Stock & Bond Market Forecast

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munemaker
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Stock & Bond Market Forecast

Post by munemaker » Wed May 09, 2018 12:22 pm

For those of you who use a retirement calculator or modeling program (RPM, Fidelity Retirement Planner, FIRE calculator, etc.), what do you input for stock, bond and cash returns? I reviewed various forecasts and they are all over the map (not worth much, I know). I want to be somewhat (but not too) conservative and ended up with the following NOMINAL returns (include 2.2% inflation):

Equity: 4.0%
Bonds: 2.5%
Cash: 2.0%

...so what do you use?

JoeRetire
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Re: Stock & Bond Market Forecast

Post by JoeRetire » Wed May 09, 2018 12:25 pm

munemaker wrote:
Wed May 09, 2018 12:22 pm
(include 2.2% inflation)
Equity: 4.0%
Cash: 2.0%
What is your planning horizon? For other than a small number of years, I think 2.2% inflation is too low.

If these are NOMINAL returns, the 4% for Equities seems overly conservative to me.

What does a 2% return on Cash mean?
Have you found a way to make $100 bills turn into $102 bills?

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ReformedSpender
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Re: Stock & Bond Market Forecast

Post by ReformedSpender » Wed May 09, 2018 12:52 pm

4.0% nominal here for equities. Rather be safe than sorry imo.

:beer
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Wed May 09, 2018 1:00 pm

duplicate
Last edited by munemaker on Wed May 09, 2018 1:05 pm, edited 1 time in total.

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Wed May 09, 2018 1:05 pm

JoeRetire wrote:
Wed May 09, 2018 12:25 pm

What does a 2% return on Cash mean?
Have you found a way to make $100 bills turn into $102 bills?

I am thinking money market fund. Vanguard's is currently paying around 1.8%, I think, and the rate has been rising.
U.S. GAAP defines cash equivalents as “short-term, highly liquid investments that are readily convertible to known amounts of cash and that are so near their maturity that they present insignificant risk of changes in value because of changes in interest rates” and includes a money market fund as an example of a cash equivalent.
JoeRetire wrote:
Wed May 09, 2018 12:25 pm

For other than a small number of years, I think 2.2% inflation is too low.
I agree, but as inflation rises, I would expect the equity, bond and cash returns to rise as well. That's my thinking anyway. I could put in higher numbers for inflation, bonds and equities. They are all related, to some degree. That's what I am struggling with.

Planning horizon = 35 years

Thanks
Mun
Last edited by munemaker on Wed May 09, 2018 1:12 pm, edited 1 time in total.

magicrat
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Re: Stock & Bond Market Forecast

Post by magicrat » Wed May 09, 2018 1:11 pm

I use Vanguard's forecast: https://personal.vanguard.com/pdf/ISGVEMO.pdf

I am also more concerned with modelling the distribution of outcomes, not the mean.

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Wed May 09, 2018 1:17 pm

magicrat wrote:
Wed May 09, 2018 1:11 pm
I use Vanguard's forecast: https://personal.vanguard.com/pdf/ISGVEMO.pdf

I am also more concerned with modelling the distribution of outcomes, not the mean.
That is one of the forecasts I had reviewed. You raise a good point. I certainly wanted to be more conservative than picking a central value, be it mean or median. The 25th percentile feels right to me (to be conservative). Are the returns on page 27 real or nominal?

Thanks!

magicrat
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Re: Stock & Bond Market Forecast

Post by magicrat » Wed May 09, 2018 1:22 pm

munemaker wrote:
Wed May 09, 2018 1:17 pm
magicrat wrote:
Wed May 09, 2018 1:11 pm
I use Vanguard's forecast: https://personal.vanguard.com/pdf/ISGVEMO.pdf

I am also more concerned with modelling the distribution of outcomes, not the mean.
That is one of the forecasts I had reviewed. You raise a good point. I certainly wanted to be more conservative than picking a central value, be it mean or median. The 25th percentile feels right to me (to be conservative). Are the returns on page 27 real or nominal?

Thanks!
Nominal. But the report also has forecasted inflation.

No need to be overly conservative. Create multiple forecasts and scenarios (I forecast at the 25th, 50th and 75th percentiles) and see how they vary.

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Wed May 09, 2018 2:16 pm

magicrat wrote:
Wed May 09, 2018 1:22 pm
munemaker wrote:
Wed May 09, 2018 1:17 pm
magicrat wrote:
Wed May 09, 2018 1:11 pm
I use Vanguard's forecast: https://personal.vanguard.com/pdf/ISGVEMO.pdf

I am also more concerned with modelling the distribution of outcomes, not the mean.
That is one of the forecasts I had reviewed. You raise a good point. I certainly wanted to be more conservative than picking a central value, be it mean or median. The 25th percentile feels right to me (to be conservative). Are the returns on page 27 real or nominal?

Thanks!
Nominal. But the report also has forecasted inflation.

No need to be overly conservative. Create multiple forecasts and scenarios (I forecast at the 25th, 50th and 75th percentiles) and see how they vary.
That's really good advice.

Thanks!
Mun

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aj76er
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Re: Stock & Bond Market Forecast

Post by aj76er » Wed May 09, 2018 2:34 pm

Recently when I forecasted using the VPW spreadsheet, I plugged in 4% real for equities and 0.5% real for bonds. I also use a conservative longevity at 110, and AA of 70/30 stocks/bonds.

The result is a starting SWR of ~3.5% at age 50.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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SeeMoe
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Re: Stock & Bond Market Forecast

Post by SeeMoe » Wed May 09, 2018 10:34 pm

We are putting a lot of cash into our Prime MM fund now what with the rate at 1.84%! Gonna stay there for awhile and see what’s what with the markets.

SeeMoe.. :dollar
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

Day9
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Re: Stock & Bond Market Forecast

Post by Day9 » Wed May 09, 2018 11:55 pm

Here is a page from the boglehead wiki:

Historical and expected returns - Expected future returns
https://www.bogleheads.org/wiki/Histori ... re_returns
I'm just a fan of the person I got my user name from

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Thu May 10, 2018 6:24 am

Day9 wrote:
Wed May 09, 2018 11:55 pm
Here is a page from the boglehead wiki:

Historical and expected returns - Expected future returns
https://www.bogleheads.org/wiki/Histori ... re_returns
Aside from Jack Bogle's forecast, the forecasts are several years old.

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Thu May 10, 2018 6:24 am

SeeMoe wrote:
Wed May 09, 2018 10:34 pm
We are putting a lot of cash into our Prime MM fund now what with the rate at 1.84%! Gonna stay there for awhile and see what’s what with the markets.

SeeMoe.. :dollar
OK, but what does that have to do with this thread?

Also, consider that with inflation over 2%, you are losing purchasing power at 1.84%.
Last edited by munemaker on Thu May 10, 2018 11:21 am, edited 1 time in total.

IlliniDave
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Re: Stock & Bond Market Forecast

Post by IlliniDave » Thu May 10, 2018 7:07 am

In my home-spun calculator I'm currently using 3.5% real for stocks and 1.1% real for bonds. I don't model cash but if I did it would be about -0.4% real right now.

I use a method similar to what Bogle has written about where I use dividend yield + real GDP growth (proxy for earnings growth) + "speculative return" (currently based on an unwinding of PE(10) from ~32 down to 22 over 16 years). I get the numbers from multipl.com and refresh them every few months. For bonds I use the "latest" yield of Barclays Aggregate reported on the WSJ website and refresh periodically.

I know, "nobody knows nothin'," but I need a number and that's the way I chose to get one.

To keep it simple (and be more conservative) I assume the PE unwinding rate continues indefinitely.
Don't do something. Just stand there!

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Thu May 10, 2018 11:23 am

IlliniDave wrote:
Thu May 10, 2018 7:07 am
In my home-spun calculator I'm currently using 3.5% real for stocks and 1.1% real for bonds. I don't model cash but if I did it would be about -0.4% real right now.

I use a method similar to what Bogle has written about where I use dividend yield + real GDP growth (proxy for earnings growth) + "speculative return" (currently based on an unwinding of PE(10) from ~32 down to 22 over 16 years). I get the numbers from multipl.com and refresh them every few months. For bonds I use the "latest" yield of Barclays Aggregate reported on the WSJ website and refresh periodically.

I know, "nobody knows nothin'," but I need a number and that's the way I chose to get one.

To keep it simple (and be more conservative) I assume the PE unwinding rate continues indefinitely.
Thanks for sharing your methodology.

I was thinking that money market interest rates seem to be increasing faster than inflation, and that's why I used -0.2% for cash. Today, I agree -0.4% would be more accurate.

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SeeMoe
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Re: Stock & Bond Market Forecast

Post by SeeMoe » Thu May 10, 2018 2:25 pm

munemaker wrote:
Thu May 10, 2018 6:24 am
SeeMoe wrote:
Wed May 09, 2018 10:34 pm
We are putting a lot of cash into our Prime MM fund now what with the rate at 1.84%! Gonna stay there for awhile and see what’s what with the markets.

SeeMoe.. :dollar
OK, but what does that have to do with this thread?

Also, consider that with inflation over 2%, you are losing purchasing power at 1.84%.
What’s it got to do with this tread you ask? Nothing it appears. Just my insight into the rising Prime Money MarketFund rate. Our 45/55 AA, along with the new found ❤️ for money markets, and safety for now, will more than offbeat inflation...

SeeMoe.. :mrgreen:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}

SpideyIndexer
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Re: Stock & Bond Market Forecast

Post by SpideyIndexer » Tue May 15, 2018 2:08 pm

I noticed something odd on the Vanguard 2018 outlook. On page 30, there is a bar graph which shows that saving more gives about a 18% higher probability of success while spending less gives only about a 4% higher probability of success. I would have expected "saving more" and "spending less" to be the same thing. I wonder what assumptions Vanguard makes which give these different meanings.

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munemaker
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Re: Stock & Bond Market Forecast

Post by munemaker » Tue May 15, 2018 2:54 pm

SpideyIndexer wrote:
Tue May 15, 2018 2:08 pm
I noticed something odd on the Vanguard 2018 outlook. On page 30, there is a bar graph which shows that saving more gives about a 18% higher probability of success while spending less gives only about a 4% higher probability of success. I would have expected "saving more" and "spending less" to be the same thing. I wonder what assumptions Vanguard makes which give these different meanings.
At first I thought it looked strange too. If you read the Notes under the graph, it says:
"Notes: Probability of success is defined as the probability of having a positive balance in a target-date fund at age 95, based on specific savings and sending assumptions. Data show the impact of each factor changing from low (the 25th percentile of broad population data) to medium (the 50th percentile). ...
The broad population saves X and spends Y. So, the way I interpret that is if you take the 25 percentile of savings (for the broad population) and increase it to the 50 percentile, that is one number. If you take spending at the 50th percentile and reduce it to the 25 percentile, that is a different number.

Intuitively you might think they are the same thing, but in actuality, they are not.

That's how I see it anyway.

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