this time it's different

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Grt2bOutdoors
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Re: this time it's different

Post by Grt2bOutdoors » Tue Aug 13, 2019 5:12 pm

HomerJ wrote:
Tue Aug 13, 2019 9:43 am
feh wrote:
Tue Aug 13, 2019 7:55 am
My reasoning for 2) is that if the future returns for a 60/40 portfolio are 2-3% less than they have been historically, will it be necessary to invest elsewhere to achieve returns that are sufficient for the 4% withdrawal rate?
No, 4% withdrawals already assume low returns. It's a worst-case scenario. So if we do get low returns going forward, 4% will still work.
I agree, and if we are wrong and 3% is the real number, then the individual(s) who own the portfolio will need to adjust.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

columbia
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Re: this time it's different

Post by columbia » Tue Aug 13, 2019 5:47 pm

Who knows.

I do know that thinking that the present is bound to once again be like the past is a baseless prediction.

owenmia
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Re: this time it's different

Post by owenmia » Tue Aug 13, 2019 6:16 pm

I can tell you this. Things are getting worse and worse. If things go as most experts say they will, we would be better off investing outside the stock market.

Grt2bOutdoors
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Re: this time it's different

Post by Grt2bOutdoors » Tue Aug 13, 2019 6:52 pm

owenmia wrote:
Tue Aug 13, 2019 6:16 pm
I can tell you this. Things are getting worse and worse. If things go as most experts say they will, we would be better off investing outside the stock market.
Where? Real estate? Orange Juice?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Oakwood42
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Re: this time it's different

Post by Oakwood42 » Tue Aug 13, 2019 7:01 pm

SimpleGift wrote:
Tue Aug 13, 2019 9:18 am
feh wrote:
Tue Aug 13, 2019 7:40 am
Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.
The fundamental difference to my mind is that the large majority of the world's economic growth in the decades ahead will be in Asia (China, India, Indonesia, etc.) — rather than the past engines of economic growth in the developed countries. Demographics alone make this almost a certainty.
How investors might capitalize on this shift in global growth toward Asia is an open question — but owning a small share of ALL global companies through broadly diversified index funds is likely about the best one can do.
"The fundamental difference to my mind is that the large majority of the world's economic growth in the decades ahead will be in Asia (China, India, Indonesia, etc.) — rather than the past engines of economic growth in the developed countries. Demographics alone make this almost a certainty."

I am inclined to believe this as well - I am not basing this on science or anything publications. I think America will continue to do great however to ignore Asia is like not saying hello to the elephant in the room. Asia is Earth's largest and most populous continent (4.5 billion people live there). So we diversify total world.

randomguy
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Re: this time it's different

Post by randomguy » Tue Aug 13, 2019 7:09 pm

YRT70 wrote:
Tue Aug 13, 2019 2:36 pm

Chances of 4% WR making it for the next 30 years: 92% according to Vanguard MC tool for 50/50. 60/40 gets 91%.

Personally I'd like higher odds; at least 95%. 3.5% WR makes it 96%.

https://retirementplans.vanguard.com/VG ... ggCalc.jsf
If you want higher odds, just pick a different MC. There are 100s of them to choose from so pick one that gives you the results you are looking for.:) Seriously look at what making small changes to set up, mean reversion, and correlation between asset classes does to you results and decide for yourself if you think a+-5% difference in Monte Carlo results is remotely useful.

And of course pretty much all monte carlo simulators in the financial industry are based on historical data.......

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zaboomafoozarg
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Re: this time it's different

Post by zaboomafoozarg » Tue Aug 13, 2019 9:52 pm

owenmia wrote:
Tue Aug 13, 2019 6:16 pm
I can tell you this. Things are getting worse and worse.
Like my grandfather used to say - things get worse and worse, and then you die.

Conditions don't seem great and I don't expect high returns for the remainder of my life, but I don't really know what else to invest in besides the normal stocks/bonds stuff. I've thought about real estate but I don't think I'm cut out for it.

So I put more time into my career and my side jobs, working 60-70 hours a week to make as much as I can. And then I save until it hurts and hope for the best.

owenmia
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Re: this time it's different

Post by owenmia » Tue Aug 13, 2019 10:09 pm

:great attitude. You will succeed.

YRT70
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Re: this time it's different

Post by YRT70 » Wed Aug 14, 2019 3:00 am

randomguy wrote:
Tue Aug 13, 2019 7:09 pm
If you want higher odds, just pick a different MC.
Personally I'd rather pick a lower withdrawal rate than 4%. Each to his own I guess.

And for the record: all the other MC tools I tried came to similar conclusions as the Vanguard one. And I'm aware of the limitation of MC testing, so it's not the only thing I use.

Valuethinker
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Re: this time it's different

Post by Valuethinker » Wed Aug 14, 2019 5:27 am

mrspock wrote:
Tue Aug 13, 2019 4:57 pm
This “secular stagnation” dogma has been hocked by the likes of Bill Bonner and John Mauldin for the last *20 years* . I’m still waiting.

In the meantime, I suspect they sold lots of books on their theories and predictions.

Get out of your own way and ignore the charlatans.
Since the Great Financial Crisis of 2008-09 economic growth has not rebounded as it normally does after a recession. This is evident across both the developed and less developed country economies.

There is a very real question whether we simply drove growth in the 2000s by raising private sector debt levels, and when that reached the point of crisis, a lot of that growth evaporated. China has reached a stage in GDP and infrastructure where its high growth rates are not a given (and official figures are clearly manipulated) - much of the 2000s was the Chinese economy (and the US consumer, by increasing debt levels) dragging up the rest of the world with it. The scale of the fiscal impulse that China entered into with the GFC will not be repeated - they had no miles of High Speed Rail, now they have 20k km+.

To my mind, there are some pretty exciting technological changes going on. AI, robotics, decarbonisation. But these don't necessarily imply an (immediate) pickup of economic growth. During the industrial revolution 1750-1850 British GDP growth has been estimated at 1% pa real, I believe.

Marc Levinson's book on the 1970s & 80s is a good introduction to the idea of a global slowdown.

A440
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Re: this time it's different

Post by A440 » Wed Aug 14, 2019 5:41 am

"Nobody knows nothing" (Bogle)
I don't know what the future holds, but I know who holds my future.

StandingRock
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Re: this time it's different

Post by StandingRock » Wed Aug 14, 2019 6:31 am

Valuethinker wrote:
Wed Aug 14, 2019 5:27 am
mrspock wrote:
Tue Aug 13, 2019 4:57 pm
This “secular stagnation” dogma has been hocked by the likes of Bill Bonner and John Mauldin for the last *20 years* . I’m still waiting.

In the meantime, I suspect they sold lots of books on their theories and predictions.

Get out of your own way and ignore the charlatans.
Since the Great Financial Crisis of 2008-09 economic growth has not rebounded as it normally does after a recession. This is evident across both the developed and less developed country economies.

There is a very real question whether we simply drove growth in the 2000s by raising private sector debt levels, and when that reached the point of crisis, a lot of that growth evaporated. China has reached a stage in GDP and infrastructure where its high growth rates are not a given (and official figures are clearly manipulated) - much of the 2000s was the Chinese economy (and the US consumer, by increasing debt levels) dragging up the rest of the world with it. The scale of the fiscal impulse that China entered into with the GFC will not be repeated - they had no miles of High Speed Rail, now they have 20k km+.

To my mind, there are some pretty exciting technological changes going on. AI, robotics, decarbonisation. But these don't necessarily imply an (immediate) pickup of economic growth. During the industrial revolution 1750-1850 British GDP growth has been estimated at 1% pa real, I believe.

Marc Levinson's book on the 1970s & 80s is a good introduction to the idea of a global slowdown.

What's the point in even talking about it, if we're going to all but kill industries, then prop them up on costly life support, and engage in every other imaginable malinvestment? Nothing is different, it's all the same.

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feh
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Re: this time it's different

Post by feh » Wed Aug 14, 2019 6:40 am

OP here.

For the record, we have a 60/40 portfolio with 2/3 of the equities in US and 1/3 in ex-US. Early fifties, semi-retired. Expected WR: 3%.

So, I'm not personally concerned about secular stagnation. Nor do I plan on making any changes to our investments because of it. The purpose of the thread was to get a sense of how many people feel the coming decades will show reduced growth compared to the last 100 years, and if so, what actions could be taken.

Anybody have ideas other than save more/spend less?

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Stinky
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Re: this time it's different

Post by Stinky » Wed Aug 14, 2019 6:47 am

UpperNwGuy wrote:
Tue Aug 13, 2019 11:26 am
So more constant change in the coming century will not be at all different. The only difference will be in the details. Throughout these constant changes in the background, the stock and bond markets have continued to function, and so they will through the next round of changes.
I agree. Change has always happened, and I expect that it will continue to happen. Every age has had its folks who say "the end is near", but somehow humans always muddle through somehow.

One thing that I note is the the rate of change seems to be speeding up. Things are changing faster and faster and faster. Product cycles are becoming shorter and shorter. For example, look at what's happened to VCRs and DVDs - which have gone from "new fad" to "mature industry" to "nearly obsolete" at a blazing pace.
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YRT70
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Re: this time it's different

Post by YRT70 » Wed Aug 14, 2019 6:48 am

EnjoyIt wrote:
Tue Aug 13, 2019 2:57 pm
Next, nothing against Mr. Swedroe as he is proven to be very intelligent and financially savvy guy, but Larry Swedroe is not an authority on predictions. He like everyone else has been wrong plenty. Plus he has a product to sell so I'm not sure what value his predictions provide us.
Just to be clear: I didn't quote Larry because he's smart or that he's an authority on predictions. I quoted him because he's making several (IMO) compelling arguments in that podcast on why 4% might be too optimistic for the future.

Dandy
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Re: this time it's different

Post by Dandy » Wed Aug 14, 2019 8:05 am

Yes I think the future will be much different - a few of my concerns/challenges:

1. Huge national debt and no appetite for addressing that (or many other critical issues).
2. Climate change - more drought, more dangerous storms -- impact on food supply, more disasters, refugees and entrenched denial.
3. Lower birth rate population trying to support aging boomers, their children without pensions, enough demand to support the economy, etc.
4. Automation accelerating decline in "good" jobs - e.g. self driving trucks, drones, more sophisticated robots.
What jobs should your grandchildren prepare for?
5. Decline in use of carbon fuels while good for climate will disrupt carbon related employment in those areas a la West Virginia
6. Growing wealth/income gap and the impact on social order.
7. Social media effect on so many things some good some bad. e.g. bullying, outside influence on elections, outside influence to keep us divided, etc.

How will these possible changes affect our already divided and somewhat non functioning politics. We have faced large
challenges in the past but we seemed to be better able to put aside differences and get some good things done 10 or 15 years ago. Lots of blame to go around including a very low voter turnout. We need to do better for our grand kids.

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hagridshut
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Re: this time it's different

Post by hagridshut » Wed Aug 14, 2019 9:04 am

I disagree that Secular Stagnation (aka long-term lack of growth) is inevitable.

From the article, proponents of Secular Stagnation operate under the assumption that everything has been invented and built, and that there's not much left to be done:
This Upside Down economy was the product, Hansen said, of a shriveling population, the closing of the frontier and the maturing of industries. The economy had basically grown up. There was nowhere left to go.

Like Hansen in the 1930s, Summers points to declining population growth as one source of stagnation. But he also points to other factors. A big one: Our economy might require less investment than it used to. Think Kodak (the old economy) vs. Instagram (the new economy). Kodak required factories and assembly line workers and trucks and film and film developers and a bunch of other resources to give us photography. Instagram basically needs just an office with laptops and a few hundred smart workers. It needs much less investment.


If the global economy is to survive, it is going to require a massive amount of investment over the next 10-25 years. The transition away from carbon-based fuels (oil, coal and natural gas) and to renewables will require unprecedented investment in energy storage. Just one Tesla Gigafactory costs about $4-5 Billion to fully construct. It's estimated that up to 100 such facilities would be needed to supply the energy storage needed for electric vehicles and renewable energy capture worldwide.

The "Kodak" vs. "Instagram" argument is also flawed, because it ignores the fact that to be used, Instagram requires a both a back-end infrastructure (servers & communications networks) and end user hardware: mobile devices and/or personal computers. Instagram itself only needs computers and workers, but someone has to design and manufacture all the hardware that the service and many other services run on. An iPhone alone contains numerous chips, sensors, and other components from probably dozens of companies.


Top99% wrote:
Tue Aug 13, 2019 8:04 am
This article ponders the same things I do (IE things seem upside down) but it certainly doesn't convince me to change my AA. Lots of things (most of which we can't discuss without getting threads locked) could happen that could change our trajectory. There is always the possibility (probability actually) some new major technical break through could alter our course. For example, if a battery breakthrough lead to really cheap energy storage.
Battery costs are falling rapidly. I also believe that advances in Machine Learning, Spaceships, and Genomics will provide huge opportunities for future economic growth.

Fears of permanent Secular Stagnation are IMO the product of economists who lack imagination. This is not to say that Secular Stagnation cannot happen. It has happened before and could happen for a period of years, but there is so much new technology in its infancy, that I think it is impossible to say with certainty that permanent Secular Stagnation is inevitable in the near future.

I am a Boglehead because I think nobody knows what the future will hold. It's best to be positioned to take advantage of big economic growth, should it occur.
First Principles: (1) Diversify (2) Low Cost (3) Stay the Course | 3-Fund Index Portfolio: S&P500; Intl; U.S.Bonds

alex_686
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Re: this time it's different

Post by alex_686 » Wed Aug 14, 2019 9:25 am

hagridshut wrote:
Wed Aug 14, 2019 9:04 am
I disagree that Secular Stagnation (aka long-term lack of growth) is inevitable.
Maybe yes, maybe no.

Wikipedia was a great boon to society. It also destroyed the encyclopedia business.

iTunes, YouTube, etc. is generating vast wealth for the few on top while gutting the middle layers if the music industry.

We could easily have Secular Stagnation and high growth if that high growth is concentrated among a few high skilled elite, which is what is currently happening.

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midareff
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Re: this time it's different

Post by midareff » Wed Aug 14, 2019 9:32 am

I've been in the market for a good 50 years and I've heard "this time it's different", maybe thousands of times. Guess what? It's a market and it goes up and it goes down in the near term - as in next few years. Over the longer term it generally goes up. The equivalent of what is now today's S&P500, in 1919 opened the year at 7.952 and closed the year at 9.6823 for an annual gain of 9.38%. Time has created a long gain from 1919 to 2019.

Time is your friend, worry less and smile more. Pay less attention to talking heads and follow your plan.

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midareff
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Re: this time it's different

Post by midareff » Wed Aug 14, 2019 9:58 am

KlangFool wrote:
Tue Aug 13, 2019 7:45 am
feh wrote:
Tue Aug 13, 2019 7:40 am
An excerpt from an article claiming we are entering a period of secular stagnation, and the reasons why: https://www.npr.org/sections/money/2019 ... pside-down

Just wondering if others feel the coming decades will be fundamentally different from the past, and how to act on it.

Invest more heavily overseas and EM?
feh,

1) Let's say that is true, why would invest in oversea and EM would be better? They would be in the worst shape.

2) Please explain why would stagnation matters to a person with a fixed AA of 60/40. It does not.

KlangFool
or 50/50 or 40/60 or any reasonably close version of those.

KlangFool
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Re: this time it's different

Post by KlangFool » Wed Aug 14, 2019 10:02 am

feh wrote:
Wed Aug 14, 2019 6:40 am
OP here.

For the record, we have a 60/40 portfolio with 2/3 of the equities in US and 1/3 in ex-US. Early fifties, semi-retired. Expected WR: 3%.

So, I'm not personally concerned about secular stagnation. Nor do I plan on making any changes to our investments because of it. The purpose of the thread was to get a sense of how many people feel the coming decades will show reduced growth compared to the last 100 years, and if so, what actions could be taken.

Anybody have ideas other than save more/spend less?
feh,

In summary, it won't matter to you either.

<<Anybody have ideas other than save more/spend less?>>

There is no silver bullet out there. Anything other than save more or spend less, the person would have to take more risk which may or may not work out. There is no free lunch.

KlangFool

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