Keep reading. I've only been here three months and I've seen many posts suggesting we are in for a decade long bear market in the near future. I personally expect it, given that I'm a worst case scenario person. Klangfool is correct to suggest that one should be prepared for a recession and allocate their funds/assets accordingly.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Watty »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
If anything this forum tends to be very conservative, possibly too conservative. When people post the "Can I retire?" question and details this is a tough crowd to please.

There are often posts suggesting things like 100% stocks or overweighting market sectors but these are often by "unseasoned" Bogleheads and there is not really any consensus on that.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by tibbitts »

Socal77 wrote: Sun Mar 25, 2018 5:39 am The lump sum allocation you have right now may have low 10 year returns due to current market valuations.

But if stocks drop materially the money you invest at better valuations will not have low 10 yer returns.

So you cannot think, "My whole portfolio is going to have low future 10 year returns," because the future stock investments at better valuations will make the total return better than expected.
You have to consider that a high percentage of Bogleheads do not invest new funds and are in the process of spending that lump sum.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by KlangFool »

iamlucky13 wrote: Sun Mar 25, 2018 1:36 am
KlangFool wrote: Sat Mar 24, 2018 10:43 pm iamlucky13,

<<those of us with 20+ year horizons before withdrawals >>

1) How do you know that you will survive every single recession over next 20+ years? And, you do not need to withdraw. Can you see the future?

2) If you understand risk-adjusted return and efficient frontier, you will never pick 100/0 or 90/10. 70/30 to 30/70 has the best tradeoff.

Counting on being lucky for 20+ years is not a strategy.

KlangFool
I don't know I will survive every single recession. My record so far is poor - I've had long unemployed periods in 100% of the recessions since I entered the full time workforce.

My record for being recession ready is decent though. I withdrew from retirement savings during 0% of those recessions, due to being pretty well-prepared for the situation. I definitely don't plan on being lucky for 20+ years, and I haven't been lucky over the last 10.

Perhaps I should be counting the non-retirement funds I fell back on in my overall allocation, and that may be a difference in how we're discussing this, but I don't like lumping them together. That would effectively be planning for retirement based on money I expect to spend before retirement (if not on emergencies, then on a more comfortable lifestyle when those savings comfortably exceed my target).

Worse than a layoff during a recession can happen, of course, such as disability leading to permanent decrease in income. That will affect my retirement timeline and/or quality of life in retirement. But that can be a severe situation in any market, so savings rate I think is the real key there. Allocation of those savings trades off worst case against the most likely, and even the worst case leaves me better off than most people who encounter such unfortunate circumstances, who typically have no savings.

I see little case to claim any specific allocation is the single "best" tradeoff for all households across all scenarios. I also was startled that you seemed to be labeling people who likely understand risk-adjusted return, etc. much better than I do, such as Vanguard's target date fund managers, "unreasonable" for advertising funds with 90/10 allocations as all-in-one solutions.
iamlucky13,

1) I have one portfolio. It is spread across the taxable, tax-deferred, and Roth. Folks with multiple portfolios choose to pay more taxes. I would rather spend my own money.

2) IMHO, saving for "retirement" does not make sense when you do not know when you will retire. I save for Financially Independence.

<<I also was startled that you seemed to be labeling people who likely understand risk-adjusted return, etc. much better than I do, such as Vanguard's target date fund managers, "unreasonable" for advertising funds with 90/10 allocations as all-in-one solutions.>>

3) Come on. Their goal of picking 90/10 has nothing to do with the risk-adjusted return. If that is true, the AA would not have changed to more stock during this bull market. You do know that it is not always 90/10.

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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by tibbitts »

wootwoot wrote: Sun Mar 25, 2018 2:44 am
iamlucky13 wrote: Sun Mar 25, 2018 1:36 am I don't know I will survive every single recession. My record so far is poor - I've had long unemployed periods in 100% of the recessions since I entered the full time workforce.
Just curious but what type of industry are you in that you lost your job through multiple recessions?
Not the person you're addressing, but in my case for most of my career I was an "additional resource", so when businesses didn't have enough internal resources to fill customer demand, those were the times I'd get work. So it might not have been a case of a layoff but it was a case where income could drop by maybe 80% during slowdowns.
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by Valuethinker »

nisiprius wrote: Sun Mar 25, 2018 6:19 am
willthrill81 wrote: Sat Mar 24, 2018 10:36 pm...KlangFool believes that everyone's AA should be between 25/75 and 75/25, largely due to his belief that our portfolios should be 'retirement ready' from an AA perspective all the time, regardless of the size of the portfolio. This is a rather unique perspective among BHs...
1) It's not unique. There are at least two people in this forum who believe it. It's at least duplique.

2) Benjamin Graham (Warren Buffett's guru) believed it, too. My summary of Graham's words (show below):
  • "Fundamental guiding principle:" everyone, always, stay within the range of 25%-75% stocks.
  • "Standard division:" 50% stocks.
  • "In general" don't go above 50% stocks unless you are sure you could "view a market decline of the 1969-70 type with equanimity."
  • For "most of our readers," 50-50.
(The 1969-70 market decline was about -35%). Graham's actual words:
In 'The Intelligent Investor,' Benjamin Graham wrote:We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums. According to tradition the sound reason for increasing the percentage in common stocks would be the appearance of the "bargain price" levels created in a protracted bear market. Conversely, sound procedure would call for reducing the common-stock component below 50% when in the judgement of the investor the market level has become dangerously high....

[However] we can give the investor no reliable rules by which to reduce his common-stock holdings toward the 25% minimum and then rebuild them later to the 75% maximum. We can urge that in general the investor should not have more than one-half in equities unless he is has strong confidence in the soundness of his stock position and is sure that he could view a market decline of the 1969-70 type with equanimity....

We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula...
I am a great believer in Reversion to Mean (isn't it actually Regression to the Mean?) and in wisdom.

Graham had wisdom. Many things have changed in investing since his day. Financial information about companies that you could once only obtain by visiting them, in person, is now available at the push of a button. If you waited for the market to revert to his levels of PE, dividend yield, you'd have been out of the market since at least the mid 1980s, and missed a phenomenal run up.

But he had wisdom. His understanding of financial markets, and of human nature, that gave him the arbitrary rules of 25% and 75% are both well founded. We tend to be too exuberant at the top (when we should be selling) and too pessimistic at the bottom (when we should be buying). I have watched myself be both the former in 2000, and the latter in 2009.

Note Franco Modigliani also suggested 50/50 -- that was partly a function of how TIAA Cref worked (there was a stock fund, and an annuity/ fixed interest fund), but he, too, understood his (own) human nature. His autobiography (dotted with little economic models) is a classic of the genre (of great economists writing autobiographically).
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by timmy »

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Re: Seasoned bogleheads repressing the thought of lower expected returns

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I removed several off-topic political comments. As a reminder, see: Politics and Religion
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by montanagirl »

Lower returns will definitely make me more reliant on social security, so it's good I've been waiting til I'm 70, at least. The problem is when one is so dependent, there is a tendency toward paranoia which I am trying to avoid.

Also, I am more reluctant to give up the seasonal work I do as I would like to have some skillset just in case... :|
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Re: Seasoned bogleheads repressing the thought of lower expected returns

Post by midareff »

premiumbananas wrote: Sat Mar 24, 2018 2:08 pm Are seasoned bogleheads on this forum repressing the prospect of hardly positive real returns for the next decade, because its painful to acknowledge?
No need to repress anything, it's a market and markets go up and they go down... and sometimes for extended periods. Younger Bogleheads in accumulation should view it as a blessing since they can buy more shares at stagnant or depressed (lost decade) prices. Older ones (like me) in decumulation should not have expected the economic expansion to go on forever and should have maintained a SWAN AA as appropriate to their needs. For a "little bit of Bill" some of us have safe assets that align with our life expectancy.
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