Expected returns for 80/20 stock bond for next 10 years.

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masonstone
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Expected returns for 80/20 stock bond for next 10 years.

Post by masonstone » Mon Jul 02, 2018 7:24 pm

What’s a reasonable Expected returns for 80/20 stock bond vanguard admiral shares total market for both sides for next 10 years.

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Rick Ferri
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 02, 2018 7:42 pm

I would use up to 5.0% for that allocation if the bond side is in the intermediate-term corporate fund. Less if you use Treasuries.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Luckywon » Mon Jul 02, 2018 8:06 pm

Rick Ferri wrote:
Mon Jul 02, 2018 7:42 pm
I would use up to 5.0% for that allocation if the bond side is in the intermediate-term corporate fund. Less if you use Treasuries.
For clarificaton, I assume you mean 5 % real (inflation adjusted) ?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 02, 2018 8:10 pm

Nope. 2% inflation is included in the 5% estimate. So, 3% real return, before tax.

Don’t like it?

Central Banks around the world will be trying to normalize policy after a decade of negative real interest rates and that means regression to the mean for asset prices - my opinion, of course.

I’m giving you a realistic estimate to work with over the next 10 years. If returns are higher, great! If not, you won’t be disappointed.
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masonstone
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by masonstone » Mon Jul 02, 2018 8:16 pm

Rick Ferri wrote:
Mon Jul 02, 2018 8:10 pm
Nope. 2% inflation is included in the 5% estimate. So, 3% real return, before tax.

Don’t like it?

Central Banks around the world will be trying to normalize policy and that means regression to the mean for asset prices - my opinion, of course.

I’m giving you a realistic estimate to work with over the next 10 years. If returns are higher, great! If not, you won’t be disappointed.
What’s a realistic number though. 3% real is a conservative estimate over a 10 year interval.

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Rick Ferri
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 02, 2018 8:22 pm

A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by SimplicityNow » Mon Jul 02, 2018 8:26 pm

Unfortunately that is a realistic number.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by TheTimeLord » Mon Jul 02, 2018 8:31 pm

SimplicityNow wrote:
Mon Jul 02, 2018 8:26 pm
Unfortunately that is a realistic number.
What accounts for the variance between this number and historical estimates?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 02, 2018 8:35 pm

Are you referring to historical returns during the decade of the 1930s, 1970s, or 2000s?
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Sandtrap » Mon Jul 02, 2018 8:38 pm

masonstone wrote:
Mon Jul 02, 2018 7:24 pm
What’s a reasonable Expected returns for 80/20 stock bond vanguard admiral shares total market for both sides for next 10 years.
Good question.
Interesting answers.
What about:
60/40 ??
50/50 ??

j

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by TheTimeLord » Mon Jul 02, 2018 8:40 pm

Rick Ferri wrote:
Mon Jul 02, 2018 8:35 pm
Are you referring to historical returns during the decade of the 1930s, 1970s, or 2000s?
Historical Risk/Return (1926–2017) according to the Vanguard link below. Am I misunderstanding the information from Vanguard?

https://personal.vanguard.com/us/insigh ... llocations
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Noobvestor » Mon Jul 02, 2018 8:40 pm

Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
That for 100% US, 50/50 US/intl, or something in between? :|
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by masonstone » Mon Jul 02, 2018 8:44 pm

Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
This is not accurate according to historical returns. Realistic nominal returns are between 7-10

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by HomerJ » Mon Jul 02, 2018 8:49 pm

masonstone wrote:
Mon Jul 02, 2018 7:24 pm
What’s a reasonable Expected returns for 80/20 stock bond vanguard admiral shares total market for both sides for next 10 years.
Somewhere between 0% and 14%
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by SimplicityNow » Mon Jul 02, 2018 8:52 pm

TheTimeLord wrote:
Mon Jul 02, 2018 8:31 pm
SimplicityNow wrote:
Mon Jul 02, 2018 8:26 pm
Unfortunately that is a realistic number.
What accounts for the variance between this number and historical estimates?

https://personal.vanguard.com/us/insigh ... llocations
I'm no expert with charts and graphs but based on what I have read: we have had above average returns during the current bull market. The link you provided averages returns over the past 90 years. The OP was asking about the next 10 year period and I think it is realistic based on current valuations and return to the mean that a 3-4% real return for equities and a 0-1 % real return on bonds is a reasonable prediction.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by jbranx » Mon Jul 02, 2018 8:54 pm

Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Mon Jul 02, 2018 8:56 pm

I understand. Recency bias is very real in financial expectations. It’s common for investors to expect high returns after a ten year period of high returns.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by z3r0c00l » Mon Jul 02, 2018 8:58 pm

I would put a bet down on the range between -50 and +100%. Wouldn't trust a prediction more specific than that.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by vineviz » Mon Jul 02, 2018 9:00 pm

jbranx wrote:
Mon Jul 02, 2018 8:54 pm
Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true
Virtually every other brokerage firm has a similar outlook as far as I can tell. Real returns for stocks of 2-4%, real returns for bonds of 1-2%, are pretty typical expectations for the next ten years.

Save accordingly, and hope to be pleasantly surprised.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by JBTX » Mon Jul 02, 2018 9:05 pm

Agree with 1-3% real. Given high historical cape10 and still modest interest rates I wouldn't bank on much appreciation.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by JBTX » Mon Jul 02, 2018 9:29 pm

masonstone wrote:
Mon Jul 02, 2018 8:44 pm
Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
This is not accurate according to historical returns. Realistic nominal returns are between 7-10
Mathematically that seems highly improbable. Due to demographic and other macroeconomic factors GDP growth will probably remain muted in the 2% range. We havent had a recession in 10 years. Interest rates seem to be trending upward which hurts immediate bond pricing and tends to lower PE levels. CAPE10s are at historically high levels.

Comparing to other relative market peaks (comparable cape10s)

2000-2010

Total market index: 0% nominal
60/40 index: approx 2% nominal

2007-2017

TMSI: 7% nominal
60/40 index: Approx 2% nominal

2007-2017 is kind of a best case scenario going from peak to peak. 2000-2010 was going from extreme peak to relative midpoint.

It is really hard to look at those and expect 7-10% nominal for an 80/20 AA.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Socal77 » Mon Jul 02, 2018 9:40 pm

masonstone wrote:
Mon Jul 02, 2018 8:44 pm
Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
This is not accurate according to historical returns. Realistic nominal returns are between 7-10
5 nominal 3 real can be accurate for the next decade due to current valuations. But still, everyone is guessing.

One detail I'd add is that the 10 year forecast would only pertain to your initial lump sum investment. The flow of future investment into higher or lower valuations will change the total return.

In other words, your initial investment may turn out 5 nominal 3 real, but the additional investment at lower valuations could increase your return above the forecast for the initial lump sum.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Bulgogi Head » Mon Jul 02, 2018 9:45 pm

5% estimate is for US? Or a global portfolio?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by whodidntante » Mon Jul 02, 2018 9:47 pm

Bulgogi Head wrote:
Mon Jul 02, 2018 9:45 pm
5% estimate is for US? Or a global portfolio?
Research affiliates has an expected return model with an interactive interface. You can interrogate it for various asset classes.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by jbranx » Mon Jul 02, 2018 9:49 pm

Bulgogi Head wrote:
Mon Jul 02, 2018 9:45 pm
5% estimate is for US? Or a global portfolio?
Apparently the forecast is meant mainly for the US, per this quote from the transcript:


Andrew Patterson: Nominal returns, particularly here in the United States, on the equity
side, [are] likely to be very muted. When I say muted, we’re talking about a central
tendency of around 3% to 5%, compared with a historic average of closer to 9% to 11%
on an annualized basis. Right, and that’s over the next ten years. To say that we won’t have
years that outperform, that could reach double-digit returns, or years that will underperform
with negative returns in the year, we can’t say with precision when that will occur. But
on an annualized ten-year outlook, our views on the U.S. equities is much more guarded
maybe than it would have been in the past.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by AlohaJoe » Mon Jul 02, 2018 10:02 pm

vineviz wrote:
Mon Jul 02, 2018 9:00 pm
jbranx wrote:
Mon Jul 02, 2018 8:54 pm
Here's Vanguard's latest estimates:

"While inflation is expected to remain low, investors should expect the nominal rate of return on their investments to be in the range of 3% to 5%, compared with historical averages of 9% to 11%, a panel of Vanguard economists said." So, real returns as low as 1-3% in their view.

Here's a link to the transcript:

https://advisors.vanguard.com/iwe/pdf/F ... omain=true
Virtually every other brokerage firm has a similar outlook as far as I can tell. Real returns for stocks of 2-4%, real returns for bonds of 1-2%, are pretty typical expectations for the next ten years.
To show this....(all returns are real for US equities)
  • GMO says -4.7%
  • Research Affiliates says 0.13%
  • Robeco says 3.75%
  • JP Morgan says 3.25%
  • BNY Mellon (2017) says 4.3%
  • Callan (2017) says 4.35%
  • Blackrock (2017) says 1.85% (I think; they said 4.1% but it wasn't clear whether they meant real or nominal; I assumed that was nominal and they also forecast inflation of 2.25%)
  • AQR 4%
  • Schwab 4.5%
GMO and (to a lesser extent) RA are the clear pessimistic outliers. Everyone else seems to be saying 3.25%-4.5% real returns for US equities over the next decade.

However, I disagree about the real returns for bonds of 1-2%. I don't see anyone forecasting that high.
  • RA 0.88%
  • Robeco -3%
  • JP Morgan 0.75%
  • BNY Mellon 0.1%
  • Callan 0.5%
  • Blackrock -0.45%
  • GMO -1%
  • AQR 0.4%
  • Schwab 0.9%
No one is really forecasting 1% real return for bonds; everyone seems to come in quite a bit under that. Though admittedly there will be some variation between Treasuries, total bond market, corporates, etc. But I don't think anyone is forecasting any kind of investment grade US debt to be 2% real return.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by sman09 » Tue Jul 03, 2018 12:05 am

Sandtrap wrote:
Mon Jul 02, 2018 8:38 pm
Good question.
Interesting answers.
What about:
60/40 ??
50/50 ??

j
any insights on these scenarios?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Noobvestor » Tue Jul 03, 2018 12:09 am

AlohaJoe wrote:
Mon Jul 02, 2018 10:02 pm
However, I disagree about the real returns for bonds of 1-2%. I don't see anyone forecasting that high.
  • RA 0.88%
  • Robeco -3%
  • JP Morgan 0.75%
  • BNY Mellon 0.1%
  • Callan 0.5%
  • Blackrock -0.45%
  • GMO -1%
  • AQR 0.4%
  • Schwab 0.9%
No one is really forecasting 1% real return for bonds; everyone seems to come in quite a bit under that. Though admittedly there will be some variation between Treasuries, total bond market, corporates, etc. But I don't think anyone is forecasting any kind of investment grade US debt to be 2% real return.
10-year TIPS are at around .75% right now - forecasting lower than that for the next decade seems strange to me. I guess if you assume longer bonds and rising rates? But if you just wanted to beat the majority of those forecasts, you could do it with ultra-safe, real-return TIPS alone. And I'm no expert, but if safe bonds are yielding that, surely an investor can expect a bit more if they take default/inflation risks, no?
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by CurlyDave » Tue Jul 03, 2018 12:09 am

Whenever you read about a "panel of economists" or "economists" you need to understand that their opinion and $5.00 will get you a cup of coffee at Starbucks.

Just as an example of the predictive power of economists, when the results of the 2016 election became clear, the market was closed but stock market futures plummeted. Paul Krugman, a Nobel winning economist, gave his opinion on when they would recover, which was "never".

Well, "never" turned out to be a few hours, and by the time markets opened in the morning prices had stabilized and even increased. The market return of VOO in 2017 was just under 22%.

This is not intended as a political comment, and I am certain the Mr. Krugman is a very competent economist. My point is that his Oiija board works no better than mine, or yours.

I have been reading about lowering expectations of returns for at least the past 5 years. But, as of 3/31/2018, the 5 year market return of that same VOO has been 13.31%. Now if there is zero growth for the next 5 years, the 10 year CAGR will be 6.4%.

The beauty of the stock market is that a couple of guys with the right ideas can start in a garage somewhere and in a few short decades build a world-class company. And all the esteemed economists in the world can't see it coming or predict it. So, if you ask when this investor is going to believe predictions for lower growth, the answer is "never".
Last edited by CurlyDave on Tue Jul 03, 2018 12:21 am, edited 1 time in total.

wootwoot
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by wootwoot » Tue Jul 03, 2018 12:16 am

So many fortune tellers in here. What makes you think that anyone can reliably predict future returns?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by mrspock » Tue Jul 03, 2018 12:26 am

wootwoot wrote:
Tue Jul 03, 2018 12:16 am
So many fortune tellers in here. What makes you think that anyone can reliably predict future returns?
+1, I’m amused so many think they can predict market returns. What next, claims of when the top is in? :shock:

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Nate79 » Tue Jul 03, 2018 12:32 am

Stock returns of 7% real. Someone needs to be an optimist around here....

Until someone posts their historical track record of predictions including the track record of so called experts I consider all these predictions to be pretty much worthless.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by flyingaway » Tue Jul 03, 2018 12:35 am

I am using 5% nominal and 3% inflation for my planning.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by stocknoob4111 » Tue Jul 03, 2018 2:13 am

impossible to predict. I don't listen to experts anymore as their predictions have constantly been wrong time and again in the last two decades.

Weren't all the experts saying DOW 30,000 just six months ago? LOL!

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Beensabu » Tue Jul 03, 2018 2:18 am

sman09 wrote:
Tue Jul 03, 2018 12:05 am
Sandtrap wrote:
Mon Jul 02, 2018 8:38 pm
Good question.
Interesting answers.
What about:
60/40 ??
50/50 ??

j
any insights on these scenarios?
This is not an insight. However, IF you assume 3.5% real for stocks and 0.5% real for bonds, that would give you:

100/0 - 3.5%
90/10 - 3.2%
80/20 - 2.9%
70/30 - 2.6%
60/40 - 2.3%
50/50 - 2.0%
40/60 - 1.7%
30/70 - 1.4%
20/80 - 1.1%
10/90 - 0.8%
0/100 - 0.5%

(%expected real stock return * %equities) + (%expected real bond return * %bonds) / 100 = %expected total return

As best I can tell in my simple-minded way (and I am likely completely and utterly off base), it looks like perhaps the predictors are obtaining their expected return predictions in the following manner:

EDIT: Stocks (US Total Stock Market): forward-looking (E/P) + projected dividend yield - projected rate of inflation
Bonds (US Aggregate Bond Market): current YTM - projected rate of inflation
Last edited by Beensabu on Fri Jul 06, 2018 7:37 pm, edited 1 time in total.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by AlohaJoe » Tue Jul 03, 2018 2:24 am

stocknoob4111 wrote:
Tue Jul 03, 2018 2:13 am
Weren't all the experts saying DOW 30,000 just six months ago? LOL!
This made me curious so I googled to see who was saying it. Here's one such article about why -- back in February -- DOW 30,000 was going to be right around the corner:
Please note the following from the chart:
• A “W” pattern is forming. This is a bullish pattern.
• The chart shows Fibonacci retracement levels.
• The chart shows that the market is consolidating between 50% and 61.8% retracement levels. This is a positive.
• The chart shows two key levels from which the overshoot occurred in January 2018. Overshoots are common in the market.
• The chart shows that the consolidation is occurring above the key levels. This is positive.
• The pattern that is being set up often leads to a move up but with significant volatility.
I mean, how could you go wrong with Fibonacci retracement levels!?

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by WanderingDoc » Tue Jul 03, 2018 2:31 am

HomerJ wrote:
Mon Jul 02, 2018 8:49 pm
masonstone wrote:
Mon Jul 02, 2018 7:24 pm
What’s a reasonable Expected returns for 80/20 stock bond vanguard admiral shares total market for both sides for next 10 years.
Somewhere between 0% and 14%
Could easily be -2% bud.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by minimalistmarc » Tue Jul 03, 2018 2:41 am

I think things will nominally double or more over the next 10 years but hopefully not as I’m accumulating over that time period.

My non written IPS says to ignore all market predictions, including Bogleheads.

Whatever happens with the market, keep chucking money at it until it behaves.

Property is screwed though. It’s an inefficient market and price drop of 30-50% globally is more likely than for the stock market

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JoMoney
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by JoMoney » Tue Jul 03, 2018 2:42 am

If we look at historical real stock returns for rolling 10 year periods, somewhere between
-3.8 and +17.9
...or an average around 7% with some pretty wide room for variance
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by danielc » Tue Jul 03, 2018 2:50 am

Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
What would be a realistic return for stocks? for bonds? treasuries? This would be useful to know. And in general, how can I come up with those estimates myself? For bonds at least I can look at bond yields. For equities I can see that the PE ratio is around 23 for TSM, but I'm not sure how to translate that into a prediction.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Cunir » Tue Jul 03, 2018 2:56 am

I read the other day that Warren Buffett is expecting average annual returns of 7% for US stocks going forward, down from 10%. presumably he knows what he’s talking about. Chuck in some bonds as well and obviously it will be lower.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by danielc » Tue Jul 03, 2018 3:01 am

WanderingDoc wrote:
Tue Jul 03, 2018 2:31 am
Could easily be -2% bud.
Over a 10-year period? That seems improbable.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by msk » Tue Jul 03, 2018 3:53 am

I spent part of my career working with probabilities and Monte Carlo simulations. I realize that some BHs feel it's all bunk, but I love to use such simulations in decision making. Opinions differ... Anyway, starting with a single $ and using 80% Total US Stock Market and 20% Total US Bond Market and

https://www.portfoliovisualizer.com/mon ... sisResults

yields at the end of 10 years, in real terms after subtracting inflation:
50th Percentile $1.99
10th Percentile $1.13
90th Percentile $3.26

To the OP, play with the simulations and perhaps it might help in your decision making. I like using the range between the 25th and 75th Percentiles for sensitivity testing. There could always be a world war in the immediate future so trying to include black swan events tends to be unhelpful. Working with nominal returns tends to complicate things rather excessively, because we also have no clue what the inflation rate will be...

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Rick Ferri
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Tue Jul 03, 2018 4:04 am

The question is this, do you plan for a 5% expected return from 80/20 by making adjustments to your savings and spending so you’ll likely have enough for retirement, or spend and save based on a 7% expected return and potentially not have enough?
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by mrspock » Tue Jul 03, 2018 4:24 am

Rick Ferri wrote:
Tue Jul 03, 2018 4:04 am
The question is this, do you plan for a 5% expected return from 80/20 by making adjustments to your savings and spending so you’ll likely have enough for retirement, or spend and save based on a 7% expected return and potentially not have enough?
I think it depends on the motivations of the OP. If you are in the accumulation phase, I might be better to adjust your spending to maximize your savings and use long term historical average. If returns are a bit higher you will hit your "number" sooner, lower you work a little longer. If you are really worried, just add more cushion to your "number" and tilt more aggressively to bonds (which allows you to ride out market swings much easier).

If you are retired, there are far better methods to ensure you will have enough to see through your retirement vs. reading tea leaves, consulting fortune tellers or otherwise. Use FireCalc, various rules of thumb (spend 3% vs. 4%), retire to a LCOL area, and simply being willing to live more frugally according to *actual* market returns or a combination of all three.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by NotWhoYouThink » Tue Jul 03, 2018 8:59 am

Might as well ask who realistically has a chance to win the World Cup this year. At least in that case the number of teams if finite. We know who is on each team and who all the coaches are, should be easy enough to derive a safe prediction with all the available data. But we don't know today. Or maybe some of us do, but can't convince the rest. In a couple of weeks, we can all agree that the answer should have been obvious.

Local and national and world and possibly galactic events that we can't predict will determine the answer to OP's question, and in 10 years we can all argue about how it all ended up this way. But the best thing for OP to do is to learn to live with the fact that future events are uncertain. Put a plan in place, monitor the results, mentally prepare for ups and downs and changes. Adjust the plan as needed.

Uncertainty is hard for some people to accept.

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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by HomerJ » Tue Jul 03, 2018 9:03 am

WanderingDoc wrote:
Tue Jul 03, 2018 2:31 am
HomerJ wrote:
Mon Jul 02, 2018 8:49 pm
masonstone wrote:
Mon Jul 02, 2018 7:24 pm
What’s a reasonable Expected returns for 80/20 stock bond vanguard admiral shares total market for both sides for next 10 years.
Somewhere between 0% and 14%
Could easily be -2% bud.
It could indeed be -2%, but probably not easily. Yes, there have been negative 10-year periods for 100% stocks.

1928-1938 was the worst at -1.7%.
1999-2009 saw -1.0%

So it is possible. But -2% is not likely, even with 100% stocks.

But the 20% bonds will help a lot. During times of economic recession, bonds usually do pretty well. 20% is probably enough to get a portfolio back to 0%.

A 50/50 portfolio from 1928-1938 returned 2.4%
A 50/50 portfolio from 1999-2009 returned 3.8%

(The above was calculated assuming 10-year treasuries for the bond portfolio)

Edit: I'm trusting some random financial website for these numbers (although somewhat reputable). And I no longer have the link. Sorry about that.
Last edited by HomerJ on Tue Jul 03, 2018 12:50 pm, edited 1 time in total.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by Rick Ferri » Tue Jul 03, 2018 9:11 am

I disagree that predicting 10 year returns is a random event. There is no randomness in a the expected return of a 10-year zero coupon bond. It is 2.87%. That’s an absolute number which all other expect returns can be derived by adding expected risk premiums.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by HomerJ » Tue Jul 03, 2018 9:14 am

danielc wrote:
Tue Jul 03, 2018 2:50 am
Rick Ferri wrote:
Mon Jul 02, 2018 8:22 pm
A realistic return number for an 80/20 allocation is 5% nominal and 3% real. Sorry I was not clear in that.
What would be a realistic return for stocks? for bonds? treasuries? This would be useful to know. And in general, how can I come up with those estimates myself? For bonds at least I can look at bond yields. For equities I can see that the PE ratio is around 23 for TSM, but I'm not sure how to translate that into a prediction.
There is no way to accurately estimate returns. They can come up with a "expected" number, but then they have to add in "plus/minus 8%". You can safely ignore all the "experts". Too many variables, nobody knows enough. It must be very frustrating for economists to admit the truth.

So use a lowball estimate, and adjust to what you actually get.

Just like we use worst case estimates to come up with the 4% Safe Withdrawal rate (and many people here go even lower), do the same when estimating returns.

Assume 3%-5% nominal stock returns for the next 20 years, and be pleasantly surprised if we get more (and be ready to adjust if we get less).

I would use those numbers, regardless of valuations. Even if valuations were low, it would be imprudent and unwise to plan around 12% returns to meet your goals.
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Re: Expected returns for 80/20 stock bond for next 10 years.

Post by deltaneutral83 » Tue Jul 03, 2018 9:15 am

Nate79 wrote:
Tue Jul 03, 2018 12:32 am
Stock returns of 7% real. Someone needs to be an optimist around here....

Until someone posts their historical track record of predictions including the track record of so called experts I consider all these predictions to be pretty much worthless.
I think historically, if we were to get the 5-6% nominal with 2% inflation in US equities for the next ten years this would be the worst 30 year rolling ROI (1999-2028) nominal or real I believe since they kept data which goes further than the Depression. In fact, I don't think it would be close, I am showing 1/1/1999-Now with divs reinvested on the S&P at 6.07 nominal and 3.79% real. I cherry picked Sept 1929-Sept 1959 and got 7.63% Nominal/5.76% real.

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