GMO 7 year forecast for Asset classes

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stocknoob4111
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GMO 7 year forecast for Asset classes

Post by stocknoob4111 »

https://www.gmo.com/americas/research-l ... t-3q-2020/

Image

Looking at the above forecast and it does not look pretty. What would be your fixed income allocation at the moment if you were retiring in about 2 years from now and what type of fixed income would you hold? Bonds?, Cash? From that above chart it looks like even Bonds will lose about 4% annualized which would be super painful.

This article here claims one should be in cash for the next 7 years which also seems like an extreme view to me.

https://seekingalpha.com/article/439995 ... xt-7-years (view on mobile if you can't read it)
Nathan Drake
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Re: GMO 7 year forecast for Asset classes

Post by Nathan Drake »

That seems....extremely bearish on all fronts

What was their reasoning? There’s no larger report on the link
Last edited by Nathan Drake on Thu Jan 21, 2021 12:06 pm, edited 1 time in total.
rich126
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Re: GMO 7 year forecast for Asset classes

Post by rich126 »

This won't be popular here but learn how to value stocks and in the long run you'll do better. Sure you'll miss on more than a few but simply eliminating companies that aren't profitable can help a lot.

Of course most here will just hope the future will provide the 6%+ returns of the past.
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Re: GMO 7 year forecast for Asset classes

Post by stocknoob4111 »

Nathan Drake wrote: Thu Jan 21, 2021 12:05 pm What was their reasoning? There’s no larger report on the link
There is an explanation in the SeekingAlpha article. The general gist is that valuations are stretched beyond belief and we are even worse now than in early 2000 and in addition the 40 year Bond Bubble will unravel so there is no place to hide except cash.
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Re: GMO 7 year forecast for Asset classes

Post by secondopinion »

stocknoob4111 wrote: Thu Jan 21, 2021 11:59 am https://www.gmo.com/americas/research-l ... t-3q-2020/

Image

Looking at the above forecast and it does not look pretty. What would be your fixed income allocation at the moment if you were retiring in about 2 years from now and what type of fixed income would you hold? Bonds?, Cash? From that above chart it looks like even Bonds will lose about 4% annualized which would be super painful.

This article here claims one should be in cash for the next 7 years which also seems like an extreme view to me.

https://seekingalpha.com/article/439995 ... xt-7-years (view on mobile if you can't read it)
That suggests that US bonds lose (in real terms) around 22% over the 7 years (and inflation linked bonds). How would that be even possible unless there was a severe interest rate spike? Even then, how would bond durations averaging 6 to 8 years in many bond funds maintain such a loss over 7 years? And how would emerging debt dodge that spike?

Seems like an advertisement for "Emerging Value" more than anything.
Last edited by secondopinion on Thu Jan 21, 2021 12:44 pm, edited 1 time in total.
theorist
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Re: GMO 7 year forecast for Asset classes

Post by theorist »

I’m not sure that there is value in forecasts, but if so, it may be helpful to contextualize GMO’s take amongst the forecasts of many comparably eminent firms. See this from Morningstar today:

https://www.morningstar.com/articles/10 ... 21-edition
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Re: GMO 7 year forecast for Asset classes

Post by Tamalak »

Why would the expected return on any non-insurance asset class be negative nominal?

US bonds, -3.5% real?? How is that supposed to happen? Even safe bonds are returning 1% nominal, so either:

-They think inflation will be 4.5% annually going forward (but it can't be, because they list cash as -0.6% real?)
-They are talking about bonds with a substantially greater than 7 year term
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Re: GMO 7 year forecast for Asset classes

Post by surfstar »

How Did GMO Asset Return Forecasts Actually Turn Out? 2011-2018
https://www.mymoneyblog.com/gmo-asset-r ... -2018.html

Some quick and simple observations:

US Large-Cap and US Small-Cap stocks did a lot better than forecasted. Compounded over the full 7 years, the difference was on the order of doubling your money vs. making nearly nothing.
International Developed Large-Cap and International Small-Cap stocks also did significantly better than forecasted.
Emerging Market stocks did significantly worse than expected.
Bonds did about as expected across the board.




So, OP, I would not rely on this (OR ANY) "forecast" for how to construct your AA/portfolio.
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Re: GMO 7 year forecast for Asset classes

Post by klaus14 »

After GMO posted this, markets rose further and now they are even more bearish:
https://www.gmo.com/americas/research-l ... t-4q-2020/

they assume all valuations will revert to mean. They think TIPS AND Nominal bonds AND stocks will do badly. This is unlikely. "Everything will revert to its historical mean" is a silly way of forecasting things.

I find Vanguard predictions more useful because they actually simulate different asset classes together under different conditions (gdp, inflation etc). Here is their latest.
They also give some details about different paths simulations may take (less inflation vs more), and best portfolio for each. See page 46 here.
Last edited by klaus14 on Thu Jan 21, 2021 1:28 pm, edited 8 times in total.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: GMO 7 year forecast for Asset classes

Post by 3funder »

stocknoob4111 wrote: Thu Jan 21, 2021 12:16 pm
Nathan Drake wrote: Thu Jan 21, 2021 12:05 pm What was their reasoning? There’s no larger report on the link
There is an explanation in the SeekingAlpha article. The general gist is that valuations are stretched beyond belief and we are even worse now than in early 2000 and in addition the 40 year Bond Bubble will unravel so there is no place to hide except cash.
International valuations are stretched beyond belief, though? I disagree with them on that front.
Global stocks, US bonds, and time.
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Re: GMO 7 year forecast for Asset classes

Post by Anon9001 »

I would not be surprised if returns are poor for US stocks. They certainly are very popular to own even outside USA.
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Re: GMO 7 year forecast for Asset classes

Post by JBTX »

I think GMO’s 7 year forecast assume a reversion to mean over seven years. That has not been true in decades. Whether it is true going forward who knows.

In various writings, Grantham has admitted that the 7 year mean reversion isn’t a given. It is entirely possible that returns stagnate over a much longer period of time. Hell vs purgatory I think is what he called it.

I find Grantham very informative, but take GMO predictions with a grain of salt.

I am not even sure how one invests in emerging markets value. Does such a fund even exist?
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Re: GMO 7 year forecast for Asset classes

Post by klaus14 »

JBTX wrote: Thu Jan 21, 2021 11:48 pm
I am not even sure how one invests in emerging markets value. Does such a fund even exist?
I use AVEM.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: GMO 7 year forecast for Asset classes

Post by JBTX »

klaus14 wrote: Thu Jan 21, 2021 11:52 pm
JBTX wrote: Thu Jan 21, 2021 11:48 pm
I am not even sure how one invests in emerging markets value. Does such a fund even exist?
I use AVEM.
Interesting. I actually unwittingly have a tilt to this, I just discovered, in EELV

https://www.morningstar.com/etfs/arcx/eelv/portfolio

A low volatility fund, but tilts value, more so than AVEM.

Correction: EEMV, modest value tilt, less than EELV.
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Re: GMO 7 year forecast for Asset classes

Post by RonSea »

Image

Image


...Why would anyone keep reading these? Sure he'll eventually be [temporarily] right but the people trusting his word are going to end up worse-off in the long run.
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Re: GMO 7 year forecast for Asset classes

Post by klaus14 »

FlantasticSea wrote: Fri Jan 22, 2021 12:35 am
Image


...Why would anyone keep reading these? Sure he'll eventually be [temporarily] right but the people trusting his word are going to end up worse-off in the long run.
Wow. Everything in this prediction was wrong. Not even relatively correct. US Stocks vs ExUS, US Bonds vs ExUS, Emerging vs Dev all wrong.
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: GMO 7 year forecast for Asset classes

Post by bog007 »

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Re: GMO 7 year forecast for Asset classes

Post by AlohaJoe »

FlantasticSea wrote: Fri Jan 22, 2021 12:35 am ...Why would anyone keep reading these?
Because certain people love thinking catastrophe lurks around every corner so they continually seek out things that confirm their bias.

It isn't like we see people posting BlackRock's forecast, or BNY Mellon's forecast, or Robeco's forecast. That's how we know they don't actually care about forecasts.
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Re: GMO 7 year forecast for Asset classes

Post by freyj6 »

Odd that they include emerging value but not US or international value.

Regarding allocating to EM value, AVEM appears to be a good fund and all the Avantis funds got a big thumbs up from our ex-resident expert Larry Swedroe.

I currently hold VWO instead, but only because of 401k constraints.
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Re: GMO 7 year forecast for Asset classes

Post by Forester »

stocknoob4111 wrote: Thu Jan 21, 2021 11:59 am https://www.gmo.com/americas/research-l ... t-3q-2020/

Image

Looking at the above forecast and it does not look pretty. What would be your fixed income allocation at the moment if you were retiring in about 2 years from now and what type of fixed income would you hold? Bonds?, Cash? From that above chart it looks like even Bonds will lose about 4% annualized which would be super painful.

This article here claims one should be in cash for the next 7 years which also seems like an extreme view to me.

https://seekingalpha.com/article/439995 ... xt-7-years (view on mobile if you can't read it)
This forecast implies prolonged higher inflation. The real returns in that graphic are very similar to the 1970s for US stocks and US bonds. It's likely OTT. Personally I could cope with this thanks to my gold & gold miners. Ultimately the GMO track record is not good.
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Re: GMO 7 year forecast for Asset classes

Post by Scott S »

As this thread is showing, it takes more than the ability to create impressive-looking graphs and charts to predict the future. My hat is off to the posters finding polite ways to describe the validity of GMO predictions -- I don't think I could. ;)
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Re: GMO 7 year forecast for Asset classes

Post by SKJUN »

GMO specializes in alternative investments. So their marketing strategy is to scare stock and bond investors in every news letter. And pick some clients or at least make some money move in alternatives.

All doom sellers have been dead wrong since 2008, no-one has the crystal ball or DeLorean for telling the future of markets. I have tracked GMO chart on and off for 10+ years. Just to keep reminding me of alternatives to diversify my portfolio, as we often forget about these. It seems that it has been a mistake to overdiversify. :oops:
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Re: GMO 7 year forecast for Asset classes

Post by asif408 »

klaus14 wrote: Fri Jan 22, 2021 1:02 am Wow. Everything in this prediction was wrong. Not even relatively correct. US Stocks vs ExUS, US Bonds vs ExUS, Emerging vs Dev all wrong.
FWIW, I did an analysis of their last 20 years of predictions and, historically, they have always predicted developed ex-US and emerging equities will have higher returns than US stocks (on average, ~3% in the case of developed ex-US and ~6% for emerging). In fact, I never found a year they predicted US stocks would have higher returns than foreign.

At this point, I think there absolute forecasts aren't worth much, but their relative forecasts may be. So I pay attention when there relative predictions are wider or narrower than normal, that's where they appear to be useful. About 2-3 years ago their relative predictions widened in favor of foreign stocks, and it's too early to tell how that will play out. From 2006-2011 their relative predictions narrowed considerably between US & foreign stocks, and those were years you didn't want to be loading up on foreign stocks. So I'll wait and see how their 2018, 2019, & 2020 predictions pan out before I call their forecasts useless. They may be useful, just not in the way they are presented or actually used.
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Re: GMO 7 year forecast for Asset classes

Post by InvestInPasta »

THE GMO 7 YEARS FORECAST JAN 1 2011
RonSea wrote: Fri Jan 22, 2021 12:35 am Image
ACTUAL RETURNS JAN 1 2011 - JAN 1 2018 (nominal, in USD, ETF price with dividend reinvested)
Image
* "US High Quality" is simulated by the ETF Invesco FTSE RAFI US 1000; "Intl Large" is simulated by two ETFs Lyxor MSCI Eeurope + Lyxor MSCI Pacific

THE GMO 7 YEARS FORECAST JAN 1 2014
RonSea wrote: Fri Jan 22, 2021 12:35 am Image
ACTUAL RETURNS JAN 1 2014 - JAN 1 2021 (nominal, in USD, ETF price with dividend reinvested)
Image
* "US High Quality" is simulated by the ETF Invesco FTSE RAFI US 1000; "Intl Large" is simulated by two ETFs Lyxor MSCI Eeurope + Lyxor MSCI Pacific



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Re: GMO 7 year forecast for Asset classes

Post by Polymorphic »

MarketWatch posted a column today about the GMO report, which called out skeptical Bogleheads: https://www.marketwatch.com/story/grant ... latestnews
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Re: GMO 7 year forecast for Asset classes

Post by jginseattle »

Polymorphic wrote: Fri Jul 23, 2021 12:46 pm MarketWatch posted a column today about the GMO report, which called out skeptical Bogleheads: https://www.marketwatch.com/story/grant ... latestnews
Interesting. Thanks for the link.
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Re: GMO 7 year forecast for Asset classes

Post by InvestInPasta »

Polymorphic wrote: Fri Jul 23, 2021 12:46 pm MarketWatch posted a column today about the GMO report, which called out skeptical Bogleheads: https://www.marketwatch.com/story/grant ... latestnews
The best quotes from the article:
Go to an online chat room like Bogleheads (link to this thread) and you can find plenty of skeptics...
GMO was among the few firms to predict the 2000-2003 and 2007-2009 crashes. And each time, people laughed.
He was remarkably accurate in 2000 and 2007, ok, but what had he gone on forecasting in the years ahead of 2000 and 2007?
He has been forecasting negative returns for US equity once a month since December 2010, we are in 2021! :oops:
I'm not skeptical that one day he will be right, but I can be skeptical in his ability to make predictions that are worth something. :confused

But let's even say I know he is right. So what should I do? How could I possibly invest in "Emerging Value" stocks and "Japan Small Value" stocks (as he suggests in his "2Q 2021 Market Commentary"). What is he talking about?! Come on! If he is really sure of his forecast why doesn't he simply write simple and clear: "stay 100% cash and wait for the market crash!", at least it would be something actionable for the average investor.
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Re: GMO 7 year forecast for Asset classes

Post by klaus14 »

InvestInPasta wrote: Fri Jul 23, 2021 3:48 pm
Polymorphic wrote: Fri Jul 23, 2021 12:46 pm MarketWatch posted a column today about the GMO report, which called out skeptical Bogleheads: https://www.marketwatch.com/story/grant ... latestnews
The best quotes from the article:
Go to an online chat room like Bogleheads (link to this thread) and you can find plenty of skeptics...
GMO was among the few firms to predict the 2000-2003 and 2007-2009 crashes. And each time, people laughed.
He was remarkably accurate in 2000 and 2007, ok, but what had he gone on forecasting in the years ahead of 2000 and 2007?
He has been forecasting negative returns for US equity once a month since December 2010, we are in 2021! :oops:
I'm not skeptical that one day he will be right, but I can be skeptical in his ability to make predictions that are worth something. :confused

But let's even say I know he is right. So what should I do? How could I possibly invest in "Emerging Value" stocks and "Japan Small Value" stocks (as he suggests in his "2Q 2021 Market Commentary"). What is he talking about?! Come on! If he is really sure of his forecast why doesn't he simply write simple and clear: "stay 100% cash and wait for the market crash!", at least it would be something actionable for the average investor.
You can use ETFs if you want to invest in those
EM Value: AVEM or FNDE
Japan Small Value: DFJ
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
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Re: GMO 7 year forecast for Asset classes

Post by InvestInPasta »

klaus14 wrote: Fri Jul 23, 2021 4:08 pm You can use ETFs if you want to invest in those
EM Value: AVEM or FNDE
Japan Small Value: DFJ
I don't have access to those ETF from Europe.
Anyway I admit I have found these two ETF that could be bought by an European investor:
  • Emerging Value: iShares Edge MSCI EM Value Factor UCITS ETF USD(Acc) IE00BG0SKF03
  • Japan Small: iShares MSCI Japan Small Cap UCITS ETF (Dist) IE00B2QWDY88
Unfortunately there is no Japan Small Value ETF for European investor.

Anyway I wouldn't put the 1% of my portfolio on this stuff. :P
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Re: GMO 7 year forecast for Asset classes

Post by nisiprius »

If you're going to pay any attention to the GMO forecasts, be sure to find the reports that state the ±ranges and not just the center point.

What you will find is that GMO actually forecasts that the returns will fall within a certain range, and that the ranges are so incredibly wide that the forecasts are a) almost unfalsifiable and b) of no obvious practical use.

Noobvestor posted one of the fuller reports here. The ± numbers appear at the bottom of the chart.

Image

So, they did not forecast 9.9% for emerging markets, they forecast 9.9%±10.5%--that is, anything from -0.6%, an actual loss, up to 20.4%.

They did not forecast 0.9% for US large-cap stocks, they forecast 0.9%±6.5%, or anything from -5.6% to 7.4%.

So I would like to request that if someone reading this has access to the full report, that they would post the ± ranges on the current forecast.
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Re: GMO 7 year forecast for Asset classes

Post by JBTX »

Polymorphic wrote: Fri Jul 23, 2021 12:46 pm MarketWatch posted a column today about the GMO report, which called out skeptical Bogleheads: https://www.marketwatch.com/story/grant ... latestnews
In fairness, I agree with Arends take.

As a longer-term, retirement plan investor, GMO’s warnings don’t make me want to sell everything. But they do remind me to check my risks. If I couldn’t ride out a 50% fall in the market over the next 5-10 years, I probably own too many stocks. And, most important, they remind me to diversify.
I wouldn’t hang my hat on these forecasts. But I wouldn’t ignore them either.
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Re: GMO 7 year forecast for Asset classes

Post by JBTX »

nisiprius wrote: Fri Jul 23, 2021 6:55 pm If you're going to pay any attention to the GMO forecasts, be sure to find the reports that state the ±ranges and not just the center point.

What you will find is that GMO actually forecasts that the returns will fall within a certain range, and that the ranges are so incredibly wide that the forecasts are a) almost unfalsifiable and b) of no obvious practical use.

Noobvestor posted one of the fuller reports here. The ± numbers appear at the bottom of the chart.

Image

So, they did not forecast 9.9% for emerging markets, they forecast 9.9%±10.5%--that is, anything from -0.6%, an actual loss, up to 20.4%.

They did not forecast 0.9% for US large-cap stocks, they forecast 0.9%±6.5%, or anything from -5.6% to 7.4%.

So I would like to request that if someone reading this has access to the full report, that they would post the ± ranges on the current forecast.


I don't know that they routinely show the ranges.

https://www.gmo.com/americas/research-l ... t-2q-2021/

And I will say even they admit that the 7 year time frame as an assumption largely driven by historical mean reversion. Grantham has written that as an alternative it may be that asset prices may remain inflated due to fed policy for years but suffer an extended period of low returns. That's not unlike what Bogle said.
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Re: GMO 7 year forecast for Asset classes

Post by DB2 »

I think back in January Grantham predicted a 50% market crash this year. Or am I thinking of Harry Dent?
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Re: GMO 7 year forecast for Asset classes

Post by Tamalak »

Given that stocks are supposed to lose more real value than most people expect inflation to be, GMO appears to be projecting a reduction in stock prices in the next 7 years. How does one actually forecast that? Changes in market sentiment or unanticipated events are the only drivers of stock price reduction. As soon as the market consensus is that stocks should eventually go down, they do. So GMO is predicting that people will change their minds?
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Re: GMO 7 year forecast for Asset classes

Post by gasman »

GMO's forecasts are based on historic earnings growth rate and an expectation that Valuations will mean revert.

In the words of the good Dr. Bernstein, "It's good to know how expensive the tomatoes are".

Currently all the produce is pretty expensive.
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Re: GMO 7 year forecast for Asset classes

Post by nisiprius »

JBTX wrote: Fri Jul 23, 2021 8:27 pm...I don't know that they routinely show the ranges.

https://www.gmo.com/americas/research-l ... t-2q-2021/...
I was fantasizing that their actual clients get more complete reports, but I don't know. If they don't show ranges any more, shame on them. Vanguard does, and IMHO given how wide they are, the range is a more important piece of data than the center point.
okwriter wrote: Thu May 20, 2021 3:09 pm It's in page 38 of https://pressroom.vanguard.com/nonindex ... 120920.pdf.

Image
The range of the narrowest estimate is 11% (1%-12% for global equity).
The difference between their lowest and highest median is only 5%: (3% for US growth, 8% for international equity).

According to their forecasts, averaged over the next ten years, the luck and the breaks can affect your results more than twice as much as which stock category you invest in. And that's only if you literally put 100% of your stock allocation into a single category.

Literally every median lies within the range of every other category. So Vanguard is not forecasting, for example, that international equity will outperform US growth. International equity could return 3% and US Growth could return 9% and nobody say that their forecast was wrong, because those numbers are both within the accuracy range of the forecasts.
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Re: GMO 7 year forecast for Asset classes

Post by JackoC »

Tamalak wrote: Thu Jan 21, 2021 12:44 pm Why would the expected return on any non-insurance asset class be negative nominal?

US bonds, -3.5% real?? How is that supposed to happen? Even safe bonds are returning 1% nominal, so either:

-They think inflation will be 4.5% annually going forward (but it can't be, because they list cash as -0.6% real?)
-They are talking about bonds with a substantially greater than 7 year term
They are almost surely IMO talking about a constant maturity bond index return (ie. a bond fund tracking that index) rather than a bond you buy now and hold for 7 yrs. And the former is actually a more realistic assumption I'd say. As was mentioned though there's no link to any further description, even definitions of terms, in the OP link.

And I've no particular forecast of my own to offer. But, considering a treasury fund with 7 yr avg duration/maturity (ignore the difference in today's very low rate environment for broad side of barn purposes), 1.04% 7yr treasury yield, -1.4% 7 yr TIPS yield, rough inflation expectation +2.44%, rough expected real return -1.4%. If 7 yr yield goes up 2.1% at the end, that's around 2.1*7=14% price drop, 2.1% pa over 7yrs, ~-3.5% pa total real return (ignoring expense ratio, 'roll yield pickup' due to term premium, though that's likely low or negative if rates go up 2.1%). That's not an outlandish prediction. And yeah it could be both a longer maturity *and* a constant maturity index return they are referring to.

I take expected return for treasuries for planning purposes as SEC yield (again if I thought the term premium was significant I'd add something for 'roll yield', see recent thread for my explanation why not). I don't predict rate increase/decrease (v the current forward rates) in my planning. For stock I believe in diversifying, not speculating (and that's what it is) that the factors which have led to US overperformance will both persist and that that persistence isn't priced in by the market already, just as it's speculation to assume it will be the other way around. I assume 3.5% real expected return for the lot on US/global stocks now (1/CAPE of the S&P US plus a little, also within historical range of expected premium over -1.8% real return of the 5yr note, arguably the actual 'riskless asset'). If stock valuations retreat, return will be lower or negative, obviously. It could easily hit their forecast over a 7 yr period. I wouldn't personally consider drastic re-weighting based on differential forecasts about that though. But, I'm highly constrained by capital gains tax realization from making really meaningful asset shifts, hard to see a forecast certain enough to pay that money out now. It makes it easier for me to 'don't do something, just stand there'. :happy .
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Re: GMO 7 year forecast for Asset classes

Post by grabiner »

Forester wrote: Fri Jan 22, 2021 4:37 am
stocknoob4111 wrote: Thu Jan 21, 2021 11:59 am https://www.gmo.com/americas/research-l ... t-3q-2020/

Image

Looking at the above forecast and it does not look pretty. What would be your fixed income allocation at the moment if you were retiring in about 2 years from now and what type of fixed income would you hold? Bonds?, Cash? From that above chart it looks like even Bonds will lose about 4% annualized which would be super painful.

This article here claims one should be in cash for the next 7 years which also seems like an extreme view to me.

https://seekingalpha.com/article/439995 ... xt-7-years (view on mobile if you can't read it)
This forecast implies prolonged higher inflation. The real returns in that graphic are very similar to the 1970s for US stocks and US bonds. It's likely OTT. Personally I could cope with this thanks to my gold & gold miners. Ultimately the GMO track record is not good.
GMO's own page says that they expect inflation to be 2.2%.

Also, if there were prolonged higher inflation in the future, then inflation-linked bonds would be expected to outperform nominal bonds. The current yields give a break-even inflation rate of about 2.5%.

What is actually expected is a major increase in interest rates. It's easiest to see this with inflation-linked bonds. The TIPS index (as tracked by the ETF TIP) has a duration of 7.52, and a current yield of about -1.5%. If the yield increases by 0.5% per year every year for seven years, that would cause a 3.76% share price decline every year, and the return from the yield itself over seven years would be 0.25%, for a 3.5% decline. So this is a forecast that TIPS yields in 2028 will be 2%.
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Re: GMO 7 year forecast for Asset classes

Post by AlohaJoe »

nisiprius wrote: Sat Jul 24, 2021 11:04 am

The range of the narrowest estimate is 11% (1%-12% for global equity).
Even worse, you'll notice Vanguard says there's a 50% chance it is outside those bounds (25% chance higher, 25% chance lower).
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Re: GMO 7 year forecast for Asset classes

Post by nisiprius »

AlohaJoe wrote: Sat Jul 24, 2021 7:35 pm
nisiprius wrote: Sat Jul 24, 2021 11:04 am

The range of the narrowest estimate is 11% (1%-12% for global equity).
Even worse, you'll notice Vanguard says there's a 50% chance it is outside those bounds (25% chance higher, 25% chance lower).
No, for the "range" I'm using the 5% and 95% "whiskers." To my mind, if someone says "we think we have a 90% chance of being right," that is worthy of the name "forecast." If someone says "we think we have a 50/50 chance of being right" that's no forecast at all. So I treat the whiskers as the "forecast."
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Re: GMO 7 year forecast for Asset classes

Post by AlohaJoe »

nisiprius wrote: Sat Jul 24, 2021 8:17 pm
AlohaJoe wrote: Sat Jul 24, 2021 7:35 pm
nisiprius wrote: Sat Jul 24, 2021 11:04 am

The range of the narrowest estimate is 11% (1%-12% for global equity).
Even worse, you'll notice Vanguard says there's a 50% chance it is outside those bounds (25% chance higher, 25% chance lower).
No, for the "range" I'm using the 5% and 95% "whiskers." To my mind, if someone says "we think we have a 90% chance of being right," that is worthy of the name "forecast." If someone says "we think we have a 50/50 chance of being right" that's no forecast at all. So I treat the whiskers as the "forecast."
Ah, you meant the outer bars. Yeah, I misunderstood. You're right. Though 10% chance of being outside of -5% to +15% isn't a great look either. 1 in 10!
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