Vanguard's economic and investment outlook [2015]

[cfs]

Fasten your seat belts.

Very interesting paper from Vanguard -- Vanguard's economic and investment outlook

"Global economic growth is likely to remain frustratingly fragile for some time. As in Vanguard’s past economic outlooks, we see a world not in secular stagnation but in the midst of structural deceleration."

"Although not bearish, Vanguard’s outlook for global stocks and bonds is the most guarded since 2006, given compressed risk premiums and the low-rate environment."

Link to the paper attached: http://vanguard.com/pdf/ISGVEMO.pdf

[Leeraar]

Are there similar reports for previous years?

L.

[lack_ey]

Are there similar reports for previous years?

L.

January 2012, 2013, and 2014 here:
https://personal.vanguard.com/pdf/s289.pdf
https://personal.vanguard.com/pdf/s358.pdf
https://personal.vanguard.com/pdf/ICREIO.pdf

Let's just say that the projected equity returns seem to have a habit of shifting leftwards.

[cfs]

Good info

Good info on pages 28 and 29 Modest outlook for long-run returns and Portfolio construction strategies.

[midareff]

Very interesting read.

[richard]

" Nascent wage pressures should build in the United States in 2015 and beyond"

I'm often amused that people getting raises is usually considered as a negative, leading to increased inflation, especially in papers that note fiscal drag as harmful to growth under current conditions. It's my impression that most people regard higher pay as a good thing.

10 year treasuries at 2.5% seems in a reasonable range. It's only a touch higher than current yields.

Equities being centered in the 5%-8% return range could be a touch optimistic, but not unreasonable. Vanguard has written the e/p (the inverse of p/e) is the best predictor of equity returns. At the moment, market p/e is about 20x, so e/p is 5%, the low end of their range.

Vanguard continues to use their Capital Markets Model (VCMM) for these papers, yet uses other methodologies for financial plans for individuals (plans for institutions use the VCMM). Consistency would be nice.

[Hayden]

Interesting read, but my IPS says I'm supposed to ignore news and stay the course. My equities are 60% US / 40% international.

Anyone changing their AA based on this?

[cfs]

Good question.

"Anyone changing their AA based on this?"

Good question by our shipmate Hayden, my answer "not me."

[Sconie]

Interesting read, but my IPS says I'm supposed to ignore news and stay the course. My equities are 60% US / 40% international.

Anyone changing their AA based on this?

I

No----my IPS allocation is also 60% domestic (U.S.) and 40% Int'l and I'm just getting ready to rebalance (with $ going back into Int'l).

[Calm Man]

Interesting report. And if one asked the authors, I repeat THE AUTHORS: (sirs, what would you like me to do with the information?" -- what would they say?

[ChicagoMedStudent]

Interesting read, but my IPS says I'm supposed to ignore news and stay the course. My equities are 60% US / 40% international.

Anyone changing their AA based on this?

Certainly not based on this report alone. I'd have to see their predictions accurately pan out over many years before I would even think about changing the AA.

[Late2theParty]

I think they repeatedly stated that though ongoing returns for both stocks and bonds were predicted to be lower than last year's predictions, the equity premium remains intact and investors are advised to NOT make any changes in asset allocation.
The actionable recommendation is to stay the course.

[garlandwhizzer]

[Thread merged and link fixed by admin LadyGeek.]

On the Vanguard website today, their global economic and investment outlook for 2015. They do not paint a rosy picture and suggest that both small caps and high dividend-income stocks may be currently overvalued. According to Vanguard's Davis, look for muted returns on a balanced portfolio (3% -5% after inflation) and expect continued volatility going forward. Substantial economic risks internationally (deflation, recession), less so in US but valuations more stretched. Comments?

Highlights from Vanguard’s 2015 global economic and investment outlook

Garland Whizzer

[rkhusky]

What is their track record on global outlook accuracy?

Even if it is good, would that change your investment strategy?

[lack_ey]

Check this previous thread:
viewtopic.php?f=10&t=153284

What is their track record on global outlook accuracy?

Even if it is good, would that change your investment strategy?

Even they don't recommend a change in investment strategy, what with their predictions of similar risk/reward characteristics except that the reward is lower than before for the different asset classes. The key thing is that risk premiums aren't expected to deliver as much.

If you look at the wide bands of possible outcomes, we probably don't have nearly enough data to assess if the predictions are right or not. It's just a reasonable best guess from experts.

[cfs]

The actionable recommendation is to stay the course.

Concur with our Shipmate L2P.

Here is a different point of view from PIMCO and Chairman Bernanke ===> http://finance.yahoo.com/news/pimco-see ... QAoquTmYlQ

[LadyGeek]

FYI - I merged garlandwhizzer's thread into here.

[JamesSFO]

This is well done by Vanguard (as one would expect)

[whadyaknow]

Given the predicted low inflation environment (with deflationary pressures rising in Europe) over the next decade or so, how do folks feel about EE-bonds as a 20 year investment guaranteeing a 3.53% annualized return?

[RyeWhiskey]

Given the predicted low inflation environment (with deflationary pressures rising in Europe) over the next decade or so, how do folks feel about EE-bonds as a 20 year investment guaranteeing a 3.53% annualized return?

It depends on whether or not you want to have that bond mature in 20 years. For me that isn't the best time to have bonds mature but for you it may be ideal.

[Leeraar]

Given the predicted low inflation environment (with deflationary pressures rising in Europe) over the next decade or so, how do folks feel about EE-bonds as a 20 year investment guaranteeing a 3.53% annualized return?

I think there's the issue that you do not get the APR until you have held it for 20 years. Also, you can only invest $10,000 per year.
http://www.bogleheads.org/wiki/EE_savings_bonds
I happen to be an investing genius who bought EE Bonds in the late 1980s that are still paying a guaranteed minimum 6%. I have to start cashing them in next year. (Well, I don't, but they stop paying interest.)

L.

[peppers]

Given the predicted low inflation environment (with deflationary pressures rising in Europe) over the next decade or so, how do folks feel about EE-bonds as a 20 year investment guaranteeing a 3.53% annualized return?

I think there's the issue that you do not get the APR until you have held it for 20 years. Also, you can only invest $10,000 per year.
http://www.bogleheads.org/wiki/EE_savings_bonds
I happen to be an investing genius who bought EE Bonds in the late 1980s that are still paying a guaranteed minimum 6%. I have to start cashing them in next year. (Well, I don't, but they stop paying interest.)

L.

NA EE $100 01/1987 01/2015 01/2017 $50.00 $137.80 4.00% $187.80
NA EE $100 01/1992 01/2015 01/2022 $50.00 $104.08 4.00% $154.08
NA EE $100 01/1991 01/2015 01/2021 $50.00 $110.32 4.00% $160.32
NA EE $100 01/1985 01/2015 01/2015 $50.00 $176.12 4.00% $226.12
NA EE $100 01/1988 01/2015 01/2018 $50.00 $130.52 4.00% $180.52
NA EE $100 01/1989 01/2015 01/2019 $50.00 $123.52 4.00% $173.52
NA EE $100 01/1990 01/2015 01/2020 $50.00 $116.80 4.00% $166.80
CALCULATE ANOTHER BOND