Long term low returns predicted
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Long term low returns predicted
Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
Re: Long term low returns predicted
It's unlikely that low public equity (and bond, if you're including that) market returns would exist in isolation. You've listed other things that could do poorly as well: "investments" (whatever those are), real estate, and "business" (whatever that is - presumably private equity?) There's no rule that says there has to be at least one way to produce positive returns over any given period, and there's definitely no rule that says you should be able to determine what that would be ahead of time.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
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Re: Long term low returns predicted
Nobody knows nothing - Jack Bogle
Ignore the noise and carry on. Just do it.
Cheers
Ignore the noise and carry on. Just do it.
Cheers
Re: Long term low returns predicted
Well yes if you believe in rates and valuations then low returns are expected, but that is a technical term referring to the mean model outcome.
In this case depending on one's personal situation it may make sense to increase consumption now if the money invested will likely be worth less in the future and a person does not have a specific need for those funds then.
Whether alternative investments will provide a robust positive return depends on what they are, but if they're anything open to investment by major firms or the investing public, then I would be skeptical.
In this case depending on one's personal situation it may make sense to increase consumption now if the money invested will likely be worth less in the future and a person does not have a specific need for those funds then.
Whether alternative investments will provide a robust positive return depends on what they are, but if they're anything open to investment by major firms or the investing public, then I would be skeptical.
Re: Long term low returns predicted
I predict returns may be low, or returns may be high. I'll be 50% right.
Get most of it right and don't make any big mistakes. All else being equal, simpler is better. Simple is as simple does.
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Re: Long term low returns predicted
There are markets where return expectations are high
Developed, emerging, and US SCV
US TSM is only one asset class amongst many
Developed, emerging, and US SCV
US TSM is only one asset class amongst many
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: Long term low returns predicted
Ture, but real estate has the benefit of leverage and low rates, business is more risky but also higher potentialtibbitts wrote: ↑Wed Sep 22, 2021 9:03 pmIt's unlikely that low public equity (and bond, if you're including that) market returns would exist in isolation. You've listed other things that could do poorly as well: "investments" (whatever those are), real estate, and "business" (whatever that is - presumably private equity?) There's no rule that says there has to be at least one way to produce positive returns over any given period, and there's definitely no rule that says you should be able to determine what that would be ahead of time.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
- willthrill81
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Re: Long term low returns predicted
No one knows with any certainty what returns will be over 30+ year periods. So ignore those who try to make such predictions.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
Regarding an investment 'not being worth it', investors make such assessments literally all the time. If you think that you can earn a higher return with other investments and you believe that it's worth your time to do so, then go for it.
The Sensible Steward
Re: Long term low returns predicted
save more, spend less
- jabberwockOG
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Re: Long term low returns predicted
The dirty little financial investing secret - those who are smart enough and have the staff and gear to reasonably predict what will happen to the markets in the actionable future will never say a word. And those that don't have a clue about the future never stop talking to anyone that will listen. If you actually know with a better than average degree of certainty, there is just too much money to be made by holding the correct positions, instead of flapping your yap.
Successful companies traded on the major equity exchanges work very hard at growing and profitable - the pressure to grow the business and the numbers is relentless (..have the T-shirt). Buy and hold a widely diversified group of these companies, perhaps via a market index fund or ETF : ) , and you should be good to go.
Successful companies traded on the major equity exchanges work very hard at growing and profitable - the pressure to grow the business and the numbers is relentless (..have the T-shirt). Buy and hold a widely diversified group of these companies, perhaps via a market index fund or ETF : ) , and you should be good to go.
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Re: Long term low returns predicted
alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
I always ignore all predictions - by everyone.
I am 100% invested in VFIAX/VTSAX and I am very, very happy with my investment results.
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Re: Long term low returns predicted
Save more, spend less, and adjust your expectations for your future lifestyle. That's about all you can do.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Re: Long term low returns predicted
What did the CPPI drop during the financial crisis - something like 40%? While you can say there's no need to sell real estate during a downturn, it depends how long the downturn is. If you need income and your business or residential tenants (those other businesses and people affected by a downturn) can't pay rent you'll have a problem. Why would your business be more successful at overcoming the economic environment than businesses in an index like Total Stock Market would be?alex123711 wrote: ↑Wed Sep 22, 2021 9:20 pmTure, but real estate has the benefit of leverage and low rates, business is more risky but also higher potentialtibbitts wrote: ↑Wed Sep 22, 2021 9:03 pmIt's unlikely that low public equity (and bond, if you're including that) market returns would exist in isolation. You've listed other things that could do poorly as well: "investments" (whatever those are), real estate, and "business" (whatever that is - presumably private equity?) There's no rule that says there has to be at least one way to produce positive returns over any given period, and there's definitely no rule that says you should be able to determine what that would be ahead of time.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
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Re: Long term low returns predicted
you can overcome the unknown by saving more...(and saving early)...time, yield, savings....if yield is horrible - gotta work on saving more and saving early (though it's hard to go back in time to save more just do it going forward. and perhaps one will have to work longer.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
predictions are just predictions...who knows what will happen. investing in stocks is investing in businesses....so you're guessing on real estate and guessing on individual investments
Re: Long term low returns predicted
No there aren't. Seriously, there aren't. Can you point to a SINGLE person predicting 1% returns for 30+ years? There aren't "a lot" of those predictions. There's not even a single one.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
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Re: Long term low returns predicted
Don’t worry feds will find ways to juice up the market one way or another…. if all else fails look for negative interest rates one day.
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Re: Long term low returns predicted
So what? As long as it beats inflation.
Re: Long term low returns predicted
Yikes. Even I'm not that pessimistic. Who said that?alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
There's no need to throw in the towel.At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
First, nobody knows what future returns will be. And nobody in their right mind would attempt to forecast expected returns out past 10 years (and the 10 year forecasts won't be right either; there's a big +/- range in there). It's just guessing based on currently available information.
Returns are "expected" to be lower than previously because price relative to earnings is kinda high and price appreciation relative to earnings growth is kinda super high (for some stuff). If you pay a high price and get the same earnings growth rate we've been getting, then the return on that price won't be all that high (unless the price keeps appreciating like it has been). Maybe earnings growth will be higher in the future than it has been -- some people think that, so they're okay paying the price. And some people think the price will continue to appreciate at the same rate (or higher), so they're okay paying the price. If earning growth doesn't turn out to be higher in the short to mid-term or the price doesn't continue to go wooooohooooo, what happens? The price comes down eventually to align with actual earnings. So then you pay a lower price for the actual growth, and what happens? Expected returns become higher. Does that make sense?
You just keep going. Sometimes, you pay a higher price. Sometimes, you pay a lower price. Expected returns from a particular point in time change depending on price and price appreciation/depreciation relative to earnings and the rate of earnings growth. You diversify. You hold stocks and bonds, from different countries and different sectors, that are priced differently (some high, some low).
The only people that need to worry about expected returns right now are the ones that aren't accumulating or won't be able to add that much more via contributions (due to time or income constraints) relative to existing portfolio value. And worry doesn't mean "throw in the towel"'; it means make sure you're investing according to your risk tolerance and that you've spread the risk around.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
Re: Long term low returns predicted
People who expects/estimates low returns will NEVER say they are BAD FORTUNE TELLERS if the future returns comes similar to the historical averages (7-8%) over the next/couple decades. Keep this in your mind. People rarely admit they were WRONG. If their expectations come true they will happily accept being called geniuses.
At the end of the day, this stuff is all GUESS WORK.
At the end of the day, this stuff is all GUESS WORK.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
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Re: Long term low returns predicted
Being too lazy to google Morningstar's Diehard site (precursor to boglehead forum), I wonder what the posts were like in 1998-99. Was there similar lamenting about low long term returns due to then current "irrational exuberance"? Had Schillers CAPE 10 taken root yet, or were there many guest threads where people had consumed the colored sugar water? Is this actionable? If only for comparison's sake. Are we as boglehead investors any smarter in 2021 vs 1998?
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Re: Long term low returns predicted
If you are right, what are the actionable alternatives?alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
What kind of R/E, REIT or self owned and managed income property? What are the projected numbers?
Business? What kinds of businesses? Expected ROI?
Etc?
Where is "safe haven" going forward?
j
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Re: Long term low returns predicted
Can you give us some examples of these predictions? I haven't seen any that are so pessimistic.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
Re: Long term low returns predicted
Every single year there is a torrent of folks who predict low long term returns. What is long term and what is low?
When the market is flat for a while people predict low long term returns.
When the market is down people predict low long term returns.
When the market is up people predict low long term returns.
When the market is very volatile people predict low long term returns.
Yet the stock market continues to deliver good long term returns.
Nobody knows nuthin’
When the market is flat for a while people predict low long term returns.
When the market is down people predict low long term returns.
When the market is up people predict low long term returns.
When the market is very volatile people predict low long term returns.
Yet the stock market continues to deliver good long term returns.
Nobody knows nuthin’
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Re: Long term low returns predicted
Some time take a look at all the "experts" in the late 1970's who predicted the death of equities. The same kind of gloom and doom was all the rage back then. It was soon followed by the greatest secular bull market in history. This much is certain: nobody knows. So don't worry about and keep investing.
Re: Long term low returns predicted
I remember very well reading scores of "low returns" and fear of "high CAPE ratio" threads on this board five or six years ago. Lots of links to well reasoned financial pundits.
An investment in the S&P 500 has more than doubled since then.
Investing in the stock market has rewarded those with (seemingly) foolish optimism, despite the (seemingly) well-reasoned points made by critics. Historically, that's more often been the case then not.
FWIW, most of the fundamental metrics underlying stock market price have not experienced growth to double over the same time period, so many of the critiques would seem even louder now then when they were initially made.
An investment in the S&P 500 has more than doubled since then.
Investing in the stock market has rewarded those with (seemingly) foolish optimism, despite the (seemingly) well-reasoned points made by critics. Historically, that's more often been the case then not.
FWIW, most of the fundamental metrics underlying stock market price have not experienced growth to double over the same time period, so many of the critiques would seem even louder now then when they were initially made.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Long term low returns predicted
As the question is stated, it's personal. Everybody has to decide for himself whether to spend now. There's no calculated answers to that. Starting a business, of course, you have imaginary numbers to consider. Real estate is somewhat more estimable. I think the general consensus is that real estate is likely a good investment for people who like it.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
Keep in mind here, for what it's worth, 30 years of "low returns" as far as we know today, will look like 15% returns one year, negative 20% the next, positive 25% the next, etc. When somebody says "1% per year return" my fear is you wouldn't imagine it like it actually is.
Last edited by firebirdparts on Thu Sep 23, 2021 8:27 am, edited 1 time in total.
This time is the same
Re: Long term low returns predicted
In the link there are a few graphics for 20-year returns starting in 1932, even most of the low 20-year periods are decent. No guarantees obviously, but this has to make someone who is worried about long term returns feel a little betteralex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
https://medium.com/@AdamThaler/s-p-500- ... bd7294aaa8
Re: Long term low returns predicted
I've always wondered what was predicted on this forum for future equity returns back during the Great Recession.
I suspect people were just as pessimistic as they are today.
I suspect people were just as pessimistic as they are today.
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Re: Long term low returns predicted
An accountant at a large firm in our city told me just yesterday that everyone is predicting a market crash. My response was to smile and half nod politely.
I think the best thing to do is look at the long term S&P chart. Note that the trend is up. Automate your savings to be invested on a set regular schedule. Make sure your asset allocation is in check. Go do something else.
I think the best thing to do is look at the long term S&P chart. Note that the trend is up. Automate your savings to be invested on a set regular schedule. Make sure your asset allocation is in check. Go do something else.
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Re: Long term low returns predicted
Better to be realistic and happily surprised than optimistic and disappointedJoMoney wrote: ↑Thu Sep 23, 2021 8:15 am I remember very well reading scores of "low returns" and fear of "high CAPE ratio" threads on this board five or six years ago. Lots of links to well reasoned financial pundits.
An investment in the S&P 500 has more than doubled since then.
Investing in the stock market has rewarded those with (seemingly) foolish optimism, despite the (seemingly) well-reasoned points made by critics. Historically, that's more often been the case then not.
FWIW, most of the fundamental metrics underlying stock market price have not experienced growth to double over the same time period, so many of the critiques would seem even louder now then when they were initially made.
With changes in valuation, it can actually make the bear case much worse in reality. So the “surprise” cuts both ways - upside and downside
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: Long term low returns predicted
several superannuation company prediction/ targets for differing portfolio's (international, US stocks etc.) have these numbers (1-2% above CPI)AlohaJoe wrote: ↑Wed Sep 22, 2021 11:06 pmNo there aren't. Seriously, there aren't. Can you point to a SINGLE person predicting 1% returns for 30+ years? There aren't "a lot" of those predictions. There's not even a single one.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
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Re: Long term low returns predicted
Well I guess if Stocks and real estate both average ~2% above inflation long term real estate would have a better 'real' return due to leverageSandtrap wrote: ↑Thu Sep 23, 2021 7:34 amIf you are right, what are the actionable alternatives?alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
What kind of R/E, REIT or self owned and managed income property? What are the projected numbers?
Business? What kinds of businesses? Expected ROI?
Etc?
Where is "safe haven" going forward?
j
Re: Long term low returns predicted
As you climb up on a dangerous hike it could be that your risk of falling decreases because the hike was not so dangerous, as proven by you being able to get ever higher. Or it could be that you simply got lucky and every step increases your risk.JoMoney wrote: ↑Thu Sep 23, 2021 8:15 am I remember very well reading scores of "low returns" and fear of "high CAPE ratio" threads on this board five or six years ago. Lots of links to well reasoned financial pundits.
An investment in the S&P 500 has more than doubled since then.
Investing in the stock market has rewarded those with (seemingly) foolish optimism, despite the (seemingly) well-reasoned points made by critics. Historically, that's more often been the case then not.
FWIW, most of the fundamental metrics underlying stock market price have not experienced growth to double over the same time period, so many of the critiques would seem even louder now then when they were initially made.
- jeffyscott
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Re: Long term low returns predicted
I don't think there is anyone more pessimistic than GMO? And I don't think even they would estimate 30 year expected returns for US stocks at under 2% real.AlohaJoe wrote: ↑Wed Sep 22, 2021 11:06 pmNo there aren't. Seriously, there aren't. Can you point to a SINGLE person predicting 1% returns for 30+ years? There aren't "a lot" of those predictions. There's not even a single one.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
Their 7 year forecast as of 8/31/21 for US large caps is -8.4% real, based on a return to "normal" valuations over that time frame. I recall reading some time ago that GMO uses 5.7% real as the normal expected return in their model? So, perhaps, if they were to project 30 year returns it would be -8.4% real for 7 years followed 5.7% real for 23 years. This would result $100 growing to about $194, which is about 2.25% real.
https://www.gmo.com/americas/research-l ... gust-2021/
RA has an option to use a "yield and growth" model for expected returns. I think that model, unlike their (10 year) "valuation dependent" model, is actually independent of the time period and so could be their estimate of 30 year expected returns? For US large caps, that model comes up with 2.5% real.
But, if I understand their probability section correctly, that does indicate a 25% chance of real returns of 0.9% or below, when using that yield and growth model.
https://interactive.researchaffiliates. ... e=Equities
Last edited by jeffyscott on Fri Sep 24, 2021 6:46 am, edited 1 time in total.
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Re: Long term low returns predicted
I think most of the major points have been covered well, but I just want to emphasize that corporate bonds and common stocks are in fact ways of investing your available capital in "business".
To the extent people are looking at valuations for the high-quality corporate bonds and common stocks available for certain sorts of U.S. businesses, which currently dominate the U.S. broad market indices, and saying that they are expecting low rates of return on such investments for the next period . . . that is just because what they are seeing indicates to them that a given amount of capital to invest is getting you less expected units of "business", given those high prices per unit of expected business. They could, of course, be wrong about the number of business units you can expect to own in the future. Valuations could also potentially go at least somewhat higher still. But what they are modeling is a central expectation where there are not enough future business units and not high enough future valuations to give you more than a relatively low expected return.
Of course these valuations are not universal across all the different sorts of business available for investment across the world, nor indeed even in the United States. So it is true if the prices for those particular U.S. business units concern you, you could consider investing more in other sorts of business units, in the U.S. or elsewhere. But you can continue to do that with stocks and bonds as you see fit. You don't need to do other sorts of business investments if you don't want to. And all the same logic applies to real estate--if the valuations for some sorts of REITs concern you, you can seek out other REITs and such (although the international options there are a bit complex as only some places have an equivalent to the REIT structure).
As to non-corporate bonds, again, the precise problem is just the high prices per bond unit for high-quality USD-denominated bonds. You can again "solve" this problem by buying lower-priced bonds, but of course you might then be concerned they are not serving the exact risk-management purposes that had you buying those original high-quality USD bonds in the first place.
OK, so if you are heavily invested in the specific U.S. assets which are subject to this analysis, your options include:
(1) changing nothing, other than maybe making sure you have a plan in place for the contingency where your real returns are in fact relatively low in historic terms over the next period;
(2) adjusting your capital allocation somewhat away from the assets which have these valuations to similar sorts of assets with lower valuations (but be careful of unintended consequences including changing risk profiles); or
(3) completely abandoning marketed financial assets and investing your capital in other ways.
And personally, I don't think what anyone remotely reliable is predicting warrants going all the way to (3). It may not even warrant going to (2), but I think that is at least worth a little discussion for people who are in fact relatively concentrated among the relevant sorts of U.S. assets.
To the extent people are looking at valuations for the high-quality corporate bonds and common stocks available for certain sorts of U.S. businesses, which currently dominate the U.S. broad market indices, and saying that they are expecting low rates of return on such investments for the next period . . . that is just because what they are seeing indicates to them that a given amount of capital to invest is getting you less expected units of "business", given those high prices per unit of expected business. They could, of course, be wrong about the number of business units you can expect to own in the future. Valuations could also potentially go at least somewhat higher still. But what they are modeling is a central expectation where there are not enough future business units and not high enough future valuations to give you more than a relatively low expected return.
Of course these valuations are not universal across all the different sorts of business available for investment across the world, nor indeed even in the United States. So it is true if the prices for those particular U.S. business units concern you, you could consider investing more in other sorts of business units, in the U.S. or elsewhere. But you can continue to do that with stocks and bonds as you see fit. You don't need to do other sorts of business investments if you don't want to. And all the same logic applies to real estate--if the valuations for some sorts of REITs concern you, you can seek out other REITs and such (although the international options there are a bit complex as only some places have an equivalent to the REIT structure).
As to non-corporate bonds, again, the precise problem is just the high prices per bond unit for high-quality USD-denominated bonds. You can again "solve" this problem by buying lower-priced bonds, but of course you might then be concerned they are not serving the exact risk-management purposes that had you buying those original high-quality USD bonds in the first place.
OK, so if you are heavily invested in the specific U.S. assets which are subject to this analysis, your options include:
(1) changing nothing, other than maybe making sure you have a plan in place for the contingency where your real returns are in fact relatively low in historic terms over the next period;
(2) adjusting your capital allocation somewhat away from the assets which have these valuations to similar sorts of assets with lower valuations (but be careful of unintended consequences including changing risk profiles); or
(3) completely abandoning marketed financial assets and investing your capital in other ways.
And personally, I don't think what anyone remotely reliable is predicting warrants going all the way to (3). It may not even warrant going to (2), but I think that is at least worth a little discussion for people who are in fact relatively concentrated among the relevant sorts of U.S. assets.
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Re: Long term low returns predicted
Even with the 2000-2009 period resulting in real losses for stocks, from 2000 through the end of August, 2021, U.S. stocks have returned about 5.26% real.
We may be in for a decade of poor returns for both U.S. stocks (due to high valuations) and bonds (due to low starting yields), but a 'lost decade' doesn't mean by a long shot that returns will continue to be poor for 30+ years.
We may be in for a decade of poor returns for both U.S. stocks (due to high valuations) and bonds (due to low starting yields), but a 'lost decade' doesn't mean by a long shot that returns will continue to be poor for 30+ years.
The Sensible Steward
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Re: Long term low returns predicted
Firstly echoing what others have said, in that, nobody know nothing about the future, IF low returns are to be, then that would suggest that the market is prepared to take on risk but with a lower premium - after all the equity return is there to compensate the investor for the risk they are taking with their money. So if that is the case, I would say that the point when "it is not worth it", is when the return you are being asked to take for the risk you are taking is lower than you would be happy with.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
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Re: Long term low returns predicted
Predicting returns for the next 10 years is... lets just say... an inexact endeavor. To predict returns for the next 30+ years is pure folly.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
- vanbogle59
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Re: Long term low returns predicted
To evaluate the reliability of these predictions, I would like to examine the relevant track record of the predictors.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
Do any of them supply links to 3rd party audited results of their last 30 years of predictions?
Sounds like a stupid, snarky question, right?
That's only because you think 30 year predictions don't actually need to be supported by evidence.
Until they are, I won't be listening.
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Re: Long term low returns predicted
About 85% chance that it will at least match inflation over 30 years? Sign me up.jeffyscott wrote: ↑Thu Sep 23, 2021 9:25 amI don't think there is anyone more pessimistic than GMO? And I don't think even they would estimate 30 year expected returns for US stocks at under 2% real.AlohaJoe wrote: ↑Wed Sep 22, 2021 11:06 pmNo there aren't. Seriously, there aren't. Can you point to a SINGLE person predicting 1% returns for 30+ years? There aren't "a lot" of those predictions. There's not even a single one.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
Their 7 year forecast as of 8/31/21 for US large caps is -8.4% real, based on a return to "normal" valuations over that time frame. I recall reading some time ago that GMO uses 5.7% real as the normal expected return in their model? So, perhaps, if they were to project 30 year returns it would be -8.4% real for 7 years followed 6.5% real for 23 years. This would result $100 growing to about $194, which is about 2.25% real.
https://www.gmo.com/americas/research-l ... gust-2021/
RA has an option to use a "yield and growth" model for expected returns. I think that model, unlike their (10 year) "valuation dependent" model, is actually independent of the time period and so could be their estimate of 30 year expected returns? For US large caps, that model comes up with 2.5% real.
But, if I understand their probability section correctly, that does indicate a 25% chance of real returns of 0.9% or below, when using that yield and growth model.
https://interactive.researchaffiliates. ... e=Equities
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Long term low returns predicted
When I was doing projections for our savings rate and goals, I always did them for a range of real returns. Everything from 0% to 6%. I assumed the lower end for planning purposes and hoped for the higher end.
So do a plan with a 1% real return for 30 years, based on your current savings rate. Will that that leave you enough to retire on,along with Social Security?
If not, increase your savings rate.
Or take a chance on real estate, gold futures, or whatever you think will outperform.
It’s your (family’s) future at risk, not anyone else’s.
So do a plan with a 1% real return for 30 years, based on your current savings rate. Will that that leave you enough to retire on,along with Social Security?
If not, increase your savings rate.
Or take a chance on real estate, gold futures, or whatever you think will outperform.
It’s your (family’s) future at risk, not anyone else’s.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Re: Long term low returns predicted
Please name a concrete example and not some vague, unprovable "several people". If there are "a lot" of them it should be easy for you to just drop some names.alex123711 wrote: ↑Thu Sep 23, 2021 9:03 amseveral superannuation company prediction/ targets for differing portfolio's (international, US stocks etc.) have these numbers (1-2% above CPI)AlohaJoe wrote: ↑Wed Sep 22, 2021 11:06 pmNo there aren't. Seriously, there aren't. Can you point to a SINGLE person predicting 1% returns for 30+ years? There aren't "a lot" of those predictions. There's not even a single one.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
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Re: Long term low returns predicted
Valuations have to be considered. Expectations should be somewhat tempered. But 1% above inflation for 30 years is insanely pessimistic. 2% maybe is reasonable, but I’d expect 3-4%. Current valuations matter more with a shorter time horizon like 10 years. Returns over a longe 30 year time horizon will be governed more by productivity, population, etc. Most of the other endeavors you’ve mentioned would be similarly affected by slow growth and current high valuations. Staring a business is probably the best bet because it has more to do with your human capital than the business market. A good business can grow rapidly even in a weak business environment.
Last edited by skierincolorado on Thu Sep 23, 2021 10:47 am, edited 1 time in total.
Re: Long term low returns predicted
No one knows anything. I believe the same thing has been said for a decade now, and the last decade of returns has been pretty good in my opinion
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Re: Long term low returns predicted
People might have said the same thing a decade ago but the argument was weak. Valuations like cape were much lower in 2011. Even a few years ago valuations were still much lower.
Re: Long term low returns predicted
Odds are that returns will be low for the immediate future with dividends and interest rates being so low, but no one knows for sure. Regardless, not a reason to abandon index funds.
Re: Long term low returns predicted
Very few people are predicting 30+ years of 1%-2% real returns.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI. If this does occur then I think index funds will be a bad investment for that time period as 2% over a 30 yr period would not even double your money. At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
Many people are predicting 10+ years of 1%-2% real returns, and that's possible. Of course, they have been predicting that for nearly 10 years already, so take that into account, but yeah, multiple years of poor returns have happened in the past, and will happen again in the future.
Maybe even starting tomorrow. No one knows.
But here's the thing... The long-term 6%-7% real return of the stock market INCLUDES the crashes and the 10-15 year periods of low returns.
Because, so far, periods of low returns are followed by periods of high returns are followed by periods of low returns are followed by periods of high returns...
And, so far, it's all averaged out to a long-term 6%-7% return... When I say long-term, I mean 20-30 years.
No one trustworthy is predicting 30+ years of 1% real. Sure, it could happen... Nothing is impossible.
But most people who are predicting low returns in the SHORT term, are using high valuations to justify that prediction. But if we do get low returns over the next 10 years, then valuations will go lower, and start predicting higher returns for the following 10 years.
So, even if valuation theory is right, it still predicts cycles of good returns and bad returns.
Which, so far, averaged out to 6%-7% a year and made us rich.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
- jeffyscott
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Re: Long term low returns predicted
That's one way to look at it.secondopinion wrote: ↑Thu Sep 23, 2021 10:27 amAbout 85% chance that it will at least match inflation over 30 years? Sign me up.jeffyscott wrote: ↑Thu Sep 23, 2021 9:25 amI don't think there is anyone more pessimistic than GMO? And I don't think even they would estimate 30 year expected returns for US stocks at under 2% real.AlohaJoe wrote: ↑Wed Sep 22, 2021 11:06 pmNo there aren't. Seriously, there aren't. Can you point to a SINGLE person predicting 1% returns for 30+ years? There aren't "a lot" of those predictions. There's not even a single one.alex123711 wrote: ↑Wed Sep 22, 2021 8:50 pm Seeing a lot of predictions (including on this forum) about low returns for a prolonged period (30+ yrs) some predictions are only 1% - 2% above inflation/ CPI.
Their 7 year forecast as of 8/31/21 for US large caps is -8.4% real, based on a return to "normal" valuations over that time frame. I recall reading some time ago that GMO uses 5.7% real as the normal expected return in their model? So, perhaps, if they were to project 30 year returns it would be -8.4% real for 7 years followed 6.5% real for 23 years. This would result $100 growing to about $194, which is about 2.25% real.
https://www.gmo.com/americas/research-l ... gust-2021/
RA has an option to use a "yield and growth" model for expected returns. I think that model, unlike their (10 year) "valuation dependent" model, is actually independent of the time period and so could be their estimate of 30 year expected returns? For US large caps, that model comes up with 2.5% real.
But, if I understand their probability section correctly, that does indicate a 25% chance of real returns of 0.9% or below, when using that yield and growth model.
https://interactive.researchaffiliates. ... e=Equities
I'm not sure how to correctly interpolate, but just doing it linearly there's about an 85% chance of beating 30 year TIPS (-0.34% real). In any case, either estimate is surely close enough, 85% chance of at least matching inflation or 85% chance of at least matching 30 year TIPS.
Going global bumps it up to maybe a 90%+ chance:
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Re: Long term low returns predicted
Regardless, that is better than most other alternatives and is worth the risk.jeffyscott wrote: ↑Thu Sep 23, 2021 11:01 am That's one way to look at it.
I'm not sure how to correctly interpolate, but just doing it linearly there's about an 85% chance of beating 30 year TIPS (-0.34% real). In any case, either estimate is surely close enough, 85% chance of at least matching inflation or 85% chance of at least matching 30 year TIPS.
Going global bumps it up to maybe a 90%+ chance:
I am in for the long-term, and I am in for the wealth building. I gladly buy international along with US, because it works well enough.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Long term low returns predicted
Ding, ding, ding.vanbogle59 wrote: ↑Thu Sep 23, 2021 9:59 am To evaluate the reliability of these predictions, I would like to examine the relevant track record of the predictors.
Do any of them supply links to 3rd party audited results of their last 30 years of predictions?
Sounds like a stupid, snarky question, right?
That's only because you think 30 year predictions don't actually need to be supported by evidence.
Until they are, I won't be listening.
Heck, let's track their all their previous 10-year predictions and see how they did...
No one has proven to be good at forecasting stock returns.
Shiller himself predicted 0% real 10-year returns in 1996, and we got like 6% real instead from 1996-2006
Cliff Asness predicted 1% real in 2012. He's a smart guy with a whole team of PhD quants working for him.
Instead of 1% real, we've gotten like 13% real a year.The S&P 500 Shiller P/E, a particularly useful measure of the valuation of the entire U.S. stock market, was 22.2 on September 30, 2012. While that is not close to historic excesses — it is almost exactly half of its peak value during the 1999–2000 stock market bubble and about two-thirds its height in late 1929 — it is high versus history generally. In fact, it’s higher than it has been 80% of the time since 1926.
Based on the past, the 2012 level of Shiller P/E — the ratio of stock prices to an inflation-adjusted 10-year rolling average of corporate earnings — suggested that the average annual real stock market return over the next decade would not exceed 1%. At similar levels in the past, the worst case horrendous: –4.4%. The best case is very good — about 8.3% annually — though it is less wonderful than the much better best cases from lower starting Shiller P/E’s.
That's not a just a little bit off. He said best case was 8.3% real. We got 13% real.
Using valuations to predict stock market returns has not worked well since valuation theory was formulated by Shiller in 1988.
But even if valuation theory DID work, it still predicts cycles of bad years followed by good years, which average out to decent. It doesn't predict 30+ years of 1% real returns.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59