Domestic returns next 10 years

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rockthisworld
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Domestic returns next 10 years

Post by rockthisworld » Tue Aug 13, 2019 12:49 pm

Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this? If so what would a balanced portfolio return? And is anyone increasing their savings rate because of this? Also does this change your calculated rate of return when projecting long term roi. Right now I use a 4.5% return projection for my portfolio.

delamer
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Re: Domestic returns next 10 years

Post by delamer » Tue Aug 13, 2019 12:57 pm

1% on US stocks?

Can you provide links to 2 articles (based on different analyses) that expect this?

CoastalWinds
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Re: Domestic returns next 10 years

Post by CoastalWinds » Tue Aug 13, 2019 12:59 pm

rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this? If so what would a balanced portfolio return? And is anyone increasing their savings rate because of this? Also does this change your calculated rate of return when projecting long term roi. Right now I use a 4.5% return projection for my portfolio.
I consulted my magic 8 ball and it projects a 3.1738% return annualized for the next 10 years based on a 60/40 portfolio.

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DanMahowny
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Re: Domestic returns next 10 years

Post by DanMahowny » Tue Aug 13, 2019 1:00 pm

1% returns is ridiculous. Equity return over the next 10 years will be solidly negative.
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asif408
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Re: Domestic returns next 10 years

Post by asif408 » Tue Aug 13, 2019 1:05 pm

I don't know what the returns of domestic (assuming here you are in the US) stocks will be, but since they have dramatically outperformed pretty much every stock market throughout the world in the last 10 years, they should be (but maybe won't be) closer to the bottom in the next ten years. That's about all I can say with any accuracy.

Whatever that return is will be difficult to estimate with accuracy to a decimal point. Since these estimates have wide confidence intervals, the actually results is likely to be something between -5% to +7% if someone says they expect a 1% return. So if you have decimal points in any of your estimates you should remove them immediately, the odds that you can estimate returns to a tenth of a decimal point in the future are near zero.

megabad
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Re: Domestic returns next 10 years

Post by megabad » Tue Aug 13, 2019 1:07 pm

rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this? If so what would a balanced portfolio return? And is anyone increasing their savings rate because of this? Also does this change your calculated rate of return when projecting long term roi. Right now I use a 4.5% return projection for my portfolio.
1% real or nominal?

runner3081
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Re: Domestic returns next 10 years

Post by runner3081 » Tue Aug 13, 2019 1:11 pm

These discussions crack me up. No one knows. Anyone who thinks they knows is full of themselves :)

Silk McCue
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Re: Domestic returns next 10 years

Post by Silk McCue » Tue Aug 13, 2019 1:15 pm

Given that “A lot of articles are stating ...” how about providing links to them. Without them this thread can’t support a worthwhile discussion.

Cheers

CoastalWinds
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Re: Domestic returns next 10 years

Post by CoastalWinds » Tue Aug 13, 2019 1:20 pm

runner3081 wrote:
Tue Aug 13, 2019 1:11 pm
These discussions crack me up. No one knows. Anyone who thinks they knows is full of themselves :)
I agree, and it appears that my heavy sarcasm with decimal point predictions was taken seriously by others. Unbelievable.

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Re: Domestic returns next 10 years

Post by tennisplyr » Tue Aug 13, 2019 1:25 pm

runner3081 wrote:
Tue Aug 13, 2019 1:11 pm
These discussions crack me up. No one knows. Anyone who thinks they knows is full of themselves :)
Yep...it's trying to apply logic to something that is often illogical and unforeseeable.
Those who move forward with a happy spirit will find that things always work out.

dbr
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Re: Domestic returns next 10 years

Post by dbr » Tue Aug 13, 2019 1:36 pm

It isn't just that there is uncertainty regarding "the" return but also that what is being estimated is a whole distribution of possible returns. Usually what is being discussed when people say "THE return" is they are discussing an estimate of the mean a possible return distribution. Even if that mean were estimated with great accuracy the returns received year on year from that distribution will be wildly varying and the overall result quite unpredictable, and more unpredictable as time goes on. On top of that must be accounted the uncertainty in the estimation of that mean. Even worse the mean itself and even the distribution both change from year to year but also may be partially correlated from year to year.

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Re: Domestic returns next 10 years

Post by oldcomputerguy » Tue Aug 13, 2019 1:37 pm

DanMahowny wrote:
Tue Aug 13, 2019 1:00 pm
1% returns is ridiculous. Equity return over the next 10 years will be solidly negative.
Just curious, upon what do you base this opinion?
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

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packet
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Re: Domestic returns next 10 years

Post by packet » Tue Aug 13, 2019 1:37 pm

CoastalWinds wrote:
Tue Aug 13, 2019 1:20 pm
runner3081 wrote:
Tue Aug 13, 2019 1:11 pm
These discussions crack me up. No one knows. Anyone who thinks they knows is full of themselves :)
I agree, and it appears that my heavy sarcasm with decimal point predictions was taken seriously by others. Unbelievable.
I believe asif408 was referring to the "4.5%" in the OP ... not your much more accurate "prediction" ... :)

:beer Cheers
packet
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CoastalWinds
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Re: Domestic returns next 10 years

Post by CoastalWinds » Tue Aug 13, 2019 1:40 pm

packet wrote:
Tue Aug 13, 2019 1:37 pm
CoastalWinds wrote:
Tue Aug 13, 2019 1:20 pm
runner3081 wrote:
Tue Aug 13, 2019 1:11 pm
These discussions crack me up. No one knows. Anyone who thinks they knows is full of themselves :)
I agree, and it appears that my heavy sarcasm with decimal point predictions was taken seriously by others. Unbelievable.
I believe asif408 was referring to the "4.5%" in the OP ... not your much more accurate "prediction" ... :)

:beer Cheers
packet
Ah yes, let’s hope so!

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SimpleGift
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Re: Domestic returns next 10 years

Post by SimpleGift » Tue Aug 13, 2019 1:44 pm

rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this?
Earlier this year, Morningstar compiled a survey of several well-known forecasts for the U.S. equity market over the next decade. Needless to say, the results were all over the map:
  • BlackRock Investment...........7% nominal
    JP Morgan Investment............5% nominal
    John C. Bogle.....................4-5% nominal
    Vanguard...........................3-5% nominal
    Research Affiliates.................1% real
    GMO....................................-4% real
Your planning estimate of 4.5% for your overall portfolio is certainly a reasonable one and defensible as any other.
Last edited by SimpleGift on Tue Aug 13, 2019 1:49 pm, edited 1 time in total.

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FIREchief
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Re: Domestic returns next 10 years

Post by FIREchief » Tue Aug 13, 2019 1:48 pm

rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average.

And is anyone increasing their savings rate because of this?
This question implies that you are talking to folks in the accumulation phase. There are also those of us who are past FIRE. Then the question might become a) are you scaling back Roth conversions, b) are you reducing expenses or c) are you thinking about going back to work.

In my case it is "none of the above." I've used 6% real return for equities in my long term financial forecasts for years. Obviously, that means my forecasts from several years ago were too low. For the next several years they may be too high. It doesn't matter. I think 6% real is still a good planning parameter, despite the gloom and doom analytical academic papers that suggest silly numbers like 1%. Sure, it could be 1% but at best that's just a guess.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Domestic returns next 10 years

Post by Cyclesafe » Tue Aug 13, 2019 1:50 pm

For bracketing purposes, run real returns for equity from -5% all the way to +5%, and re-discover the overarching importance of savings and investment. One has no ability to predict or influence actual returns.

FWIW, I'm assuming real domestic equity returns of 2%, real international equity returns of 5% (hope springs eternal), and real intermediate total bond rates of 0.5%. One has to start somewhere....
"Plans are useless; planning is indispensable.” - Dwight Eisenhower

jdilla1107
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Re: Domestic returns next 10 years

Post by jdilla1107 » Tue Aug 13, 2019 1:56 pm

This is exactly what some people said on this forum 10 years ago. Go search on the google history at the top right. It's quite entertaining to read how people thought 10 years ago.

firebirdparts
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Re: Domestic returns next 10 years

Post by firebirdparts » Tue Aug 13, 2019 2:26 pm

Remember too, like backtesting, this is all about start and end points. The market is high today. Starting from here, many predictions are actually likely to be proved right depending on what the other boundary condition is.

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Re: Domestic returns next 10 years

Post by columbia » Tue Aug 13, 2019 2:35 pm

10 year projections are always rooted in the idea that there won’t be a market downturn. That’s a poor assumption.

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Re: Domestic returns next 10 years

Post by Day9 » Tue Aug 13, 2019 2:56 pm

There is a wiki page on this topic: https://www.bogleheads.org/wiki/Histori ... re_returns

It only has Mr Bogle's from 2017 (US Stocks 4% nominal), William Bernstein's from 2014 (US Large cap stocks 2% real), and Rick Ferri's from 2015 (US Large stocks 5% real). I think this wiki page could be updated with more sources. Would anyone like to volunteer?

I tend to agree with the flippant snide comments saying "nobody knows nothing", but on the other hand, one must have some idea of expected return and an estimate of distribution of possible returns in order to make a rational decision about their need and ability to take risk. People here often say "Stocks are riskier than treasury bills so you should be compensated for that risk and therefore the expected returns of stocks are above the 2.05% 1 mo T-Bill rate you can get today". And maybe it is possible to say something more substantial than this without being overconfident.
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ResearchMed
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Re: Domestic returns next 10 years

Post by ResearchMed » Tue Aug 13, 2019 3:05 pm

CoastalWinds wrote:
Tue Aug 13, 2019 12:59 pm
rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this? If so what would a balanced portfolio return? And is anyone increasing their savings rate because of this? Also does this change your calculated rate of return when projecting long term roi. Right now I use a 4.5% return projection for my portfolio.
I consulted my magic 8 ball and it projects a 3.1738% return annualized for the next 10 years based on a 60/40 portfolio.
That's just silly.

Given that this is the time of the Perseid Meteor Showers, the projected return MUST be lower than Pi, so I'm thinking 3.13 is more accurate.
Also, how even more silly to take it to 4 decimal places (and that's after the "percentage" decimals, of course).
Two decimal points of a percentage are obviously the correct accuracy to use for this.

:twisted:

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Re: Domestic returns next 10 years

Post by lazyday » Tue Aug 13, 2019 3:06 pm

RA estimates 0.4% annualized real return for US equities over the next 10 years. 5.2% for EAFE (similar to Developed Ex-US), and 6.9% for EM. https://interactive.researchaffiliates. ... e=Equities

You can find Methodology pdfs on the website above, explaining how they make these estimates. They seem fairly sensible to me. Just don’t expect too much from guesses like these.
rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
And is anyone increasing their savings rate because of this?
Especially for those who only invest in US stocks, that might make sense. Or maybe it could make sense to save less and retire later! Some people minimize spending while young so they can retire early. But with low expected returns, the payoff for this probably won’t be what it used to, at least for those who only invest in the US.

Investing globally would probably help.

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Re: Domestic returns next 10 years

Post by KlangFool » Tue Aug 13, 2019 3:11 pm

OP,

1) I do not only invest in the US stock. I invest globally and my AA is 60/40.

2) I save 1 year of expense every year. I can reach my goal with 0% REAL RETURN.

3) I do not need to save more.

4) For those that believe they could save 15% and continuously fully-employed for 30+ years until retirement, they have a bigger problem than the low return rate. It is called unemployment.

KlangFool

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Re: Domestic returns next 10 years

Post by Broken Man 1999 » Tue Aug 13, 2019 3:13 pm

Not sure I would be inclined to put confidence in a prediction of 10 months, much less 10 years.

Some of the talking heads will be correct in their guesses. Unfortunately we don't know which ones.

Broken Man 1999
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delamer
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Re: Domestic returns next 10 years

Post by delamer » Tue Aug 13, 2019 5:23 pm

I wouldn’t make an investment or retirement decision based on one estimate of returns.

Look at several different real returns and determine if you are comfortable under a wide variety of scenarios.

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Re: Domestic returns next 10 years

Post by illumination » Tue Aug 13, 2019 5:32 pm

Are these forecasts ever consistently right?

Hasn't the Nobel Prize winning Shiller with his CAPE Index been wrong about its predictions for the last 20 years about the future returns of the stock market?

When you see "experts" make predictions that are all over the place, it goes back to "nobody knows nothing". And even when everyone agrees, they still know nothing. Didn't like every single major economist when polled say the FED was going to be raising interest rates this year?

Also, if you do believe domestic returns are going to be really low over the next 10 years, should you pull money out and wait?

I just assume a lower rate of return than the past and keep trucking.

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Re: Domestic returns next 10 years

Post by DanMahowny » Tue Aug 13, 2019 6:20 pm

oldcomputerguy wrote:
Tue Aug 13, 2019 1:37 pm
DanMahowny wrote:
Tue Aug 13, 2019 1:00 pm
1% returns is ridiculous. Equity return over the next 10 years will be solidly negative.
Just curious, upon what do you base this opinion?
Sorry. Can't do that. My response would be deleted.
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Re: Domestic returns next 10 years

Post by patrick013 » Tue Aug 13, 2019 7:59 pm

Of I divide returns since 1950 into 8 year quantiles the lower quantiles are about 6%. Recent earnings were growing about 6% or a bit lower including dividends. So the "stat" observation is around the current low observation. Bogle's estimate included higher interest for va!uation.

Back to a low interest market and 6% still looks feasible. I think it will be higher but the 500 at the 3500 level ? The doubting Thomas (me) can't fathom where that estimate is coming from. 6% for sure.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Domestic returns next 10 years

Post by mikeyzito22 » Tue Aug 13, 2019 8:33 pm

DanMahowny wrote:
Tue Aug 13, 2019 6:20 pm
oldcomputerguy wrote:
Tue Aug 13, 2019 1:37 pm
DanMahowny wrote:
Tue Aug 13, 2019 1:00 pm
1% returns is ridiculous. Equity return over the next 10 years will be solidly negative.
Just curious, upon what do you base this opinion?
Sorry. Can't do that. My response would be deleted.
Hmmm...your not even invested in stocks. Why? Also, why even come to this forum if you're not investing? The forum is called "investing advice inspired by Jack Bogle." Seems counterproductive, but to each their own.

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Re: Domestic returns next 10 years

Post by abuss368 » Tue Aug 13, 2019 8:34 pm

rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this? If so what would a balanced portfolio return? And is anyone increasing their savings rate because of this? Also does this change your calculated rate of return when projecting long term roi. Right now I use a 4.5% return projection for my portfolio.
Welcome to the Forum!

No one knows what the future holds. Focus on what you can control such as expenses and fees, asset allocation, and holding one or a few total market index funds.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!"

Bacchus01
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Re: Domestic returns next 10 years

Post by Bacchus01 » Tue Aug 13, 2019 8:39 pm

Returns are generally a measure of risk and alternatives.

Has the risk profile changed? Has the risk tolerance of investors changed? Have the alternatives changed their risk profile?

If not, why does anyone think equity returns will be different than previous?

MathIsMyWayr
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Re: Domestic returns next 10 years

Post by MathIsMyWayr » Tue Aug 13, 2019 10:17 pm

Dividend = 1.8%
Appreciation = 2.9%
Inflation = 2.5%
Real return = 1.8+2.9-2.5 = 2.2%
Real return of taxable (CA) = 0.76*1.8+2.9-2.5 = 1.8%

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Re: Domestic returns next 10 years

Post by CurlyDave » Wed Aug 14, 2019 1:58 am

Just as an extreme example of how well predictions work, and without attempting to place any political spin on this, on election night 2016, when the results became apparent, stock futures plummeted. The Nobel Prize winning economist, Paul Krugman, was asked how long they would take to recover and said "a first pass answer is never."

Less than 10 hours later the markets opened higher than the previous close. If Professor Krugman can have a prediction of "never" reduced to 10 hours by the stock market, what makes any of us think that we can do better? Or that some other "expert" is able to make a sound prediction?

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Re: Domestic returns next 10 years

Post by adrift » Wed Aug 14, 2019 2:13 am

CurlyDave wrote:
Wed Aug 14, 2019 1:58 am
The Nobel Prize winning economist, Paul Krugman, was asked how long they would take to recover and said "a first pass answer is never."

Less than 10 hours later the markets opened higher than the previous close. If Professor Krugman can have a prediction of "never" reduced to 10 hours by the stock market, what makes any of us think that we can do better? Or that some other "expert" is able to make a sound prediction?
Paul Krugman doesn't have a particularly good track record at much. But, particularly at predictions:
Paul Krugman wrote: Paul Krugman wrote in 1998, “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”

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Re: Domestic returns next 10 years

Post by CurlyDave » Wed Aug 14, 2019 2:17 am

But he does have one more Nobel Prize than either of us.

adrift
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Re: Domestic returns next 10 years

Post by adrift » Wed Aug 14, 2019 2:22 am

CurlyDave wrote:
Wed Aug 14, 2019 2:17 am
But he does have one more Nobel Prize than either of us.
[Political comment removed - mod oldcomputerguy] Also, there is no Nobel prize in economics. So, you, I, and Krugman are equal.
Last edited by adrift on Wed Aug 14, 2019 2:37 am, edited 1 time in total.

CurlyDave
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Re: Domestic returns next 10 years

Post by CurlyDave » Wed Aug 14, 2019 2:31 am

"The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics,[2] is an award for outstanding contributions to the field of economics,[3] and generally regarded as the most prestigious award for that field. The award's official name is The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Swedish: Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne)."

You are right, not exactly the same, but awarded in the same ceremony at the same time and commonly known as...

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Re: Domestic returns next 10 years

Post by dogagility » Wed Aug 14, 2019 4:52 am

FWIW, current stock allocations predict a SP500 10 year nominal return of about 4% and an EAFE nominal return of about 6%.
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Re: Domestic returns next 10 years

Post by SovereignInvestor » Wed Aug 14, 2019 6:55 am

I think most are understating the 10 year returns.

The buyback run rate now is about 3.5%, and buybacks + dividends are barely 100% of operating earnings. Net of issuance buybacks are about 3% of market cap. S&P dividend rate now is 2.0%.

https://us.spindices.com/documents/addi ... nload=true

Even if nominal earnings never grow for 10 years, the EPS would grow around 3.0% due to buybacks. 3.0%+ 2.0% yield minus 2.0% inflation (Fed's target and rough average inflation post 2008) yields 3.0% real return assuming no actual nominal earnings growth. Some maybe see PE contraction occurring...well how much..the S&P is at under 17x forward EPS with 10Y at 1.6%, how much can it contract....to 15ish, or 10%, or 1% per year? Maybe, but keep in mind as valuations drop the buyback and dividend yields rise which boosts returns. If it drops 10% in valuation immediately, the dividend + buyback yield of 5.0% would rise 0.5 points, which boosts annual returns 0.5% annually which offsets half the impact.

Around 45% of S&P revenues are overseas and rest domestic. global GDP growth estimated at about 2.8% real in long run while US about 1.8% per IMF. Blended, the pertinent REAL GDP growth is in the 2.2% neighborhood. Add on 2.0% inflation, and nominal GDP would be projected at 4.2%. Let's take 4.0%, so earnings grow with nominal GDP in long run. So 4.0% nominal Earnings growth plus 3.0% net buyback plus 2.0% dividend yield, is 9.0% nominal returns assuming no PE contraction (7% EPS growth with 2.0% yield). Any PE contraction just boosts buyback and dividend yield.

Haircut the earnings growth a couple points, and we still have 7.0%, and some may say oh we need PE contraction, but if earnings grow that slow, there's a good chance it's from weak economy with even lower yields, so if 10Y note approaches under 1.0%, wouldn't PE's need to expand more. If one disagrees, but still, as PE's contract if they do, then it boosts buyback and dividend yield, so offsets the impact.

As many state, it's impossible to predict actual 10Y return with precision since if ending 2029 forwward PE is 10x (2008-2010 valuation) versus 25x (1999-2000 valuation) makes about 10 points of return difference which is huge since long term returns averaged around 10%, the noise of PE changes outweighs the signal of the underlying return expected. But for midpoint estimate, I'd go with 8.0%, feel strongly that many on here are grossly underestimating the returns for next 10 years. I also remember Shiller and others predicting mediocre returns for next 10 years in 2012....even if S&P stagnates for next 3 years until 2022, we're looking at well over 10%+ annualized returns since 2012. I hope many aren't basing their bearish forecasts on CAPE, which is borderline harmful, since comparing CAPE across time doesn't account for buybacks, CPI changes, and recent tax rate changes, which cumulatively IMO make current CAPE about 30% or so biased high.

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Re: Domestic returns next 10 years

Post by firebirdparts » Wed Aug 14, 2019 8:21 am

columbia wrote:
Tue Aug 13, 2019 2:35 pm
10 year projections are always rooted in the idea that there won’t be a market downturn. That’s a poor assumption.
I always assume the opposite. Am I nuts? I assume that 10 years of predicted bad returns would look like 1999 to 2009.

SandysDad
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Re: Domestic returns next 10 years

Post by SandysDad » Wed Aug 14, 2019 11:45 am

No one knows what valuation multiples will be in the future, but I do think, one can predict the underlying fundementals to some extent.

That is returns at the same multiple should equal:
Dividends +
Inflation +
GDP =
Total return. So assuming 1.8% dividends, 2% inflation, and 2.5% GDP total is 6.3%

Do people agree with this philosophy? Returns in excess of this should reflect a change in overall valuation.

dbr
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Re: Domestic returns next 10 years

Post by dbr » Wed Aug 14, 2019 11:49 am

firebirdparts wrote:
Wed Aug 14, 2019 8:21 am
columbia wrote:
Tue Aug 13, 2019 2:35 pm
10 year projections are always rooted in the idea that there won’t be a market downturn. That’s a poor assumption.
I always assume the opposite. Am I nuts? I assume that 10 years of predicted bad returns would look like 1999 to 2009.
Or 1965 to 1982, no downturns, but 1966 was the worst year to retire ever.

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Re: Domestic returns next 10 years

Post by SovereignInvestor » Wed Aug 14, 2019 12:15 pm

SandysDad wrote:
Wed Aug 14, 2019 11:45 am
No one knows what valuation multiples will be in the future, but I do think, one can predict the underlying fundementals to some extent.

That is returns at the same multiple should equal:
Dividends +
Inflation +
GDP =
Total return. So assuming 1.8% dividends, 2% inflation, and 2.5% GDP total is 6.3%

Do people agree with this philosophy? Returns in excess of this should reflect a change in overall valuation.
Totally agree. This would be central estimate, with variability mostly from ending PE. But difference between ending with PE of 10 like 2008-09 or ending PE of 25 like 1999-2000, affects annualized returns 10 points. So one can have central estimate but max and min range around that may vary by 5-10 points if you want like 95% confidence. But the midpoint estimates I assume is what most try to estimate, and they seem too low. Your 4.3% real return is more realistic IMO.


Regarding your assumptions. the current dividend yield is 2.0%, but it was lower for a lot of this past 5 years so 1.8% seems reasonable.

The 2.5% GDP seems a bit high, US real growth is projected at 1.8% in long run and global GDP at 2.8% in long run, and with 45% of S&P sales overseas, the average for S&P would be closer to 2.2%.

The missing part is you'r not reflecting buybacks. Total dollars of earnings would assumed to grow with GDP, but earnings per share reflect buybacks. Buyback is like a yield that needs to be reflected. The buyback run rate averaged 3% since 2009. It is currently around 3.5%. Net of issuance from dilution is likely in the 2.5%-3.0% range on average, or 3.0% currently. This would be added to nominal GDP to get total earnings growth.

Under your assumptions you assume 4.5% nominal GDP growth (2% inflation and 2.5% real), but the EPS would grow fast--if you take the average 3.0% gross buyback Yield this cycle, and shave off 0.5% for dilution, then it would add an extra 2.5% growth in EPS....so EPS would grow 7.0%.

jmk
Posts: 480
Joined: Tue Nov 01, 2011 7:48 pm

Re: Domestic returns next 10 years

Post by jmk » Wed Aug 14, 2019 2:55 pm

rockthisworld wrote:
Tue Aug 13, 2019 12:49 pm
Alot of articles are stating that real returns for the next 10 years may be around 1% which is lower than average. Do you agree with this? If so what would a balanced portfolio return? And is anyone increasing their savings rate because of this? Also does this change your calculated rate of return when projecting long term roi. Right now I use a 4.5% return projection for my portfolio.
Yes I'm increasing the amount I save in "safe" accounts to compensate for lower expected real returns of equities.

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hagridshut
Posts: 45
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Re: Domestic returns next 10 years

Post by hagridshut » Wed Aug 14, 2019 3:13 pm

DanMahowny wrote:
Tue Aug 13, 2019 1:00 pm
1% returns is ridiculous. Equity return over the next 10 years will be solidly negative.
runner3081 wrote:
Tue Aug 13, 2019 1:11 pm
These discussions crack me up. No one knows. Anyone who thinks they knows is full of themselves :)
:shock:
First Principles: (1) Diversify (2) Low Cost (3) Stay the Course | 3-Fund Index Portfolio: S&P500; Intl; U.S.Bonds

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