Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bogle

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iamlucky13
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by iamlucky13 » Mon Apr 15, 2019 5:51 pm

I think most people in this thread are overlooking a more important point. Even if you think Jack Bogle, Morningstar, Schiller, and everyone else are just as big of frauds as a fortune teller at a street fair:

A decade of 4% returns or worse is something you should be prepared for.

I'm not one of the folks with handy links bookmarked of historic stock market returns, so instead I did a quick Portfolio Visualizer Monte Carlo test for 100% US stocks for 10 years (no contributions or withdrawals).

The 10th percentile real return output was 2.49% nominal / -1.59% real. Running it multiple times keeps kicking out very similar numbers.

So forget about debating whether it is a trustworthy forecast or what CAPE tells us. Past results suggest a non-trivial risk the results could be as bad or worse than Mr. Bogle and others are forecasting.

Hopefully you're looking longer term than 10 years anyways, but over a 30 year period, there's roughly even odds that a 4% nominal decade is going to be a part of your sequence of returns. The good news is the other 20 years are likely going to be better.


siriusblack
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by siriusblack » Mon Apr 15, 2019 8:07 pm

SovereignInvestor wrote:
Sun Apr 14, 2019 9:46 pm
1) Say there's no inflation ever and gross earnings never grow. If EPS was 1.00 every year from 2009-2018 and then the S&p buys back 50% of shares before at end of 2018, then the EPS becomes say 2.000 for 2019.

The true nominal gross earnings for SPX say never changes but because 50% share reduction into 2018, it becomes 2.00 going forward instead of 1, then CAPE will give huge divergence from reality.
Hmmm .... interesting. Immediate reaction is that I don't think a company can artificially reduce the "E" without increasing the "P" by the same amount-- which results in the P/E staying the same. Here is my argument:

Let's consider 3 example companies with simple numbers. The only difference will be dividends vs. share buybacks vs. earnings reinvestment.

Company A, B, and C all start with 100 shares and a total market cap of $1,000. (So, share price is $10 per share.) All 3 companies produce $100 in total annual earnings. (So, earnings is $1 per share.)

However, company A pays out its earnings as a dividend, company B buys back shares, and company C reinvests the earnings in its business with an internal rate of return of 10%.

Here's what happens to the companies over a 3 year period:

Company A pays dividends:
- Year 1 -- Pays $1 per share dividend. Per share price and per share earnings stays the same.
- Year 2 -- Pays $1 per share dividend. Again, per share price and earnings stay the same.
- Year 3 -- Pays $1 per share dividend. Final share price = $10, final per share earnings = $1, final P/E = 10.

Company B buys back shares:
- Year 1 -- Buys back $100 worth of shares, or 10 shares. The share count is now 90, but the market cap of the company needs to stay constant (the total market cap can't magically jump just because the company bought back shares)... this results in a price increase per share. Share price goes to $1000/90=$11.11. Earnings per share is now $100/90=$1.11. P/E = 10.
- Year 2 -- Buys back another $100 worth of shares, or 9 shares. Share count goes down to 81. Share price goes up to $1000/81=$12.34. Earnings per share goes up to $1.23. P/E = 10.
- Year 3 -- Buys back $100 or 8.1 shares. Share count goes to 72.9. Share price = $13.72. Share earnings = $1.37. P/E = 10.
..... So, in this example, the "E" goes up artificially which causes the "P" to go down by the same amount. This is the only way for the market cap and total earnings of the company stay the same.

Company C reinvests internally at 10% IRR:
- Year 1 -- Retains and reinvests $100 earnings at 10% IRR so the total earnings power of the company is now increased to $110 annually. Price therefore also increases 10%. Share count stays constant at 100. Share price = $11. Share earnings = $1.10. P/E = 10.
- Year 2 -- Reinvests $110 earnings resulting in new total earnings rate of $121 annually. Share price = $12.10. Share earnings = $1.21. P/E = 10.
- Year 3 -- Reinvests $121 earnings resulting in new total earnings rate of $132 annually. Share price = $13.20. Share earnings = $1.32. P/E = 10.

So .......... bottom line ............ I conclude from this analysis that it makes no different to net P/E ratios whether companies distribute their earnings as dividends, buy back shares, or retain their earnings and reinvest them internally in the business.

Does that make sense?

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by siriusblack » Mon Apr 15, 2019 8:13 pm

Of course ... as soon as I posted this I immediately noticed the flaw in the conclusion (ha).

The instantaneous P/E is completely unaffected by share buy backs. BUT it invalidates any comparison of this year's P to last year's E. (And since the CAPE uses trailing E values but not trailing P values ... share buy backs create distortion in it.)

So ............. yes, I actually agree now :) If share buybacks have been more prevalent in recent years than they were 50 years ago, then comparing recent CAPE values to 50 years ago would be distorted. Makes sense.

It would be interesting to try to quantify the effect. Let's say companies are buying (on average) 1% of their market cap per year in the S&P 500 ... how much distortion in the CAPE is caused? (I'll need a spreadsheet to calculate that one...)

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by MoonOrb » Mon Apr 15, 2019 8:30 pm

I get that there is a certain pleasure in participating in wonky threads about speculative future returns but this kind of stuff is, to me, exactly why I:

1. Decide on a reasonable asset allocation
2. Decide on a reasonable amount of money to invest each month
3. Put it all into the lowest cost funds that are available to me
4. Avoid messing around with it and just stick to the plan

I have no idea whether returns will be 2% real, 4% real, 8% real, or negative, but I do know that if I stick to my plan I'll almost certainly be better positioned in ten years than I would be if I tried to guess now what I thought the future would be and acted on that guess.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by SovereignInvestor » Tue Apr 16, 2019 7:33 am

siriusblack wrote:
Mon Apr 15, 2019 8:13 pm
Of course ... as soon as I posted this I immediately noticed the flaw in the conclusion (ha).

The instantaneous P/E is completely unaffected by share buy backs. BUT it invalidates any comparison of this year's P to last year's E. (And since the CAPE uses trailing E values but not trailing P values ... share buy backs create distortion in it.)

So ............. yes, I actually agree now :) If share buybacks have been more prevalent in recent years than they were 50 years ago, then comparing recent CAPE values to 50 years ago would be distorted. Makes sense.

It would be interesting to try to quantify the effect. Let's say companies are buying (on average) 1% of their market cap per year in the S&P 500 ... how much distortion in the CAPE is caused? (I'll need a spreadsheet to calculate that one...)
Thank you for re reading!! I have been facing this battle for years convincing people the CAPE comparison, not the current value is an issue. It's oNLY when you compare current readings to those of history before buybacks it is a problem.

Changes in the CPI are also problematic.

Of buybacks run 3% if market cap a year then the average impact is at the 5 year point or roughly 1.03^5 or around 16% impact of overstating the CAPE.

Buy CAPE also doesn't reflect the tax cuts which boost all earnings after 2018 by around 10%.

It doesn't reflect CPI showing less inflation after arour 1995 than before that time.

I discuss the issue at length in this article I wrote.

 https://seekingalpha.com/article/408638 ... d-buybacks

Yes there is so much error around any central estimate for 10Y SPX returns like even my 8% rough figure. But IMO using CAPE comparisons will give a biased Low figure.

IF one makes a forecast the goal isn't to be spot on as market volatility makes that impossible but the goal should be to have an un biased estimate that means that it is the average of all outcomes.

IMO CAPE will be lower than the average. But yes the actual can be lower than even CAPE midpoint if there's unfavorable volatility.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by SovereignInvestor » Tue Apr 16, 2019 7:35 am

My article quantified the effect of issues with buybacks, tax cuts, and CPI changes.

I forget the figure but CAPE is overstated by 30% or so.

That's not even including fact that interest rates are lower now. Doesn't make Cape bad...but any PE should rise when rates are lower.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by 3funder » Tue Apr 16, 2019 7:36 am

FrugalInvestor wrote:
Sat Apr 13, 2019 10:47 pm
alex123711 wrote:
Sat Apr 13, 2019 9:20 pm
What to do in this situation? He also mentions he thinks international returns will be even lower..
Jack would have told you "just don't do something, stand there" and that "nobody knows nothing," including him.
+1

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JoMoney
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by JoMoney » Tue Apr 16, 2019 8:26 am

"If you don't like the weather, wait a minute"

Anything between 2 and 12% seems plausible over a ten year period (or even more/less at extremes). I wouldn't be surprised if in years down the road we have a decade long period that had 8% returns only to be followed by a period that shows 4% or vice versa. These things can vary quite a bit over shorter time periods.

Here's a 10 year period with 4% nominal returns 06/01/2002 - 06/01/2012
And 1 year forward 8% 06/01/2003 - 06/01/2013

If you average your contributions (and/or withdrawals or rebalancing ) you'll average whatever the "average" return is over the time period you're able to invest. If you decide to play the timing game you'll get something else. The odds are not in favor that you'll do better than "average", it would be impossible for a majority of money invested over a time period to beat themselves.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by TaxingAccount » Tue Apr 16, 2019 9:17 am

F150HD wrote:
Sun Apr 14, 2019 10:47 am
its interesting that the premise of this board is 'lump sum' as one cannot predict the market, then a thread like this is essentially attempting to 'predict the market'. :greedy
That's because bogle is their hero and can say no wrong. If a poster would had made the prediction, he would be lambasted with the typical passive aggressive responses on here such as what do you know that the market doesn't and the topic would be deleted.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by DB2 » Tue Apr 16, 2019 3:04 pm

Vanguard's 2019 economic and market outlook (2019-2029)
March 27, 2019

https://institutional.vanguard.com/VGAp ... EMOoutlook

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Carlos Danger
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by Carlos Danger » Tue Apr 16, 2019 3:22 pm

DB2 wrote:
Tue Apr 16, 2019 3:04 pm
Vanguard's 2019 economic and market outlook (2019-2029)
March 27, 2019

https://institutional.vanguard.com/VGAp ... EMOoutlook
So they're forecasting 4-6% rate of return over the next decade for a 60-40 portfolio.

In response I'm going to just keep maxing out tax advantaged accounts and throwing extra money into taxable when possible.

DB2
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by DB2 » Tue Apr 16, 2019 3:26 pm

Carlos Danger wrote:
Tue Apr 16, 2019 3:22 pm
DB2 wrote:
Tue Apr 16, 2019 3:04 pm
Vanguard's 2019 economic and market outlook (2019-2029)
March 27, 2019

https://institutional.vanguard.com/VGAp ... EMOoutlook
So they're forecasting 4-6% rate of return over the next decade for a 60-40 portfolio.

In response I'm going to just keep maxing out tax advantaged accounts and throwing extra money into taxable when possible.
Note, they are predicting a HIGHER rate of return and LESS volatility with a Global stock 60-40 portfolio vs strictly a U.S. stock 60-40 portfolio.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by sixtyforty » Tue Apr 16, 2019 3:29 pm

DB2 wrote:
Tue Apr 16, 2019 3:04 pm
Vanguard's 2019 economic and market outlook (2019-2029)
March 27, 2019

https://institutional.vanguard.com/VGAp ... EMOoutlook
What was Vanguard's forecast 10 years ago ?
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by munemaker » Tue Apr 16, 2019 3:46 pm

alex123711 wrote:
Sat Apr 13, 2019 9:20 pm
Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns of recent decades.
"Nobody knows nuttin'."
alex123711 wrote:
Sat Apr 13, 2019 9:20 pm
What to do in this situation? He also mentions he thinks international returns will be even lower.
Stay the course.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by fortyofforty » Tue Apr 16, 2019 6:27 pm

I've made a lot of money over the last decade by mostly ignoring "doom and gloom" predictions of lower returns and market tops. I would have made even more had I entirely ignored the predictions.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by Thesaints » Tue Apr 16, 2019 7:06 pm

sixtyforty wrote:
Tue Apr 16, 2019 3:29 pm
DB2 wrote:
Tue Apr 16, 2019 3:04 pm
Vanguard's 2019 economic and market outlook (2019-2029)
March 27, 2019

https://institutional.vanguard.com/VGAp ... EMOoutlook
What was Vanguard's forecast 10 years ago ?
8-10% annual
https://personal.vanguard.com/pdf/icrsme.pdf

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by iamlucky13 » Wed Apr 17, 2019 12:08 am

munemaker wrote:
Tue Apr 16, 2019 3:46 pm
alex123711 wrote:
Sat Apr 13, 2019 9:20 pm
Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns of recent decades.
"Nobody knows nuttin'."
That's not true. I know that historically, decades with worse than 4% annual return are not uncommon.

I didn't need Jack Bogle or Vanguard to tell me that.

It might be this decade. It might the next one, but Vanguard's forecast will almost certainly be right eventually. Keep that in mind when planning your savings rate, asset allocation, and financial independence goals.

A plan that is viable during prolonged periods of poor performance makes it easier to stay the course.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by cjking » Wed Apr 17, 2019 2:12 am

Just a couple of CAPE-related observations.

I think Shiller recently did an alternative version of CAPE that takes buybacks into account. I believe it shows the market as more expensive than his original measure did.

The effect of 2008/2009 dropping out is always cited as a reason to disregard, but the people citing never do a calculation. I did, in some previous thread in the past few years, and it makes very little difference to the overall picture. This is a hand-waving argument that goes away when you actually do the calculation.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by AlohaJoe » Wed Apr 17, 2019 2:35 am

cjking wrote:
Wed Apr 17, 2019 2:12 am
I think Shiller recently did an alternative version of CAPE that takes buybacks into account. I believe it shows the market as more expensive than his original measure did.
His new measure shows that it is less expensive.

By the old measure, the market is 2.4 standard deviations above its long term average. By the new measure, the market is only 2.25 standard deviations above its long term average.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by dogagility » Wed Apr 17, 2019 3:38 am

MoonOrb wrote:
Mon Apr 15, 2019 8:30 pm
I get that there is a certain pleasure in participating in wonky threads about speculative future returns but this kind of stuff is, to me, exactly why I:

1. Decide on a reasonable asset allocation
2. Decide on a reasonable amount of money to invest each month
3. Put it all into the lowest cost funds that are available to me
4. Avoid messing around with it and just stick to the plan

I have no idea whether returns will be 2% real, 4% real, 8% real, or negative, but I do know that if I stick to my plan I'll almost certainly be better positioned in ten years than I would be if I tried to guess now what I thought the future would be and acted on that guess.
Wise words, MoonOrb. :beer
Taking "risk" since 1995.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by Valuethinker » Wed Apr 17, 2019 3:50 am

AlohaJoe wrote:
Wed Apr 17, 2019 2:35 am
cjking wrote:
Wed Apr 17, 2019 2:12 am
I think Shiller recently did an alternative version of CAPE that takes buybacks into account. I believe it shows the market as more expensive than his original measure did.
His new measure shows that it is less expensive.

By the old measure, the market is 2.4 standard deviations above its long term average. By the new measure, the market is only 2.25 standard deviations above its long term average.
Would I find this on his website?

This is very interesting to me.

The long run return of world stocks is 5 % real in USD terms. I think USA is about 6 %

However there are some truly horrible decades in that data. Intuition says if you've just had an amazing decade then you should be wary of the next one. Thinking 1990 to 2000 vs 2000 to 2010.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by AlohaJoe » Wed Apr 17, 2019 3:59 am

Valuethinker wrote:
Wed Apr 17, 2019 3:50 am
Would I find this on his website?
Yep.

http://www.econ.yale.edu/~shiller/data.htm

Look for "alternative version of CAPE" on the page. He doesn't use any formatting so it is a bit hard to see what's what there.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by SovereignInvestor » Wed Apr 17, 2019 5:45 am

His buyback adjusted version doesn't adjust for the issue I described by the way. But at least the acknowledged it has some effect.

He needs to trend historical earnings for not only inflation but any reduction in share count from buybacks.

IMO the older earnings need to be scaled up by ~4% additionally per year to account for CPI changes and buybacks.

Also any earnings before 2018 used are 10% or so too low bevause tax reform.

All of these factors would knock the CAPE from 30ish...towards 20.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by willthrill81 » Wed Apr 17, 2019 11:39 pm

As of Apr. 16, the average investor stock allocation was predicting 4.28% returns for the S&P 500 over the next 10 years.

Image
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alex123711
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by alex123711 » Fri Apr 19, 2019 11:52 pm

iamlucky13 wrote:
Mon Apr 15, 2019 5:51 pm
I think most people in this thread are overlooking a more important point. Even if you think Jack Bogle, Morningstar, Schiller, and everyone else are just as big of frauds as a fortune teller at a street fair:

A decade of 4% returns or worse is something you should be prepared for.

I'm not one of the folks with handy links bookmarked of historic stock market returns, so instead I did a quick Portfolio Visualizer Monte Carlo test for 100% US stocks for 10 years (no contributions or withdrawals).

The 10th percentile real return output was 2.49% nominal / -1.59% real. Running it multiple times keeps kicking out very similar numbers.

So forget about debating whether it is a trustworthy forecast or what CAPE tells us. Past results suggest a non-trivial risk the results could be as bad or worse than Mr. Bogle and others are forecasting.

Hopefully you're looking longer term than 10 years anyways, but over a 30 year period, there's roughly even odds that a 4% nominal decade is going to be a part of your sequence of returns. The good news is the other 20 years are likely going to be better.
I guess the point is if there's a high likelihood that the next decade is going to be 4% returns or less should you look at alternatives such as real estate etc. or pay off mortgage instead? Also lower returns are fine if you are going to be working for the next 30 years, but what about newly retired or other situations?

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by willthrill81 » Sat Apr 20, 2019 12:01 am

alex123711 wrote:
Fri Apr 19, 2019 11:52 pm
I guess the point is if there's a high likelihood that the next decade is going to be 4% returns or less should you look at alternatives such as real estate etc. or pay off mortgage instead? Also lower returns are fine if you are going to be working for the next 30 years, but what about newly retired or other situations?
At 4%, I agree that alternatives like real estate start to look more attractive. If I were an accredited investor, I'd be interested in some of the secured debt options extended to house flippers (e.g. FundThatFlip).

But considering that retirees shouldn't need strong returns in the first place, I don't see a need for them to change much. Remember that if there were no volatility present, the '4% rule' would succeed over a 30 year period with an average real return of just 1.22%.
“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: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by alex123711 » Sat Apr 20, 2019 12:13 am

willthrill81 wrote:
Sat Apr 20, 2019 12:01 am
alex123711 wrote:
Fri Apr 19, 2019 11:52 pm
I guess the point is if there's a high likelihood that the next decade is going to be 4% returns or less should you look at alternatives such as real estate etc. or pay off mortgage instead? Also lower returns are fine if you are going to be working for the next 30 years, but what about newly retired or other situations?
Remember that if there were no volatility present, the '4% rule' would succeed over a 30 year period with an average real return of just 1.22%.
Sorry would you be able to explain that last sentence I haven't heard that before so not quite sure what you mean.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by ryman554 » Sat Apr 20, 2019 2:01 am

alex123711 wrote:
Sat Apr 20, 2019 12:13 am
willthrill81 wrote:
Sat Apr 20, 2019 12:01 am
alex123711 wrote:
Fri Apr 19, 2019 11:52 pm
I guess the point is if there's a high likelihood that the next decade is going to be 4% returns or less should you look at alternatives such as real estate etc. or pay off mortgage instead? Also lower returns are fine if you are going to be working for the next 30 years, but what about newly retired or other situations?
Remember that if there were no volatility present, the '4% rule' would succeed over a 30 year period with an average real return of just 1.22%.
Sorry would you be able to explain that last sentence I haven't heard that before so not quite sure what you mean.
It's really simple math... 4% = 25 x yearly expenses. So , 25 years and you are out of money at 0% real growth, ie 100% TIPS(-ish).

All you need to do is calculate what interest rate you need to earn in todays dollars to run out of money after 30 years. There are literally dozens of online calculators to do it, bit you should learn to do it by hand. Good for the soul.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by Bongleur » Sat Apr 20, 2019 2:35 am

Except that the new normal is closer to a 40 year retirement than 30. So more opportunity for bad sequences of returns.
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by trueblueky » Sat Apr 20, 2019 7:48 am

Bongleur wrote:
Sat Apr 20, 2019 2:35 am
Except that the new normal is closer to a 40 year retirement than 30. So more opportunity for bad sequences of returns.
The longer the retirement, the more likely a run of high inflation. In the long run, inflation is just as much a threat as sequence of returns.

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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by willthrill81 » Sat Apr 20, 2019 10:35 am

ryman554 wrote:
Sat Apr 20, 2019 2:01 am
alex123711 wrote:
Sat Apr 20, 2019 12:13 am
willthrill81 wrote:
Sat Apr 20, 2019 12:01 am
alex123711 wrote:
Fri Apr 19, 2019 11:52 pm
I guess the point is if there's a high likelihood that the next decade is going to be 4% returns or less should you look at alternatives such as real estate etc. or pay off mortgage instead? Also lower returns are fine if you are going to be working for the next 30 years, but what about newly retired or other situations?
Remember that if there were no volatility present, the '4% rule' would succeed over a 30 year period with an average real return of just 1.22%.
Sorry would you be able to explain that last sentence I haven't heard that before so not quite sure what you mean.
It's really simple math... 4% = 25 x yearly expenses. So , 25 years and you are out of money at 0% real growth, ie 100% TIPS(-ish).

All you need to do is calculate what interest rate you need to earn in todays dollars to run out of money after 30 years. There are literally dozens of online calculators to do it, bit you should learn to do it by hand. Good for the soul.
Any time-value of money calculator, be it online, a phone app, or a spreadsheet, can be used for this purpose easily.

For instance, in order to withdraw an inflation-adjusted $40k every year from a $1m portfolio for 40 years, you would need a constant 2.52% real return.
“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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willthrill81
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Re: Stocks will return about 4% annually over the next decade or so rather than the 10% average annual returns - John Bo

Post by willthrill81 » Sat Apr 20, 2019 10:37 am

trueblueky wrote:
Sat Apr 20, 2019 7:48 am
Bongleur wrote:
Sat Apr 20, 2019 2:35 am
Except that the new normal is closer to a 40 year retirement than 30. So more opportunity for bad sequences of returns.
The longer the retirement, the more likely a run of high inflation. In the long run, inflation is just as much a threat as sequence of returns.
That's why it's important to have taken some steps to at least mitigate the risk of inflation. Holding real assets is one means. Holding the means of producing real assets (i.e. business ownership, either privately or via stocks) is another. Holding inflation-protected debt obligations (e.g. TIPS, I-bonds) is yet another.
“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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