Grantham: US will return 2% real next 2 decades

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Re: Grantham: US will return 2% real next 2 decades

Post by asif408 » Sun Mar 10, 2019 9:53 pm

nisiprius wrote:
Sat Mar 09, 2019 8:03 pm
asif408 wrote:
Sat Mar 09, 2019 2:42 pm
...when there is a wide disparity between expected returns of asset classes, say more than 5 percent, their relative rankings have absolutely been spot on...
In my example, above, there was more than a 5% disparity between U.S. Small and Emerging Markets.

Emerging markets was supposed to return 7.5% more.

But in fact U.S. Small earned 12.0% and Emerging Markets earned 0.7%, i.e. Emerging Markets earned 11.3% less.

How can you call that "spot on?"
I was going by memory and will correct myself. When I averaged out GMO's expected return difference expectations between US (Large or small) and EM annually from 2000-2018 GMO on average has predicted about 6.5% more return for EM than US stocks. So a prediction 6-7% return above US stocks is typical from them. When it has been above several percent above that level I haven't found a case where EM has lost. Over the last several years they're predictions of excess EM return have been in the 7-9% range, and with EM Value it's in the 10-12% range.

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Re: Grantham: US will return 2% real next 2 decades

Post by asif408 » Sun Mar 10, 2019 9:59 pm

dh wrote:
Sat Mar 09, 2019 9:30 pm
asif408 wrote:
Sat Mar 09, 2019 2:42 pm
Amazing the confidence of this forums participants that Grantham's forecast will be wrong. If you have ever looked at GMO's annual expected returns, every year since 2000 they have predicted EM and EAFE would have higher returns than US stocks. So obviously you shouldn't take them literally.
While I don't think following Grantham or ANYONE'S predictions is wise, it is interesting you found that GMO predicted EM would have higher returns. So I looked back at the performance of asset class since 2000 and found that EM was either the best or 2nd best performer in 2003, 2004, 2005, 2006, 2007, 2009, 2012, and 2017. See: https://www.callan.com/wp-content/uploa ... e-2019.pdf
As I mentioned above, they have historically given EM a 6-7% premium over US stocks, and for EAFE the premium has been about 3%. From 2006-2015 their expected returns for EM had a lower premium than average, and the lowest I found was 2010, where they only gave EM a 2.6% premium over US stocks. But as far as I can tell they have never predicted (at least since 2000) that either EAFE or EM would have lower returns than US stocks.

So when their expected returns for EAFE and EM have been around them levels or lower EM and EAFE nearly always have underperformed. Right now, their expected returns for EM and EAFE over US stocks is higher than their average forecast. We'll see if that trend indicates outperformance in a decade or so. :sharebeer

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Re: Grantham: US will return 2% real next 2 decades

Post by asif408 » Sun Mar 10, 2019 10:02 pm

nisiprius wrote:
Sun Mar 10, 2019 6:57 am
I don't have an easy reference for GMO's forecasts, but if, as asif418 states, "every year since 2000 they have predicted EM and EAFE would have higher returns than US stocks," then they have been right almost exactly half the time.
I pieced together their annual forecasts from a post on the old diehards forum and using web search, so I can't speak to the accuracy of the forecast history, but would be happy to share with you if you are interested.

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Re: Grantham: US will return 2% real next 2 decades

Post by Carol88888 » Mon Mar 11, 2019 3:07 pm

Look on the bright side. For anyone who is making periodic investments over the next 2 decades, a 2% return means that the market will not be running away from them, and hence they will be accumulating a big slug of stocks at good prices.

Have a little compassion for the poor millennials who need to catch a break in the markets.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Mon Mar 11, 2019 3:32 pm

Carol88888 wrote:
Mon Mar 11, 2019 3:07 pm
Look on the bright side. For anyone who is making periodic investments over the next 2 decades, a 2% return means that the market will not be running away from them, and hence they will be accumulating a big slug of stocks at good prices.

Have a little compassion for the poor millennials who need to catch a break in the markets.
If it were really just 2%, I they might want to consider a low allocation to stocks. TIPS are paying 1.1% now with no risk. Is it worth the added risk of stocks for .9%? I don't think so.

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Re: Grantham: US will return 2% real next 2 decades

Post by columbia » Mon Mar 11, 2019 3:53 pm

gmaynardkrebs wrote:
Mon Mar 11, 2019 3:32 pm
Carol88888 wrote:
Mon Mar 11, 2019 3:07 pm
Look on the bright side. For anyone who is making periodic investments over the next 2 decades, a 2% return means that the market will not be running away from them, and hence they will be accumulating a big slug of stocks at good prices.

Have a little compassion for the poor millennials who need to catch a break in the markets.
If it were really just 2%, I they might want to consider a low allocation to stocks. TIPS are paying 1.1% now with no risk. Is it worth the added risk of stocks for .9%? I don't think so.

This seems like a rational and reasonable question (assuming one is willing to believe the wide variety of forecasts, which are pretty similar to that of GMO.). Then again, a good old fashioned crash could reset the table.

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Re: Grantham: US will return 2% real next 2 decades

Post by Tycoon » Mon Mar 11, 2019 3:58 pm

Predictions are worthless.
“To know what you know and what you do not know, that is true knowledge.” Confucius

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Re: Grantham: US will return 2% real next 2 decades

Post by 3-20Characters » Mon Mar 11, 2019 5:42 pm

At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Mon Mar 11, 2019 7:53 pm

3-20Characters wrote:
Mon Mar 11, 2019 5:42 pm
At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.
How can you predict a sequence of returns?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Grantham: US will return 2% real next 2 decades

Post by 3-20Characters » Mon Mar 11, 2019 9:01 pm

willthrill81 wrote:
Mon Mar 11, 2019 7:53 pm
3-20Characters wrote:
Mon Mar 11, 2019 5:42 pm
At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.
How can you predict a sequence of returns?
I can’t. Just for kicks, I ran a crude “what if” spreadsheet assuming that I retire today, and get market performance based on 30 years of actual s&p500 returns starting in 1967. I also used those years’ inflation numbers for expenses. It’s not very useful. Just fun with spreadsheets type stuff.

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Mon Mar 11, 2019 9:04 pm

3-20Characters wrote:
Mon Mar 11, 2019 9:01 pm
willthrill81 wrote:
Mon Mar 11, 2019 7:53 pm
3-20Characters wrote:
Mon Mar 11, 2019 5:42 pm
At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.
How can you predict a sequence of returns?
I can’t. Just for kicks, I ran a crude “what if” spreadsheet assuming that I retire today, and get market performance based on 30 years of actual s&p500 returns starting in 1967. I also used those years’ inflation numbers for expenses. It’s not very useful. Just fun with spreadsheets type stuff.
That was certainly a very poor sequence of returns, one of the very worst for U.S. investors.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Grantham: US will return 2% real next 2 decades

Post by protagonist » Mon Mar 11, 2019 10:02 pm

It doesn't really matter what Grantham, or you, or I , or Mr. Bogle, or anybody else says about market returns in the next two decades.

They are all just guessing, regardless of how rigorous their data seems.

All the world is but a play. Tune out the noise. Be thou the joyful player.

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Re: Grantham: US will return 2% real next 2 decades

Post by 3-20Characters » Mon Mar 11, 2019 10:10 pm

willthrill81 wrote:
Mon Mar 11, 2019 9:04 pm
3-20Characters wrote:
Mon Mar 11, 2019 9:01 pm
willthrill81 wrote:
Mon Mar 11, 2019 7:53 pm
3-20Characters wrote:
Mon Mar 11, 2019 5:42 pm
At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.
How can you predict a sequence of returns?
I can’t. Just for kicks, I ran a crude “what if” spreadsheet assuming that I retire today, and get market performance based on 30 years of actual s&p500 returns starting in 1967. I also used those years’ inflation numbers for expenses. It’s not very useful. Just fun with spreadsheets type stuff.
That was certainly a very poor sequence of returns, one of the very worst for U.S. investors.
That’s exactly why I ran the scenario. :D

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Re: Grantham: US will return 2% real next 2 decades

Post by marcopolo » Mon Mar 11, 2019 10:13 pm

willthrill81 wrote:
Mon Mar 11, 2019 9:04 pm
3-20Characters wrote:
Mon Mar 11, 2019 9:01 pm
willthrill81 wrote:
Mon Mar 11, 2019 7:53 pm
3-20Characters wrote:
Mon Mar 11, 2019 5:42 pm
At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.
How can you predict a sequence of returns?
I can’t. Just for kicks, I ran a crude “what if” spreadsheet assuming that I retire today, and get market performance based on 30 years of actual s&p500 returns starting in 1967. I also used those years’ inflation numbers for expenses. It’s not very useful. Just fun with spreadsheets type stuff.
That was certainly a very poor sequence of returns, one of the very worst for U.S. investors.
Isn't this pretty much the basis of the "4% rule" is based on? I believe the limiting year was 1966 or 1967. Using the subsequent 30 years of returns, and inflation.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Mon Mar 11, 2019 10:27 pm

marcopolo wrote:
Mon Mar 11, 2019 10:13 pm
willthrill81 wrote:
Mon Mar 11, 2019 9:04 pm
3-20Characters wrote:
Mon Mar 11, 2019 9:01 pm
willthrill81 wrote:
Mon Mar 11, 2019 7:53 pm
3-20Characters wrote:
Mon Mar 11, 2019 5:42 pm
At 61, I’m more concerned about sequence of return. My spreadsheet shows a pretty good scenario with low but consistent real growth but not as good if I model ~17 years of S&P numbers starting with 1967.
How can you predict a sequence of returns?
I can’t. Just for kicks, I ran a crude “what if” spreadsheet assuming that I retire today, and get market performance based on 30 years of actual s&p500 returns starting in 1967. I also used those years’ inflation numbers for expenses. It’s not very useful. Just fun with spreadsheets type stuff.
That was certainly a very poor sequence of returns, one of the very worst for U.S. investors.
Isn't this pretty much the basis of the "4% rule" is based on? I believe the limiting year was 1966 or 1967. Using the subsequent 30 years of returns, and inflation.
1966 was the worst, IIRC. 1967 and 1929 were nearly as bad as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Grantham: US will return 2% real next 2 decades

Post by Cycle » Mon Mar 11, 2019 10:34 pm

fwellimort wrote:
Thu Mar 07, 2019 10:46 pm
Fortunately, unlike some other people here, I'm quite a fresh blood so I got more than 2 decades of investing to go.
...

I found it funny when my co-workers were panic-ing over the market drop in december 2018. I stared at the number and thought, "that's it?". It just looks like a number at end of day. What's so worrying about it?
You shouldn't be so happy. The 17% annual returns we've had the past decade started a few years into my career at age 25. I was able to shovel money into the stock market and real estate during the run up so I could retire comfortably at age 35 now. This likely won't be achievable for a new grad unless we get a big and sustained contraction.

My co-workers were panicking as well, and for good reason. They are approaching 65 with tiny nest-eggs and still have mortgages/personal/car loans to pay, despite being employed at relatively high paying megacorp. Next round of layoffs and they'll be out the door with severely outdated skillsets. Thank goodness these old timers get a modest company pension.

Most working people approach retirement with a couple hundred thousand at best and rely on social security. A 10-20% drop can put them in the the cat food market until the market recovers.

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Mon Mar 11, 2019 10:42 pm

Cycle wrote:
Mon Mar 11, 2019 10:34 pm
fwellimort wrote:
Thu Mar 07, 2019 10:46 pm
Fortunately, unlike some other people here, I'm quite a fresh blood so I got more than 2 decades of investing to go.
...

I found it funny when my co-workers were panic-ing over the market drop in december 2018. I stared at the number and thought, "that's it?". It just looks like a number at end of day. What's so worrying about it?
You shouldn't be so happy. The 17% annual returns we've had the past decade started a few years into my career at age 25. I was able to shovel money into the stock market and real estate during the run up so I could retire comfortably at age 35 now. This likely won't be achievable for a new grad unless we get a big and sustained contraction.
Unless you got really lucky with speculation, retiring at age 35 had a lot more to do with you having a high savings rate than a high rate of return on your investments.
Cycle wrote:
Mon Mar 11, 2019 10:34 pm
Most working people approach retirement with a couple hundred thousand at best and rely on social security. A 10-20% drop can put them in the the cat food market until the market recovers.
A 10% drop in almost anyone's portfolio isn't going to result in them eating cat food, which is obviously hyperbole anyway for virtually everyone in the U.S. You're forgetting that the median net worth of 65-69 year olds today is barely over $200k, and most of that is home equity. So their portfolios aren't really helping them pay the bills the anyway simply because they aren't big enough to do so.

My MiL has been living for 14 years now on nothing but $1k of SS benefits. She's very frugal but has been her whole life, and she's content and happy.

I think that the 'cat food' argument is most often used by those who think that living on $30-$40k is almost a fate worse than death, despite the fact that millions of Americans and billions of people around the world do it every year.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Grantham: US will return 2% real next 2 decades

Post by Cycle » Mon Mar 11, 2019 10:48 pm

willthrill81 wrote:
Mon Mar 11, 2019 10:42 pm
Cycle wrote:
Mon Mar 11, 2019 10:34 pm
fwellimort wrote:
Thu Mar 07, 2019 10:46 pm
Fortunately, unlike some other people here, I'm quite a fresh blood so I got more than 2 decades of investing to go.
...

I found it funny when my co-workers were panic-ing over the market drop in december 2018. I stared at the number and thought, "that's it?". It just looks like a number at end of day. What's so worrying about it?
You shouldn't be so happy. The 17% annual returns we've had the past decade started a few years into my career at age 25. I was able to shovel money into the stock market and real estate during the run up so I could retire comfortably at age 35 now. This likely won't be achievable for a new grad unless we get a big and sustained contraction.
Unless you got really lucky with speculation, retiring at age 35 had a lot more to do with you having a high savings rate than a high rate of return on your investments.
Which was a result of having 0 student loans and $20k to buy my first condo. My dad always reminded me I should be trying to max out my Roth and 401k, which was great advice I followed.

I still work at innitech and plan to do so for as long as they'll have me.

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Re: Grantham: US will return 2% real next 2 decades

Post by fennewaldaj » Tue Mar 12, 2019 12:01 am

willthrill81 wrote:
Mon Mar 11, 2019 10:42 pm

I think that the 'cat food' argument is most often used by those who think that living on $30-$40k is almost a fate worse than death, despite the fact that millions of Americans and billions of people around the world do it every year.
Yeah if my wife and I were forced to claim social security at 62 and benefits where slashed to 50% of current level SS would still pay us ~18k a year. Its hard for me to get worked up about variable withdrawal plans that might cut my spending when that absolute floor exist. Assuming I am doing the calculation right if we can delay to 70 and there are no cuts our benefits are like 55k a year. I feel like with this knowledge I will be fine (and likely still way better than an average person) with any variable withdrawal plan even if returns do turn out to be mediocre going forward.

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Re: Grantham: US will return 2% real next 2 decades

Post by Clever_Username » Tue Mar 12, 2019 10:30 am

willthrill81 wrote:
Mon Mar 11, 2019 10:42 pm
I think that the 'cat food' argument is most often used by those who think that living on $30-$40k is almost a fate worse than death, despite the fact that millions of Americans and billions of people around the world do it every year.
Yep. Until I bought my house about two years ago, my annual budget was under $40k ... and I was living a great life in an expensive city (Los Angeles) and didn't even have roommates. $40k is very survivable. For that matter, if I were to move to two of the three cities I'd prefer to live in, my budget would be pretty close to $40k in those cities.
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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Tue Mar 12, 2019 10:50 am

Clever_Username wrote:
Tue Mar 12, 2019 10:30 am
willthrill81 wrote:
Mon Mar 11, 2019 10:42 pm
I think that the 'cat food' argument is most often used by those who think that living on $30-$40k is almost a fate worse than death, despite the fact that millions of Americans and billions of people around the world do it every year.
Yep. Until I bought my house about two years ago, my annual budget was under $40k ... and I was living a great life in an expensive city (Los Angeles) and didn't even have roommates. $40k is very survivable. For that matter, if I were to move to two of the three cities I'd prefer to live in, my budget would be pretty close to $40k in those cities.
Elderly typically have much higher health costs.

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Tue Mar 12, 2019 10:58 am

gmaynardkrebs wrote:
Tue Mar 12, 2019 10:50 am
Clever_Username wrote:
Tue Mar 12, 2019 10:30 am
willthrill81 wrote:
Mon Mar 11, 2019 10:42 pm
I think that the 'cat food' argument is most often used by those who think that living on $30-$40k is almost a fate worse than death, despite the fact that millions of Americans and billions of people around the world do it every year.
Yep. Until I bought my house about two years ago, my annual budget was under $40k ... and I was living a great life in an expensive city (Los Angeles) and didn't even have roommates. $40k is very survivable. For that matter, if I were to move to two of the three cities I'd prefer to live in, my budget would be pretty close to $40k in those cities.
Elderly typically have much higher health costs.
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Grantham: US will return 2% real next 2 decades

Post by cheese_breath » Tue Mar 12, 2019 12:11 pm

willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
gmaynardkrebs wrote:
Tue Mar 12, 2019 10:50 am
Clever_Username wrote:
Tue Mar 12, 2019 10:30 am
willthrill81 wrote:
Mon Mar 11, 2019 10:42 pm
I think that the 'cat food' argument is most often used by those who think that living on $30-$40k is almost a fate worse than death, despite the fact that millions of Americans and billions of people around the world do it every year.
Yep. Until I bought my house about two years ago, my annual budget was under $40k ... and I was living a great life in an expensive city (Los Angeles) and didn't even have roommates. $40k is very survivable. For that matter, if I were to move to two of the three cities I'd prefer to live in, my budget would be pretty close to $40k in those cities.
Elderly typically have much higher health costs.
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
MIL had a lot of medical expenses before she died, and Medicare - medigap paid them all. Thankfully though, they didn't require LTC.
The surest way to know the future is when it becomes the past.

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Re: Grantham: US will return 2% real next 2 decades

Post by deltaneutral83 » Tue Mar 12, 2019 1:02 pm

willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
I'm curious as to how $350 a month on a $1k total budget isn't pricey?

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Tue Mar 12, 2019 2:24 pm

deltaneutral83 wrote:
Tue Mar 12, 2019 1:02 pm
willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
I'm curious as to how $350 a month on a $1k total budget isn't pricey?
I don't view $350/monthly as very pricey compared to the other options out there. And my MiL is still able to make everything else work on the remainder of her SS benefit. Owning her home and living in a very low CoL area are crucial to that.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Tue Mar 12, 2019 2:56 pm

willthrill81 wrote:
Tue Mar 12, 2019 2:24 pm
deltaneutral83 wrote:
Tue Mar 12, 2019 1:02 pm
willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
I'm curious as to how $350 a month on a $1k total budget isn't pricey?
I don't view $350/monthly as very pricey compared to the other options out there. And my MiL is still able to make everything else work on the remainder of her SS benefit. Owning her home and living in a very low CoL area are crucial to that.
i’m not clear on what her Social Security benefit is? I suspect it is higher than $1000 a month; I don’t know for sure, but I think it would be pretty hard to live in most parts of the country paying $350 a month for health insurance etc. on only $1000 Social Security. Admittedly, living in Washington DC, which is a very high cost area, might give me a misperception.

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Re: Grantham: US will return 2% real next 2 decades

Post by megabad » Tue Mar 12, 2019 4:53 pm

columbia wrote:
Mon Mar 11, 2019 3:53 pm
gmaynardkrebs wrote:
Mon Mar 11, 2019 3:32 pm
Carol88888 wrote:
Mon Mar 11, 2019 3:07 pm
Look on the bright side. For anyone who is making periodic investments over the next 2 decades, a 2% return means that the market will not be running away from them, and hence they will be accumulating a big slug of stocks at good prices.

Have a little compassion for the poor millennials who need to catch a break in the markets.
If it were really just 2%, I they might want to consider a low allocation to stocks. TIPS are paying 1.1% now with no risk. Is it worth the added risk of stocks for .9%? I don't think so.

This seems like a rational and reasonable question (assuming one is willing to believe the wide variety of forecasts, which are pretty similar to that of GMO.). Then again, a good old fashioned crash could reset the table.
Is it a reasonable question? You are indicating that stocks provide double the ultra low risk real return. This sounds attractive to me and within the realm of reasonableness. Does it make you feel differently if I say bonds are going to return 4% real and stocks 8%?

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Re: Grantham: US will return 2% real next 2 decades

Post by fennewaldaj » Tue Mar 12, 2019 4:57 pm

gmaynardkrebs wrote:
Tue Mar 12, 2019 2:56 pm
willthrill81 wrote:
Tue Mar 12, 2019 2:24 pm
deltaneutral83 wrote:
Tue Mar 12, 2019 1:02 pm
willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
I'm curious as to how $350 a month on a $1k total budget isn't pricey?
I don't view $350/monthly as very pricey compared to the other options out there. And my MiL is still able to make everything else work on the remainder of her SS benefit. Owning her home and living in a very low CoL area are crucial to that.
i’m not clear on what her Social Security benefit is? I suspect it is higher than $1000 a month; I don’t know for sure, but I think it would be pretty hard to live in most parts of the country paying $350 a month for health insurance etc. on only $1000 Social Security. Admittedly, living in Washington DC, which is a very high cost area, might give me a misperception.
In rural areas of the midwest it is not uncommon for a modest house to cost ~75k-100k. If you have that paid for property tax + insurance will be pretty cheap leaving you ~$500-550 a month for food ect. Not a glorious life but seems doable.

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Re: Grantham: US will return 2% real next 2 decades

Post by nisiprius » Tue Mar 12, 2019 5:08 pm

With regard to standard of living, etc. I felt that my Fidelity retirement advisor (part of my employer's 401(k) plan) began our "retirement checkup" session by discussing my goals, and that he was positively encouraging me to set high aspirational goals, with talk about how many new cars and how often I wanted to buy them, how much travel we wanted to do, etc. etc. before we even got around to running the Fidelity Retirement Income Planner. I really got the impression that "the retirement industry" begins by trying to sell you on a need for a high retirement income, so that in order to achieve it you will need to put as much money as possible under their management.

There was a retirement book by Charles W. Schwab, for example, that went on at considerable length saying traditional planning calls for replacing 70% of pre-retirement income, but wouldn't you really be happier with 100% of pre-retirement income?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Grantham: US will return 2% real next 2 decades

Post by visualguy » Tue Mar 12, 2019 5:30 pm

nisiprius wrote:
Tue Mar 12, 2019 5:08 pm
With regard to standard of living, etc. I felt that my Fidelity retirement advisor (part of my employer's 401(k) plan) began our "retirement checkup" session by discussing my goals, and that he was positively encouraging me to set high aspirational goals, with talk about how many new cars and how often I wanted to buy them, how much travel we wanted to do, etc. etc. before we even got around to running the Fidelity Retirement Income Planner. I really got the impression that "the retirement industry" begins by trying to sell you on a need for a high retirement income, so that in order to achieve it you will need to put as much money as possible under their management.

There was a retirement book by Charles W. Schwab, for example, that went on at considerable length saying traditional planning calls for replacing 70% of pre-retirement income, but wouldn't you really be happier with 100% of pre-retirement income?
On the other hand, I feel that many under-estimate their financial needs/wants after retirement... You don't need to save for retirement at that point, so that goes away, but you do have higher health insurance/care expenses, LTC potentially, a lot more free time on your hands for shopping, upgrading stuff, home improvements, traveling, etc. It gets expensive quickly...

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Re: Grantham: US will return 2% real next 2 decades

Post by willthrill81 » Tue Mar 12, 2019 6:49 pm

fennewaldaj wrote:
Tue Mar 12, 2019 4:57 pm
gmaynardkrebs wrote:
Tue Mar 12, 2019 2:56 pm
willthrill81 wrote:
Tue Mar 12, 2019 2:24 pm
deltaneutral83 wrote:
Tue Mar 12, 2019 1:02 pm
willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
I'm curious as to how $350 a month on a $1k total budget isn't pricey?
I don't view $350/monthly as very pricey compared to the other options out there. And my MiL is still able to make everything else work on the remainder of her SS benefit. Owning her home and living in a very low CoL area are crucial to that.
i’m not clear on what her Social Security benefit is? I suspect it is higher than $1000 a month; I don’t know for sure, but I think it would be pretty hard to live in most parts of the country paying $350 a month for health insurance etc. on only $1000 Social Security. Admittedly, living in Washington DC, which is a very high cost area, might give me a misperception.
In rural areas of the midwest it is not uncommon for a modest house to cost ~75k-100k. If you have that paid for property tax + insurance will be pretty cheap leaving you ~$500-550 a month for food ect. Not a glorious life but seems doable.
She pays no property tax due to an exemption for her age. $650 per month doesn't go far, but again, she's frugal and gets by fine. Being in a very low cost of living area is a huge help.
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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Tue Mar 12, 2019 10:10 pm

megabad wrote:
Tue Mar 12, 2019 4:53 pm
columbia wrote:
Mon Mar 11, 2019 3:53 pm
gmaynardkrebs wrote:
Mon Mar 11, 2019 3:32 pm
Carol88888 wrote:
Mon Mar 11, 2019 3:07 pm
Look on the bright side. For anyone who is making periodic investments over the next 2 decades, a 2% return means that the market will not be running away from them, and hence they will be accumulating a big slug of stocks at good prices.

Have a little compassion for the poor millennials who need to catch a break in the markets.
If it were really just 2%, I they might want to consider a low allocation to stocks. TIPS are paying 1.1% now with no risk. Is it worth the added risk of stocks for .9%? I don't think so.

This seems like a rational and reasonable question (assuming one is willing to believe the wide variety of forecasts, which are pretty similar to that of GMO.). Then again, a good old fashioned crash could reset the table.
Is it a reasonable question? You are indicating that stocks provide double the ultra low risk real return. This sounds attractive to me and within the realm of reasonableness. Does it make you feel differently if I say bonds are going to return 4% real and stocks 8%?
Yes, it makes a great difference, but in the opposite direction of what you seem to imply. If TIPS were paying 4% real, screw the stock market -- almost anyone could guarantee themselves a safe retirement with no risk using TIPS. 4% real with TIPS is 4% real -- guaranteed . With stocks, you are guaranteed neither 8%, 4%, nor 0%. One needs to consider "expected returns" in the context of mean, median, and mode returns. With TIPS, mean, median, and mode are virtually the same. With stocks, they most definitely are not the same, in ways that are potentially dire for retirement investors, In contrast to what you imply, the case for equities is somewhat stronger at very low expected returns simply because most people will not be able to save enough in TIPS.
Last edited by gmaynardkrebs on Tue Mar 12, 2019 10:56 pm, edited 1 time in total.

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Re: Grantham: US will return 2% real next 2 decades

Post by megabad » Tue Mar 12, 2019 10:44 pm

gmaynardkrebs wrote:
Tue Mar 12, 2019 10:10 pm
Yes, it makes a great difference, but in the opposite direction of what you seem to imply. If TIPS were paying 4% real, screw the stock market -- almost anyone could guarantee themselves a safe retirement with no risk using TIPS. 4% real with TIPS is 4% real -- guaranteed . With stocks, you are guaranteed neither 8%, 4%, nor 0%. One needs to consider "expected returns" in the context of mean, median, and mode returns. With TIPS, mean, median, and mode are virtually the same. With stocks, they most definitely are not the same, in ways that are not potentially dire for retirement investors, In contrast to what you imply, the case for equities is somewhat stronger at very low expected returns simply because most people will not be able to save enough in TIPS.
Interesting. I guess I just don't think of it that way and I assumed most others didn't either. I invest in equities for higher (presumed) returns. The actual return % is of essentially no concern to me (in the hypothetical absence of certain oddities, taxes, etc). I am not keen on putting off retirement longer for guaranteed real returns. If I was, I would be 100% in TIPS at 18. I want to have the highest chance of making the most over my investment horizon whether that is an extra 2% gain or an extra 10%. I am grateful that the US economy mostly agrees with me (and that macro economic theory basically guarantees this).

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Tue Mar 12, 2019 11:11 pm

megabad wrote:
Tue Mar 12, 2019 10:44 pm
gmaynardkrebs wrote:
Tue Mar 12, 2019 10:10 pm
Yes, it makes a great difference, but in the opposite direction of what you seem to imply. If TIPS were paying 4% real, screw the stock market -- almost anyone could guarantee themselves a safe retirement with no risk using TIPS. 4% real with TIPS is 4% real -- guaranteed . With stocks, you are guaranteed neither 8%, 4%, nor 0%. One needs to consider "expected returns" in the context of mean, median, and mode returns. With TIPS, mean, median, and mode are virtually the same. With stocks, they most definitely are not the same, in ways that are not potentially dire for retirement investors, In contrast to what you imply, the case for equities is somewhat stronger at very low expected returns simply because most people will not be able to save enough in TIPS.
Interesting. I guess I just don't think of it that way and I assumed most others didn't either. I invest in equities for higher (presumed) returns. The actual return % is of essentially no concern to me (in the hypothetical absence of certain oddities, taxes, etc). I am not keen on putting off retirement longer for guaranteed real returns. If I was, I would be 100% in TIPS at 18. I want to have the highest chance of making the most over my investment horizon whether that is an extra 2% gain or an extra 10%. I am grateful that the US economy mostly agrees with me (and that macro economic theory basically guarantees this).
You seem to be all but ruling out the possibility that returns could be negative over your lifetime, perhaps sharply negative. I think most people here make plans that allow for much worse than 2% real returns, including the possibility of negative returns.

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Re: Grantham: US will return 2% real next 2 decades

Post by columbia » Wed Mar 13, 2019 5:59 am

megabad wrote:
Tue Mar 12, 2019 4:53 pm
columbia wrote:
Mon Mar 11, 2019 3:53 pm
gmaynardkrebs wrote:
Mon Mar 11, 2019 3:32 pm
Carol88888 wrote:
Mon Mar 11, 2019 3:07 pm
Look on the bright side. For anyone who is making periodic investments over the next 2 decades, a 2% return means that the market will not be running away from them, and hence they will be accumulating a big slug of stocks at good prices.

Have a little compassion for the poor millennials who need to catch a break in the markets.
If it were really just 2%, I they might want to consider a low allocation to stocks. TIPS are paying 1.1% now with no risk. Is it worth the added risk of stocks for .9%? I don't think so.

This seems like a rational and reasonable question (assuming one is willing to believe the wide variety of forecasts, which are pretty similar to that of GMO.). Then again, a good old fashioned crash could reset the table.
Is it a reasonable question? You are indicating that stocks provide double the ultra low risk real return. This sounds attractive to me and within the realm of reasonableness. Does it make you feel differently if I say bonds are going to return 4% real and stocks 8%?

We’re, of course, dealing with a hypothetical:

Do I think the proposed 0.9% premium is worth the associated risk? No, I do not.

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Re: Grantham: US will return 2% real next 2 decades

Post by megabad » Wed Mar 13, 2019 10:52 am

gmaynardkrebs wrote:
Tue Mar 12, 2019 11:11 pm
You seem to be all but ruling out the possibility that returns could be negative over your lifetime, perhaps sharply negative. I think most people here make plans that allow for much worse than 2% real returns, including the possibility of negative returns.
Not ruling it out. Just surmising that equity returns will be higher in the long run. Most folks here appear to have the majority of their portfolio in equities which seems to indicate they follow the same thought process.

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Re: Grantham: US will return 2% real next 2 decades

Post by megabad » Wed Mar 13, 2019 11:00 am

columbia wrote:
Wed Mar 13, 2019 5:59 am
Do I think the proposed 0.9% premium is worth the associated risk? No, I do not.
In the case that you laid out, I think I might think it is worth it. That was my whole point. My intention was essentially to point out that the reason you think 0.9% is a small number is because you are used to larger numbers. If the norm was 0.9% premium, it wouldn't seem low to you, and I fully believe most bogleheads would still invest in equities (as they do now). In theory, the market will always require that the equity premium be exactly what the market requires it to be.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Wed Mar 13, 2019 11:11 am

megabad wrote:
Wed Mar 13, 2019 11:00 am
columbia wrote:
Wed Mar 13, 2019 5:59 am
Do I think the proposed 0.9% premium is worth the associated risk? No, I do not.
In the case that you laid out, I think I might think it is worth it. That was my whole point. My intention was essentially to point out that the reason you think 0.9% is a small number is because you are used to larger numbers. If the norm was 0.9% premium, it wouldn't seem low to you, and I fully believe most bogleheads would still invest in equities (as they do now). In theory, the market will always require that the equity premium be exactly what the market requires it to be.
If the equity premium really were .9%, it means that investors think that stocks are almost as safe as the safest asset.

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Re: Grantham: US will return 2% real next 2 decades

Post by protagonist » Wed Mar 13, 2019 12:39 pm

gmaynardkrebs wrote:
Wed Mar 13, 2019 11:11 am


If the equity premium really were .9%, it means that investors think that stocks are almost as safe as the safest asset.
And as we know, investors are rarely wrong. *giggle*.

Nobody has a clue what stocks will return in the next decade or two or three, or how risky stock investing really is in March, 2019. We don't know what will happen to the economy, what wars may or may not break out, what bubbles may or may not pop or when, what crazy thing thousands of miles away could trigger a mass selloff, etc etc etc. And we don't know if recovery from the next disaster will take a few months or a few decades or more. It's easy to see through the retrospectoscope why 2008 or 1929 or the 1970s happened, but it certainly was not so clear in early 2008 or 1929. And the next crisis may have little in common with those previous ones. We are guessing that stocks will return more than bonds or cash, as it usually has in recent history (eg the last century or so), which is why we take the risk that we might well be wrong. How much risk? Beats me.....I am just a bozo on this bus, playing the same game that most of you are playing and hoping I win. Meanwhile I try to mitigate possible damage by keeping a reserve as safely invested as I know how, despite the drag it may have on my total portfolio in bull markets.

I don't have a problem with that, because my guess is probably as good or better than any other I can think of so far (even though I cannot back it with science or mathematics or probabilities that I am right), and, as I have to do something with my money, I go with it.

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Re: Grantham: US will return 2% real next 2 decades

Post by corn18 » Wed Mar 13, 2019 1:30 pm

This is perfect. I have 2% real return in my spreadsheet for the next 30 years, so life is good.
Don't do something, just stand there!

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Wed Mar 13, 2019 1:43 pm

corn18 wrote:
Wed Mar 13, 2019 1:30 pm
This is perfect. I have 2% real return in my spreadsheet for the next 30 years, so life is good.
"Good" is when Grantham promises to bail you out if he was too optimistic.

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Re: Grantham: US will return 2% real next 2 decades

Post by TheTimeLord » Wed Mar 13, 2019 6:09 pm

gmaynardkrebs wrote:
Wed Mar 13, 2019 1:43 pm
corn18 wrote:
Wed Mar 13, 2019 1:30 pm
This is perfect. I have 2% real return in my spreadsheet for the next 30 years, so life is good.
"Good" is when Grantham promises to bail you out if he was too optimistic.
Recently, I have been playing around with a 0% real rate of return for the remainder of my life, so now when I run the same model using 2% real rate of return I feel like I am rolling in it, ka-ching.
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Re: Grantham: US will return 2% real next 2 decades

Post by lazyday » Thu Mar 14, 2019 9:23 am


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Re: Grantham: US will return 2% real next 2 decades

Post by dodecahedron » Thu Mar 14, 2019 9:35 am

gmaynardkrebs wrote:
Tue Mar 12, 2019 2:56 pm
willthrill81 wrote:
Tue Mar 12, 2019 2:24 pm
deltaneutral83 wrote:
Tue Mar 12, 2019 1:02 pm
willthrill81 wrote:
Tue Mar 12, 2019 10:58 am
And Medicare. Premiums aren't that pricey. My MiL's are about $350/month including the supplementals.
I'm curious as to how $350 a month on a $1k total budget isn't pricey?
I don't view $350/monthly as very pricey compared to the other options out there. And my MiL is still able to make everything else work on the remainder of her SS benefit. Owning her home and living in a very low CoL area are crucial to that.
i’m not clear on what her Social Security benefit is? I suspect it is higher than $1000 a month; I don’t know for sure, but I think it would be pretty hard to live in most parts of the country paying $350 a month for health insurance etc. on only $1000 Social Security. Admittedly, living in Washington DC, which is a very high cost area, might give me a misperception.
In NYS (the state where I live and am most familiar with) if a senior is living on a total income of $1K per month, the state will actually pay for their Medicare Part B/Part D premiums and also provide some kind of supplementary coverage so that out of pocket medical costs are minimal. The only folks paying anything like $350/month for Medicare/supplement costs in my state would have incomes considerably higher than $1K/month.

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Re: Grantham: US will return 2% real next 2 decades

Post by WhiteMaxima » Thu Mar 14, 2019 11:09 am

Talking about 2% real return above inflation in the next two decades, not a bad return. let say inflation is 2.5%, you will get a nominal 4.5% for the nest 24 years. Does it include dividend? let say dividend rate is 1.5%, your total would be 6% which is pretty much in line with long term return of 7% assumption. If you could cash out at the peak and time the bottom to avoid -30% drawdown, you could end up with around 8% for the next two decade. Not bad at all.

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Thu Mar 14, 2019 3:41 pm

The most recent GMO 7 year forecast (Jan 2019) still has US stocks returning less than cash. Is he predicting a mini-boom starting 7 years from now? Doesn't make sense to me.

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Re: Grantham: US will return 2% real next 2 decades

Post by HomerJ » Thu Mar 14, 2019 11:00 pm

gmaynardkrebs wrote:
Thu Mar 14, 2019 3:41 pm
The most recent GMO 7 year forecast (Jan 2019) still has US stocks returning less than cash. Is he predicting a mini-boom starting 7 years from now? Doesn't make sense to me.
Here's the GMO 7-year forecast from Dec 31st, 2009

https://ritholtz.com/2010/01/7-year-ass ... forecasts/

They predicted 3.1% for large-cap stocks. The S&P 500 returned 12.7% a year.

Their "high-quality" stocks did well, but trailed the market... GQEFX (GMO Quality IV) returned 10.9% a year.
The J stands for Jay

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Re: Grantham: US will return 2% real next 2 decades

Post by gmaynardkrebs » Thu Mar 14, 2019 11:12 pm

HomerJ wrote:
Thu Mar 14, 2019 11:00 pm
gmaynardkrebs wrote:
Thu Mar 14, 2019 3:41 pm
The most recent GMO 7 year forecast (Jan 2019) still has US stocks returning less than cash. Is he predicting a mini-boom starting 7 years from now? Doesn't make sense to me.
Here's the GMO 7-year forecast from Dec 31st, 2009

https://ritholtz.com/2010/01/7-year-ass ... forecasts/

They predicted 3.1% for large-cap stocks. The S&P 500 returned 12.7% a year.

Their "high-quality" stocks did well, but trailed the market... GQEFX (GMO Quality IV) returned 10.9% a year.
Grantham is not so easily dismissed. I just don't see the path for getting to 2% real over 20Y if the next 7Y are negative.

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Re: Grantham: US will return 2% real next 2 decades

Post by drk » Thu Mar 14, 2019 11:22 pm

gmaynardkrebs wrote:
Thu Mar 14, 2019 11:12 pm
Grantham is not so easily dismissed. I just don't see the path for getting to 2% real over 20Y if the next 7Y are negative.
Are we done waiting for the melt-up he predicted last year, or has that been dismissed?

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Re: Grantham: US will return 2% real next 2 decades

Post by AlphaLess » Thu Mar 14, 2019 11:23 pm

There was a homeless guy on my way home from work that said if I help him with a couple of dollars, god will make me a millionaire.

So who do you believe: Grantham (WHO?) or the homeless nobody?

P.S. I told the homeless person that being a millionaire is so overrated. I want to be a BILLIONAIRE.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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