Long term low returns predicted

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
alex123711
Posts: 429
Joined: Sun May 20, 2018 5:01 am

Long term low returns predicted

Post by alex123711 »

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?
tibbitts
Posts: 23716
Joined: Tue Feb 27, 2007 5:50 pm

Re: Long term low returns predicted

Post by tibbitts »

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?
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.
Silk McCue
Posts: 8951
Joined: Thu Feb 25, 2016 6:11 pm

Re: Long term low returns predicted

Post by Silk McCue »

Nobody knows nothing - Jack Bogle

Ignore the noise and carry on. Just do it.

Cheers
000
Posts: 8211
Joined: Thu Jul 23, 2020 12:04 am

Re: Long term low returns predicted

Post by 000 »

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.
GaryA505
Posts: 2907
Joined: Wed Feb 08, 2017 1:59 pm
Location: New Mexico

Re: Long term low returns predicted

Post by GaryA505 »

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.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Long term low returns predicted

Post by Nathan Drake »

There are markets where return expectations are high

Developed, emerging, and US SCV

US TSM is only one asset class amongst many
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
Topic Author
alex123711
Posts: 429
Joined: Sun May 20, 2018 5:01 am

Re: Long term low returns predicted

Post by alex123711 »

tibbitts wrote: Wed Sep 22, 2021 9:03 pm
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?
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.
Ture, but real estate has the benefit of leverage and low rates, business is more risky but also higher potential
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Long term low returns predicted

Post by willthrill81 »

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?
No one knows with any certainty what returns will be over 30+ year periods. So ignore those who try to make such predictions.

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
BigPrince
Posts: 258
Joined: Sun Jul 06, 2014 2:51 pm

Re: Long term low returns predicted

Post by BigPrince »

save more, spend less
User avatar
jabberwockOG
Posts: 3087
Joined: Thu May 28, 2015 7:23 am

Re: Long term low returns predicted

Post by jabberwockOG »

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.
Trader Joe
Posts: 2697
Joined: Fri Apr 25, 2014 6:38 pm

Re: Long term low returns predicted

Post by Trader Joe »

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.
User avatar
Noobvestor
Posts: 5944
Joined: Mon Aug 23, 2010 1:09 am

Re: Long term low returns predicted

Post by Noobvestor »

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
tibbitts
Posts: 23716
Joined: Tue Feb 27, 2007 5:50 pm

Re: Long term low returns predicted

Post by tibbitts »

alex123711 wrote: Wed Sep 22, 2021 9:20 pm
tibbitts wrote: Wed Sep 22, 2021 9:03 pm
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?
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.
Ture, but real estate has the benefit of leverage and low rates, business is more risky but also higher potential
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?
helloeveryone
Posts: 1285
Joined: Sun Sep 04, 2016 5:16 pm

Re: Long term low returns predicted

Post by helloeveryone »

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?
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.

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
AlohaJoe
Posts: 6609
Joined: Mon Nov 26, 2007 1:00 pm
Location: Saigon, Vietnam

Re: Long term low returns predicted

Post by AlohaJoe »

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.
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.
boogiehead
Posts: 539
Joined: Wed Sep 27, 2017 11:45 pm

Re: Long term low returns predicted

Post by boogiehead »

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.
WhiteMaxima
Posts: 3338
Joined: Thu May 19, 2016 5:04 pm

Re: Long term low returns predicted

Post by WhiteMaxima »

So what? As long as it beats inflation.
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: Long term low returns predicted

Post by Beensabu »

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.
Yikes. Even I'm not that pessimistic. Who said that?
At what point does it become 'not worth it' and worth spending the money on other things/ investments/ real estate/ business?
There's no need to throw in the towel.

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
User avatar
1789
Posts: 2223
Joined: Fri Aug 16, 2019 3:31 pm

Re: Long term low returns predicted

Post by 1789 »

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.
"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)
Derpalator
Posts: 215
Joined: Sun Nov 15, 2015 1:52 pm

Re: Long term low returns predicted

Post by Derpalator »

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?
User avatar
Sandtrap
Posts: 19590
Joined: Sat Nov 26, 2016 5:32 pm
Location: Hawaii No Ka Oi - white sandy beaches, N. Arizona 1 mile high.

Re: Long term low returns predicted

Post by Sandtrap »

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?
If you are right, what are the actionable alternatives?
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 :D
Wiki Bogleheads Wiki: Everything You Need to Know
UpperNwGuy
Posts: 9477
Joined: Sun Oct 08, 2017 7:16 pm

Re: Long term low returns predicted

Post by UpperNwGuy »

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.
Can you give us some examples of these predictions? I haven't seen any that are so pessimistic.
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: Long term low returns predicted

Post by Jags4186 »

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’
Aged Maduro
Posts: 405
Joined: Thu Dec 17, 2020 6:17 pm

Re: Long term low returns predicted

Post by Aged Maduro »

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.
User avatar
JoMoney
Posts: 16260
Joined: Tue Jul 23, 2013 5:31 am

Re: Long term low returns predicted

Post by JoMoney »

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.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
User avatar
firebirdparts
Posts: 4411
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Long term low returns predicted

Post by firebirdparts »

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?
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.

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
Ramjet
Posts: 1464
Joined: Thu Feb 06, 2020 10:45 am

Re: Long term low returns predicted

Post by Ramjet »

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?
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 better

https://medium.com/@AdamThaler/s-p-500- ... bd7294aaa8
ncbill
Posts: 2053
Joined: Sun Jul 06, 2008 4:03 pm
Location: Western NC

Re: Long term low returns predicted

Post by ncbill »

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.
GoldenFinch
Posts: 2728
Joined: Mon Nov 10, 2014 10:34 pm

Re: Long term low returns predicted

Post by GoldenFinch »

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.
Nathan Drake
Posts: 6234
Joined: Mon Apr 11, 2011 12:28 am

Re: Long term low returns predicted

Post by Nathan Drake »

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.
Better to be realistic and happily surprised than optimistic and disappointed

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
Topic Author
alex123711
Posts: 429
Joined: Sun May 20, 2018 5:01 am

Re: Long term low returns predicted

Post by alex123711 »

AlohaJoe wrote: Wed Sep 22, 2021 11:06 pm
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.
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.
several superannuation company prediction/ targets for differing portfolio's (international, US stocks etc.) have these numbers (1-2% above CPI)
Topic Author
alex123711
Posts: 429
Joined: Sun May 20, 2018 5:01 am

Re: Long term low returns predicted

Post by alex123711 »

Sandtrap wrote: Thu Sep 23, 2021 7:34 am
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?
If you are right, what are the actionable alternatives?
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 :D
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 leverage
Thesaints
Posts: 5108
Joined: Tue Jun 20, 2017 12:25 am

Re: Long term low returns predicted

Post by Thesaints »

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.
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.
User avatar
jeffyscott
Posts: 13484
Joined: Tue Feb 27, 2007 8:12 am

Re: Long term low returns predicted

Post by jeffyscott »

AlohaJoe wrote: Wed Sep 22, 2021 11:06 pm
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.
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.
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.

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.

Image
https://interactive.researchaffiliates. ... e=Equities
Last edited by jeffyscott on Fri Sep 24, 2021 6:46 am, edited 1 time in total.
NiceUnparticularMan
Posts: 6103
Joined: Sat Mar 11, 2017 6:51 am

Re: Long term low returns predicted

Post by NiceUnparticularMan »

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.
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Long term low returns predicted

Post by willthrill81 »

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.
The Sensible Steward
User avatar
NearlyRetired
Posts: 350
Joined: Fri Aug 09, 2019 12:56 pm
Location: United Kingdom

Re: Long term low returns predicted

Post by NearlyRetired »

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?
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.
To err is to be human, to really mess up, use a computer
User avatar
Candor
Posts: 1287
Joined: Sat May 28, 2011 4:25 pm

Re: Long term low returns predicted

Post by Candor »

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
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Long term low returns predicted

Post by vanbogle59 »

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?
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.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Long term low returns predicted

Post by secondopinion »

jeffyscott wrote: Thu Sep 23, 2021 9:25 am
AlohaJoe wrote: Wed Sep 22, 2021 11:06 pm
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.
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.
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.

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.

Image
https://interactive.researchaffiliates. ... e=Equities
About 85% chance that it will at least match inflation over 30 years? Sign me up.
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.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Long term low returns predicted

Post by delamer »

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.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
AlohaJoe
Posts: 6609
Joined: Mon Nov 26, 2007 1:00 pm
Location: Saigon, Vietnam

Re: Long term low returns predicted

Post by AlohaJoe »

alex123711 wrote: Thu Sep 23, 2021 9:03 am
AlohaJoe wrote: Wed Sep 22, 2021 11:06 pm
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.
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.
several superannuation company prediction/ targets for differing portfolio's (international, US stocks etc.) have these numbers (1-2% above CPI)
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.
skierincolorado
Posts: 2377
Joined: Sat Mar 21, 2020 10:56 am

Re: Long term low returns predicted

Post by skierincolorado »

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.
atdharris
Posts: 2091
Joined: Wed Jan 02, 2019 2:18 pm

Re: Long term low returns predicted

Post by atdharris »

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
skierincolorado
Posts: 2377
Joined: Sat Mar 21, 2020 10:56 am

Re: Long term low returns predicted

Post by skierincolorado »

atdharris wrote: Thu Sep 23, 2021 10:46 am 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
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.
cjcerny
Posts: 605
Joined: Sat Sep 15, 2007 12:47 pm

Re: Long term low returns predicted

Post by cjcerny »

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.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Long term low returns predicted

Post by HomerJ »

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?
Very few people are predicting 30+ years of 1%-2% real returns.

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
User avatar
jeffyscott
Posts: 13484
Joined: Tue Feb 27, 2007 8:12 am

Re: Long term low returns predicted

Post by jeffyscott »

secondopinion wrote: Thu Sep 23, 2021 10:27 am
jeffyscott wrote: Thu Sep 23, 2021 9:25 am
AlohaJoe wrote: Wed Sep 22, 2021 11:06 pm
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.
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.
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.

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.

Image
https://interactive.researchaffiliates. ... e=Equities
About 85% chance that it will at least match inflation over 30 years? Sign me up.
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:

Image
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Long term low returns predicted

Post by secondopinion »

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:
Regardless, that is better than most other alternatives and is worth the risk.

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.
User avatar
HomerJ
Posts: 21281
Joined: Fri Jun 06, 2008 12:50 pm

Re: Long term low returns predicted

Post by HomerJ »

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.
Ding, ding, ding.

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.
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.
Instead of 1% real, we've gotten like 13% real a year.

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
Post Reply