Are we entering an era of diminishing returns ?

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hi_there
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Re: Are we entering an era of diminishing returns ?

Post by hi_there »

HoraceMann76 wrote: Fri Jul 09, 2021 11:08 pm If you believe in mean reversion AND we will not have an amazing productivity spike then yes, we are due for a period of meager returns at some point. Who knows when that will be. Could be crash, could be a gradual slide.
Not if you believe in mean reversion of returns, not prices.
phantom0308
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Re: Are we entering an era of diminishing returns ?

Post by phantom0308 »

No one knows. The real rate of return is really low right now, but there aren’t good theories about how it changes.
Exponential inflation doesn’t mean anything. I suppose if we had exactly 2% inflation for ten years you could say 10 is the exponent. In most cases you won’t have an exponent. You could say prices are exponential albeit with a very low base.
nzahir
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Re: Are we entering an era of diminishing returns ?

Post by nzahir »

nisiprius wrote: Fri Jul 09, 2021 8:17 pm
nzahir wrote: Fri Jul 09, 2021 7:24 pm
SmileyFace wrote: Fri Jul 09, 2021 4:57 pm No, no, no, and no.
Why no?

Logically and mathematically, returns are smaller after the market cap gets so large

This is why small caps have outperformed
But have small caps outperformed?

Source

Image

The DFA US Micro Cap Portfolio (blue) is one of the oldest and most admired small-cap funds. Since inception it has, in fact, underperformed the Vanguard 500 index Fund (red).

And it underperformed despite taking on a quite noticeably higher level of risk, which shows up here both as higher standard deviation (almost a third higher, 20.01% versus 15.06%), and as deeper drawdown. Once you allow for risk, the small-cap fund had much lower risk-adjusted return, as shown by the Sharpe and Sortino ratios.
SCV and Small cap crushed US Large Cap from 1972 according to Portfolio Visualizer

https://www.portfoliovisualizer.com/bac ... sisResults

I don't have a snipping tool on this current laptop, but take a look

Russell 2000 has also beat out the S&P for the past 20 years
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whodidntante
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Re: Are we entering an era of diminishing returns ?

Post by whodidntante »

Meh. Probably. But "deep risks" are more concerning than low returns. https://www.mindfullyinvesting.com/inve ... deep-risk/

You can't control outcomes. Give up on that. But you can control strategy.

My strategy is to take risks that I consider to be good risks and to worry about the things I can control. Now, you might think that means I save more or that I invest in global equities or value stocks or something like that. But I'm at a stage that some people refer to as "coast FIRE" so I don't benefit much from additional annual savings and my risk exposures have a much larger impact. My portfolio may or may not provide for my spending desires but it exposes me to what I consider to be good risks.

If it doesn't work out, c'est la vie. Maybe the most important part of my strategy is not to defer spending that brings great enjoyment. One thing I know for sure is that one day I'll be dead.
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nisiprius
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Re: Are we entering an era of diminishing returns ?

Post by nisiprius »

hi_there wrote: Fri Jul 09, 2021 11:15 pmIt is interesting how the chart above suggests that small cap investors have not been adequately compensated for risk, relative to large cap investors. I wonder what could be the reason for this seeming inefficiency. Is this just a random result from relatively recent history, or perhaps something related to changing technology, which has allowed larger enterprises to capture larger value over time, and that continues to occur at a pace that is generally underestimated by stock prices.
I would say that it is not-obviously-cherry-picked time period to look at because

Banz, Rolf (1980), "The Relationship between Return and Market Value of Common Stocks", Journal of Fmancial Economics 9 (1981) 3318, was published in September, 1980, and

DFA US Micro Cap Portfolio, DFSCX, had inception in 12/23/1981.

The Banz paper was the publication that brought attention to the "size effect," aka "small firm effect," aka "small-cap premium." The abstract says
It is found that smaller firms have had higher risk adjusted returns, on average, than larger firms.
And everything about the Dimensional fund says that it is a good fund of its kind. Dimensional fans often praise it as superior to the Vanguard Small-cap Index Fund, for example. DFSVX invests in smaller-cap stocks than the competition. There are no true, literal index funds with that much history, but DFSVX is supposed to represent a "passive" strategy.

In other words, DFSVX represents the earliest available opportunity to invest in a small-cap strategy as such, because it goes back almost to the "discovery" of the small-cap premium.
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KlangFool
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Re: Are we entering an era of diminishing returns ?

Post by KlangFool »

Destiple wrote: Fri Jul 09, 2021 10:48 pm
KlangFool wrote: Fri Jul 09, 2021 8:20 pm
Destiple wrote: Fri Jul 09, 2021 7:43 pm
456M wrote: Fri Jul 09, 2021 7:36 pm Since I'm early in my accumulation stage, a decade of low returns followed by another bull run would be awesome. One can only hope.
But that’s not good news for somebody who is 40 like me or is it
A) Why should you care if your saving rate is high enough?

B) If you care, you should save more and spend less.

KlangFool
Like your approach
How much % of your net pay can you realistically save
Esp let’s say you have a wife and kid
My goal is 50% for next 10 yrs
I save 1 year of current annual expense every year. I do not use saving rate based on income.

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Last edited by KlangFool on Sat Jul 10, 2021 7:32 am, edited 1 time in total.
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SmileyFace
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Re: Are we entering an era of diminishing returns ?

Post by SmileyFace »

nzahir wrote: Fri Jul 09, 2021 7:24 pm
SmileyFace wrote: Fri Jul 09, 2021 4:57 pm No, no, no, and no.
Why no?

Logically and mathematically, returns are smaller after the market cap gets so large

This is why small caps have outperformed

But also after a good run with expensive stocks, returns have always been lower. There is proof of this and it makes sense
"For decades"? No.
Are you saying you are willing to shift all your investments to small caps for decades?
Somethingwitty92912
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Re: Are we entering an era of diminishing returns ?

Post by Somethingwitty92912 »

Hard no. Moore’s law would like to have a conversation with you.
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burritoLover
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Re: Are we entering an era of diminishing returns ?

Post by burritoLover »

The typical Boglehead portfolio is concentrated almost entirely in U.S. large cap stocks. You'll hear talk about "owning the haystack" cause it's a "total U.S. market fund" but those market-cap weighted funds are massively dominated by large caps - which is why they so closely track the S&P 500. A small cap value tilt would enhance diversification for the typical Boglehead portfolio. As would adding more international. But everyone like to performance chase - they'll talk about the potential for meager returns in the coming decade but do nothing about their highly concentrated portfolio.
gubernaculum
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Re: Are we entering an era of diminishing returns ?

Post by gubernaculum »

Diminishing returns? Last time I checked VTSAX is double digits YTD
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zaboomafoozarg
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Re: Are we entering an era of diminishing returns ?

Post by zaboomafoozarg »

I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
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Destiple
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Re: Are we entering an era of diminishing returns ?

Post by Destiple »

zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
flyingaway
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Re: Are we entering an era of diminishing returns ?

Post by flyingaway »

There might be high return years and low return years.
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quantAndHold
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Re: Are we entering an era of diminishing returns ?

Post by quantAndHold »

Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
With a high enough savings rate, you can sustain anything you want.

Note that I’m not agreeing with zaboom, just explaining them. I think some of the extreme savings scenarios some folks here get into are just that. Extreme. They’re unnecessary, and they keep people working for years, and sometimes decades, longer than they need to, and from allowing themselves to enjoy the money they’ve earned and saved.
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Re: Are we entering an era of diminishing returns ?

Post by KlangFool »

Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
Destiple,

Why not?

A) If someone is saving 1 year of expense every year, the person's portfolio will reach 25X in about 20 years at that return rate.

B) If someone's portfolio is big enough at retirement, aka 30X, at this return rate, the portfolio will grew bigger every year even with retirement spending.

This is a simple math problem.

KlangFool
Last edited by KlangFool on Sat Jul 10, 2021 10:09 am, edited 1 time in total.
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Re: Are we entering an era of diminishing returns ?

Post by KlangFool »

quantAndHold wrote: Sat Jul 10, 2021 9:48 am
Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
With a high enough savings rate, you can sustain anything you want.

Note that I’m not agreeing with zaboom, just explaining them. I think some of the extreme savings scenarios some folks here get into are just that. Extreme. They’re unnecessary, and they keep people working for years, and sometimes decades, longer than they need to, and from allowing themselves to enjoy the money they’ve earned and saved.
quantAndHold,

<<I think some of the extreme savings scenarios some folks here get into are just that. Extreme. >>

I disagreed that someone needs extreme saving in order to have a high saving rate. As per my observation on my income peers, the major difference between those that can save versus those don't is the house, car, and college education. It is the major purchases that determine whether they can save. Those that spend less on the major purchases has plenty of discretionary spending on everything else and can save a lot of money.

I save and spend 50K to 60K per year. I save a lot of money but I am not frugal. I spend as much as the US median household income. My income peers choose to buy 600K to 700K houses. Hence, they have no money for anything else and they save close to nothing.

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zaboomafoozarg
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Re: Are we entering an era of diminishing returns ?

Post by zaboomafoozarg »

Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
I won't let myself retire until I save about 50 times my expected annual expenses.

Between that and social security and pension, I should hopefully have enough.
GoneOnTilt
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Re: Are we entering an era of diminishing returns ?

Post by GoneOnTilt »

Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
I'll answer for myself: Savings rate.
Firemenot
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Re: Are we entering an era of diminishing returns ?

Post by Firemenot »

Pessimistic posts like this are encouraging, and seemingly quite frequent on BH. It shows that there may still be more of a “wall of worry” for market to potentially climb higher.
Robot Monster
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Re: Are we entering an era of diminishing returns ?

Post by Robot Monster »

gubernaculum wrote: Sat Jul 10, 2021 8:16 am Diminishing returns? Last time I checked VTSAX is double digits YTD
Is that predictive of the future, though?
Boatguy
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Re: Are we entering an era of diminishing returns ?

Post by Boatguy »

zaboomafoozarg wrote: Sat Jul 10, 2021 10:13 am
Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
I won't let myself retire until I save about 50 times my expected annual expenses.

Between that and social security and pension, I should hopefully have enough.
Is that 50x expenses after SS and pension?
gubernaculum
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Re: Are we entering an era of diminishing returns ?

Post by gubernaculum »

Robot Monster wrote: Sat Jul 10, 2021 10:31 am
gubernaculum wrote: Sat Jul 10, 2021 8:16 am Diminishing returns? Last time I checked VTSAX is double digits YTD
Is that predictive of the future, though?
It's the present. No one can predict the future. But one thing is for sure: countless dollars have been unleashed towards R&D like never before.
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Harry Livermore
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Re: Are we entering an era of diminishing returns ?

Post by Harry Livermore »

We cannot control when we are born.
My grandparents were children in the Great Depression, and teens/ young adults during WW2. It must have been a grim time. Then they got to enjoy the post WW2 boom, with peace and prosperity, as they began their own families. My mom and dad are/ were "silents", so had happy childhoods, and married during the optimistic early 1960s. They started having kids in the late 1960s as the resistance to the Vietnam War was ramping up, and then suffered through the stagflation and sideways market of the 1970s. I was lucky to start investing right after the crash of 1987, lucky to buy my first home right after the recession of 1991, and my second home right after the Great Financial Crisis. All of that timing was random luck, for good and for bad.
My grandparents invested a little, but not much. My parents invested more, principally through IRAs. I have invested quite a bit.
I guess I'm rambling. But the window in which a person can be economically active, and save or invest the fruits of that activity, is somewhat fixed in time, and certainly fixed in history. And unknowable ahead of time. Even if you knew that we WERE entering an era of diminishing returns, what would you do about it?
Cheers
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Destiple
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Re: Are we entering an era of diminishing returns ?

Post by Destiple »

Harry Livermore wrote: Sat Jul 10, 2021 10:53 am We cannot control when we are born.
My grandparents were children in the Great Depression, and teens/ young adults during WW2. It must have been a grim time. Then they got to enjoy the post WW2 boom, with peace and prosperity, as they began their own families. My mom and dad are/ were "silents", so had happy childhoods, and married during the optimistic early 1960s. They started having kids in the late 1960s as the resistance to the Vietnam War was ramping up, and then suffered through the stagflation and sideways market of the 1970s. I was lucky to start investing right after the crash of 1987, lucky to buy my first home right after the recession of 1991, and my second home right after the Great Financial Crisis. All of that timing was random luck, for good and for bad.
My grandparents invested a little, but not much. My parents invested more, principally through IRAs. I have invested quite a bit.
I guess I'm rambling. But the window in which a person can be economically active, and save or invest the fruits of that activity, is somewhat fixed in time, and certainly fixed in history. And unknowable ahead of time. Even if you knew that we WERE entering an era of diminishing returns, what would you do about it?
Cheers
Right only so much we can control but Every era offers new opportunity too
If traditional stocks and bonds are in stagflation are we in a era before crypto’s will take off ? How willing are you to bet on it ?
ESp for people in 40s to 50s , more than 5% of their portfolio in crypto’s ? Is that going to be the new vehicle to generate high returns while stocks become to act more like how bonds acted
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Re: Are we entering an era of diminishing returns ?

Post by KlangFool »

Destiple wrote: Sat Jul 10, 2021 11:29 am
ESp for people in 40s to 50s , more than 5% of their portfolio in crypto’s ? Is that going to be the new vehicle to generate high returns while stocks become to act more like how bonds acted
Destiple,

You have a choice:

A) Gamble on whatever latest "get rich quick" scheme and hope that you are lucky and you win big.

B) Save more and spend less. Then, you do not need to be lucky.

Counting on being lucky is a lousy strategy,

KlangFool
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Re: Are we entering an era of diminishing returns ?

Post by Shopcat »

KlangFool wrote: Sat Jul 10, 2021 11:48 am
Destiple wrote: Sat Jul 10, 2021 11:29 am
ESp for people in 40s to 50s , more than 5% of their portfolio in crypto’s ? Is that going to be the new vehicle to generate high returns while stocks become to act more like how bonds acted
Destiple,

You have a choice:

A) Gamble on whatever latest "get rich quick" scheme and hope that you are lucky and you win big.

B) Save more and spend less. Then, you do not need to be lucky.

Counting on being lucky is a lousy strategy,

KlangFool
Seems like you dont have to choose between those two options, you can do both. No risk = no future.
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Re: Are we entering an era of diminishing returns ?

Post by KlangFool »

Shopcat wrote: Sat Jul 10, 2021 12:20 pm
KlangFool wrote: Sat Jul 10, 2021 11:48 am
Destiple wrote: Sat Jul 10, 2021 11:29 am
ESp for people in 40s to 50s , more than 5% of their portfolio in crypto’s ? Is that going to be the new vehicle to generate high returns while stocks become to act more like how bonds acted
Destiple,

You have a choice:

A) Gamble on whatever latest "get rich quick" scheme and hope that you are lucky and you win big.

B) Save more and spend less. Then, you do not need to be lucky.

Counting on being lucky is a lousy strategy,

KlangFool
Seems like you dont have to choose between those two options, you can do both. No risk = no future.
Shopcat,

If you do (B), you do not need (A).

<< No risk = no future.>>

I disagreed. This is clearly false. If you disagreed, show me the calculation.

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Harry Livermore
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Re: Are we entering an era of diminishing returns ?

Post by Harry Livermore »

Destiple wrote: Sat Jul 10, 2021 11:29 am
Right only so much we can control but Every era offers new opportunity too
If traditional stocks and bonds are in stagflation are we in a era before crypto’s will take off ? How willing are you to bet on it ?
ESp for people in 40s to 50s , more than 5% of their portfolio in crypto’s ? Is that going to be the new vehicle to generate high returns while stocks become to act more like how bonds acted
You have a valid point about missing out on high returns. And of course if you are younger, you may have an appetite for risk.
But having lived through several iterations of seeking alpha, from the superstar mutual fund manager, to the dot com boom, to the era of CDOs, to hedge funds, and to SPACs, I have to say that through it all, the most reliable way to earn high returns has been to participate in the innovative and robust US economy, by casting as wide a net as possible, which for me always comes back to a large percentage in index funds.
Also, I have almost won the game. I own several properties, two outright, and am just about 33x my projected expenses in a 50-50 equity/ bond mix. We have 2 modest pensions and social security to lean on a little as well. I don't NEED to worry that I am missing out on crypto. And in retrospect, if I had been close to retiring at the height of the dot-com boom (for example) I would have been better off ignoring the "hot" opportunity then.
Will crypto be different? Maybe. But my crystal ball is broken again...
I'm not saying you are wrong. I am only saying I'm not smart enough to know that you are right!
:sharebeer
Cheers
Shopcat
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Re: Are we entering an era of diminishing returns ?

Post by Shopcat »

KlangFool wrote: Sat Jul 10, 2021 12:26 pm
<< No risk = no future.>>

I disagreed. This is clearly false. If you disagreed, show me the calculation.

KlangFool
I don't think its "clearly false" I think there is a very real relationship between risk and reward and it comes down to what future you are happy with. I think that most of what the average person should do can be low risk low and steady reward, but taking some risks is still good. And personality determines a lot, for some, no risk is not an option by nature.
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Re: Are we entering an era of diminishing returns ?

Post by KlangFool »

Shopcat wrote: Sat Jul 10, 2021 6:29 pm
KlangFool wrote: Sat Jul 10, 2021 12:26 pm
<< No risk = no future.>>

I disagreed. This is clearly false. If you disagreed, show me the calculation.

KlangFool
I don't think its "clearly false" I think there is a very real relationship between risk and reward and it comes down to what future you are happy with. I think that most of what the average person should do can be low risk low and steady reward, but taking some risks is still good. And personality determines a lot, for some, no risk is not an option by nature.
Shopcat,

I disagreed. Someone could have high risk and low reward investment. So, there is no real relationship between risk and reward.

KlangFool
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Shopcat
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Re: Are we entering an era of diminishing returns ?

Post by Shopcat »

KlangFool wrote: Sat Jul 10, 2021 6:50 pm
Shopcat,

I disagreed. Someone could have high risk and low reward investment. So, there is no real relationship between risk and reward.

KlangFool
Can't argue with that logic. You win. Though you actually disagreed with "no risk = no future" not that it matters with the logic presented.
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zaboomafoozarg
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Re: Are we entering an era of diminishing returns ?

Post by zaboomafoozarg »

Boatguy wrote: Sat Jul 10, 2021 10:32 am Is that 50x expenses after SS and pension?
I'm going to try to get to 50x without counting SS and pension. Want to be really safe.
ElJefeDelQueso
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Re: Are we entering an era of diminishing returns ?

Post by ElJefeDelQueso »

Destiple wrote: Fri Jul 09, 2021 4:36 pm Are we headed to an era in which stock market will offer meager returns for decades? With no major downturns and exponential inflation
Obviously no one has a crystal ball but let’s share opinions and why you think that way
Thanks
No. I'm an optimist. There are very creative, innovative people out there with way more energy than I have inventing, growing, building things I can't even begin to predict. The future is bright.
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Forester
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Re: Are we entering an era of diminishing returns ?

Post by Forester »

US tech officially more expensive than the Dotcom peak, closing at 7.47 forward sales vs 7.45 for March 2000.
Amateur Self-Taught Senior Macro Strategist
minimalistmarc
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Re: Are we entering an era of diminishing returns ?

Post by minimalistmarc »

zaboomafoozarg wrote: Sat Jul 10, 2021 9:26 pm
Boatguy wrote: Sat Jul 10, 2021 10:32 am Is that 50x expenses after SS and pension?
I'm going to try to get to 50x without counting SS and pension. Want to be really safe.
That’s more about your own psychological quirks than safety. It only makes sense if you have a low stress/very high pay job.
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JoeRetire
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Re: Are we entering an era of diminishing returns ?

Post by JoeRetire »

Forester wrote: Wed Jul 14, 2021 2:44 am US tech officially more expensive than the Dotcom peak, closing at 7.47 forward sales vs 7.45 for March 2000.
What does that mean for you?
This isn't just my wallet. It's an organizer, a memory and an old friend.
mc2
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Re: Are we entering an era of diminishing returns ?

Post by mc2 »

whodidntante wrote: Sat Jul 10, 2021 1:33 am Meh. Probably. But "deep risks" are more concerning than low returns. https://www.mindfullyinvesting.com/inve ... deep-risk/

You can't control outcomes. Give up on that. But you can control strategy.

My strategy is to take risks that I consider to be good risks and to worry about the things I can control. Now, you might think that means I save more or that I invest in global equities or value stocks or something like that. But I'm at a stage that some people refer to as "coast FIRE" so I don't benefit much from additional annual savings and my risk exposures have a much larger impact. My portfolio may or may not provide for my spending desires but it exposes me to what I consider to be good risks.

If it doesn't work out, c'est la vie. Maybe the most important part of my strategy is not to defer spending that brings great enjoyment. One thing I know for sure is that one day I'll be dead.
Would you care to share some of your investment strategies/allocations?
Don't worry, I'll be dead, too...
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whodidntante
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Re: Are we entering an era of diminishing returns ?

Post by whodidntante »

mc2 wrote: Wed Jul 14, 2021 1:15 pm
whodidntante wrote: Sat Jul 10, 2021 1:33 am Meh. Probably. But "deep risks" are more concerning than low returns. https://www.mindfullyinvesting.com/inve ... deep-risk/

You can't control outcomes. Give up on that. But you can control strategy.

My strategy is to take risks that I consider to be good risks and to worry about the things I can control. Now, you might think that means I save more or that I invest in global equities or value stocks or something like that. But I'm at a stage that some people refer to as "coast FIRE" so I don't benefit much from additional annual savings and my risk exposures have a much larger impact. My portfolio may or may not provide for my spending desires but it exposes me to what I consider to be good risks.

If it doesn't work out, c'est la vie. Maybe the most important part of my strategy is not to defer spending that brings great enjoyment. One thing I know for sure is that one day I'll be dead.
Would you care to share some of your investment strategies/allocations?
Don't worry, I'll be dead, too...
Sure.

I don't include my house when I state my asset allocation, but I have one. No debt of any kind. I'm around 8% fixed income, mostly in a stable value fund in my 401k that has a 1.8% yield. The rest is in stocks. Within stocks, I'm about 50% USA, 50% ex-USA, and around 50% small-cap value within that. Technically it's not a SCV tilt, but a multi-factor tilt. But the funds have "small cap value" in the name.

So far, you are immortal. So don't count yourself out just yet. :P
mc2
Posts: 261
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Re: Are we entering an era of diminishing returns ?

Post by mc2 »

whodidntante wrote: Wed Jul 14, 2021 5:30 pm
mc2 wrote: Wed Jul 14, 2021 1:15 pm
whodidntante wrote: Sat Jul 10, 2021 1:33 am Meh. Probably. But "deep risks" are more concerning than low returns. https://www.mindfullyinvesting.com/inve ... deep-risk/

You can't control outcomes. Give up on that. But you can control strategy.

My strategy is to take risks that I consider to be good risks and to worry about the things I can control. Now, you might think that means I save more or that I invest in global equities or value stocks or something like that. But I'm at a stage that some people refer to as "coast FIRE" so I don't benefit much from additional annual savings and my risk exposures have a much larger impact. My portfolio may or may not provide for my spending desires but it exposes me to what I consider to be good risks.

If it doesn't work out, c'est la vie. Maybe the most important part of my strategy is not to defer spending that brings great enjoyment. One thing I know for sure is that one day I'll be dead.
Would you care to share some of your investment strategies/allocations?
Don't worry, I'll be dead, too...
Sure.

I don't include my house when I state my asset allocation, but I have one. No debt of any kind. I'm around 8% fixed income, mostly in a stable value fund in my 401k that has a 1.8% yield. The rest is in stocks. Within stocks, I'm about 50% USA, 50% ex-USA, and around 50% small-cap value within that. Technically it's not a SCV tilt, but a multi-factor tilt. But the funds have "small cap value" in the name.

So far, you are immortal. So don't count yourself out just yet. :P
By golly I survived yet another week! Thanks for sharing your thoughts-here and on other threads. :beer
TimeTheMarket
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Re: Are we entering an era of diminishing returns ?

Post by TimeTheMarket »

Maybe, who knows.

We'll know for sure by 2050 looking back.

I will keep buying index funds.

I certainly do not think the next decade will grow as the prior did, but it might. History may rhyme, but it rarely repeats and the variables always change. We have insane spending, yet inflation has been tame until recently. Is it up because debt spending is catching up or because of covid? Who knows.

I really think people worry about this too much. If you're 60 and you just retired I absolutely understand your worry but if you're still accumulating and very heavily invested in stocks and it doesn't even matter to you for another 10-20+ years, just keep buying.
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RubyTuesday
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Re: Are we entering an era of diminishing returns ?

Post by RubyTuesday »

burritoLover wrote: Sat Jul 10, 2021 7:22 am The typical Boglehead portfolio is concentrated almost entirely in U.S. large cap stocks. You'll hear talk about "owning the haystack" cause it's a "total U.S. market fund" but those market-cap weighted funds are massively dominated by large caps - which is why they so closely track the S&P 500.
I wonder what your evidence for the what the “typical Boglehead portfolio” is?
A small cap value tilt would enhance diversification for the typical Boglehead portfolio.
Fundamentally incorrect. A tilt is by definition a reduction in diversification, a bet if you will that something is better than the most diversified portfolio.

As would adding more international.
Here we agree.

But everyone like to performance chase - they'll talk about the potential for meager returns in the coming decade but do nothing about their highly concentrated portfolio.
You speak so confidently about “everyone” while suggesting “their” portfolio is highly concentrated and suggesting SCV adds diversification…
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
MarkRoulo
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Re: Are we entering an era of diminishing returns ?

Post by MarkRoulo »

Forester wrote: Wed Jul 14, 2021 2:44 am US tech officially more expensive than the Dotcom peak, closing at 7.47 forward sales vs 7.45 for March 2000.
If you think earnings are more relevant than revenue, then, no, they aren't.

Microsoft's P/E ratio peaked around 60 during the dot-com craziness.
Cisco's P/E peaked at over 100.

Today:
*) Microsoft P/E: ~37
*) Apple P/E: ~32
*) Amazon P/E: ~50
*) Google P/E: ~34
*) Facebook P/E: ~29

And bonds were yielding about 6% (nominal) during the dot-com peak. Today, around 1%-2%, so you would expect P/E ratios to be higher today just because the alternative (bonds and cash) are worse.
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burritoLover
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Re: Are we entering an era of diminishing returns ?

Post by burritoLover »

RubyTuesday wrote: Tue Jul 20, 2021 8:59 am Fundamentally incorrect. A tilt is by definition a reduction in diversification, a bet if you will that something is better than the most diversified portfolio.
Umm no. A market cap weighted portfolio is not the most diversified portfolio. A market cap weighted total stock market fund concentrates you in large caps - period. Why do you think there's little difference in the historical return of a total stock market US fund and the S&P 500? An equal weight total stock market fund is more diversified.
Nathan Drake
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Re: Are we entering an era of diminishing returns ?

Post by Nathan Drake »

MarkRoulo wrote: Tue Jul 20, 2021 9:41 am
Forester wrote: Wed Jul 14, 2021 2:44 am US tech officially more expensive than the Dotcom peak, closing at 7.47 forward sales vs 7.45 for March 2000.
If you think earnings are more relevant than revenue, then, no, they aren't.

Microsoft's P/E ratio peaked around 60 during the dot-com craziness.
Cisco's P/E peaked at over 100.

Today:
*) Microsoft P/E: ~37
*) Apple P/E: ~32
*) Amazon P/E: ~50
*) Google P/E: ~34
*) Facebook P/E: ~29

And bonds were yielding about 6% (nominal) during the dot-com peak. Today, around 1%-2%, so you would expect P/E ratios to be higher today just because the alternative (bonds and cash) are worse.
Earnings aren’t static. They could be at artificially elevated levels that aren’t sustainable long term

And yields aren’t static either. We aren’t guaranteed to stay at these levels forever
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GoneOnTilt
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Re: Are we entering an era of diminishing returns ?

Post by GoneOnTilt »

Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
Simple. Make do with what you have and be happy with what you get. Is there really another other choice? Oh yes, save more and work longer if you don't think you'll have enough.
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HomerJ
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Re: Are we entering an era of diminishing returns ?

Post by HomerJ »

Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
You spend the money you saved.

If you have 2 million dollars, even if you get 0% real on all your investments, you can still sustain yourself with $50,000 a year for 40 years until the money runs out.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
ivgrivchuck
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Re: Are we entering an era of diminishing returns ?

Post by ivgrivchuck »

Destiple wrote: Fri Jul 09, 2021 4:36 pm Are we headed to an era in which stock market will offer meager returns for decades? With no major downturns and exponential inflation
Obviously no one has a crystal ball but let’s share opinions and why you think that way
Thanks
Not for decades, but perhaps for a decade.

In his book "Little Book of Common sense investing" John C. Bogle says roughly that the true return of stocks is "dividend yield + earnings growth" and everything else is just noise (speculative gains/losses) which will average out to zero over many decades. He also made a point (2017 edition) that since dividend yields are at historic lows relative to stock valuations, the expected return for stocks over the next decade or so will be significantly lower than the historical averages.

The fact that the stocks have kept climbing since 2017 like crazy has lowered the expected returns more and more.
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StartedAt22
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Re: Are we entering an era of diminishing returns ?

Post by StartedAt22 »

KlangFool wrote: Fri Jul 09, 2021 6:50 pm
Destiple wrote: Fri Jul 09, 2021 6:40 pm So let’s go with the assumption the next 10 years we’re gonna have minimal returns on the market what should be the investing strategy you would adopt?
Just thinking out loud here I totally understand this is not a substitute for financial advice
Destiple,

Why do you think that we need a new investing strategy?

I have a very simple answer. I saved 1 year of expense every year. I can be FI in less than 20 years with near 0% real return. I never have a problem. It is a saving rate problem. It is not a return rate problem.

This is not the answer that most people like to hear. They hope that the return rate can solve their saving rate problem. But, the market return is always unpredictable.

KlangFool
But Klangfool, you will only have 20x expenses? By what metric will you be FI with only 20x expenses and near 0% returns?
A task begun is nearly half complete | Enough is as good as a feast | Risk: Ensure your goals can be met even under worst case scenario and be realistic.
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Destiple
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Re: Are we entering an era of diminishing returns ?

Post by Destiple »

ivgrivchuck wrote: Wed Jul 21, 2021 11:23 am
Destiple wrote: Fri Jul 09, 2021 4:36 pm Are we headed to an era in which stock market will offer meager returns for decades? With no major downturns and exponential inflation
Obviously no one has a crystal ball but let’s share opinions and why you think that way
Thanks
Not for decades, but perhaps for a decade.

In his book "Little Book of Common sense investing" John C. Bogle says roughly that the true return of stocks is "dividend yield + earnings growth" and everything else is just noise (speculative gains/losses) which will average out to zero over many decades. He also made a point (2017 edition) that since dividend yields are at historic lows relative to stock valuations, the expected return for stocks over the next decade or so will be significantly lower than the historical averages.

The fact that the stocks have kept climbing since 2017 like crazy has lowered the expected returns more and more.
In such a situation where do you think one should park his assets for a decade of diminishing returns ?
Bonds? TIPs?
Gold
Crypto
Commodities
REITS
Or energy stocks
Which sector will be a better place for investment for next 10 yrs ?
Thanks
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Destiple
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Re: Are we entering an era of diminishing returns ?

Post by Destiple »

HomerJ wrote: Wed Jul 21, 2021 10:26 am
Destiple wrote: Sat Jul 10, 2021 9:38 am
zaboomafoozarg wrote: Sat Jul 10, 2021 8:20 am I always plan for 2% stock real returns and 0% bond real returns. Anything over that is a bonus.
Please explain how can you sustain yourself based on such low returns ?
You spend the money you saved.

If you have 2 million dollars, even if you get 0% real on all your investments, you can still sustain yourself with $50,000 a year for 40 years until the money runs out.
I have only 700k saved , if I spend 50k a yr how long can I last ? Only 14 yrs ?
How did you calculate that ? Please share if you can
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