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Old 08-10-2007, 01:01 PM   #21
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I would rely more on expected whole market returns rather than size/style if I were to plug n' chug numbers for FIRE success/failure. If you look at historical equity returns in developed countries, the 7% is a pretty good estimate for the whole market equity returns.
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Old 08-10-2007, 01:04 PM   #22
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Originally Posted by wildcat View Post
If you look at historical equity returns in developed countries, the 7% is a pretty good estimate for the whole market equity returns.
How did you come up with that 7%. Do you have a link?
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Old 08-10-2007, 01:12 PM   #23
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How did you come up with that 7%. Do you have a link?
Bernstein of course and he has all of the studies you want in his books:

Basically: 7% returns - 3% inflation = 4% real

Do you want the link to Bernstein's website?

I can try to find the link for the world stock returns if you want. Australia was tops IIRC and I believe US was 3rd. But all and all, most were right around that 7% mark on average.
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Old 08-10-2007, 01:20 PM   #24
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Yes please. I'd like to see the world stock return link.

I'm not questioning your (or Bernstein) 7% number. I would like to know what exactly is the definition of "whole market equity".

Personally, when I think of the US equity market, I think of SP500. And I know that SP500 returns is MUCH higher than 7%.
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Old 08-10-2007, 01:39 PM   #25
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Yes please. I'd like to see the world stock return link.

I'm not questioning your (or Bernstein) 7% number. I would like to know what exactly is the definition of "whole market equity".

Personally, when I think of the US equity market, I think of SP500. And I know that SP500 returns is MUCH higher than 7%.
Whole market, to me, is the Wilshire 5000 or similarly the Total Market Index (like the one offered by Vanguard). Yes, the S&P weighs heavily on the returns.

As far as the S&P 500 returns being much higher than 7%, well you may have a point but it depends on how you look at things. If you strip out the bull market that has really been going on since the early 90s, that changes the numbers -- without looking, probably from a much higher than 7% return to a much closer to 7% return. Go back further and look at returns. Bernstein's book does a great job of this. Mean reversions always seem to show up along the way, especially when we are counting on the high returns we get so used to.

You might like this article he wrote on those long-term asset allocations:

http://www.efficientfrontier.com/ef/497/lonely.htm

It will take me a while to find a link for the world returns but I am free of charge
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Old 08-10-2007, 02:05 PM   #26
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Wildcat,

Quote:
From January 1926 through December 2006 the annualized total return for the S&P 500 was 10.50% per year, up from the annualized 10.44% rate in September 2006.
The quote is at the bottom of this page.

Standard & Poor's - (us,en)
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Old 08-10-2007, 02:11 PM   #27
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I think Wildcat is referring to the Gordon Equation, which predicts future returns based on the current dividend yield and historic dividend (or earnings) growth.

It's similar to the idea of using current bond yields to predict future bond returns, which of course is a much better indicator than historic performance.
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Old 08-10-2007, 02:16 PM   #28
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It's similar to the idea of using current bond yields to predict future bond returns, which of course is a much better indicator than historic performance.
Did you forget the sarcasm emoticon? Some people might think you're serious.
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Old 08-10-2007, 02:22 PM   #29
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Did you forget the sarcasm emoticon? Some people might think you're serious.
Heh. Think of it this way. If you want to predict the future speed of a car, which is a better indicator?

1) The past speed of the car

2) The current speed of the car

Future returns are a function of future growth and current yield. We can only guess at future growth, but we know current yield.
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Old 08-10-2007, 02:35 PM   #30
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You asked for it , everything you could possibly want to play with:

Global Financial Data

Scroll down (includes the effects of changes in currency):
http://forum.london.edu/lbspress.nsf...IRY+2006-1.pdf

Ok how about 1871, Schiller's US market returns since 1871 - not 1926?

Online Data

A good book at the library:

Amazon.com: Triumph of the Optimists: 101 Years of Global Investment Returns: Books: Elroy Dimson,Paul Marsh,Mike Staunton

I know about the 10% returns Sam. But again, strip out certain periods of HUGE returns and the numbers change. How much of that 10% could be the result of the past 16 years? A 16 year bull market is incredible. I think that was the point I was trying to make. Minus the HUGE returns following the Great Depression when they were giving away stocks, how do things look?

Food for thought:
Historical Stock Returns, Stocks/Shares/Equities Return, Performance, Data, Bond, Bonds, Dow, Nasdaq, S&P, Standard & Poors, NYSE, FTSE, Nikkei, Historic, ISEQ Irish Index, Gold Price/Market, 10, 20, 50, 100 year : from Finfacts Ireland

"So the timing of stock market investment is important. The last protracted bear market (period of falling prices) in US equities started in February 1966 and lasted until August 1982. The Dow Jones index value in February 1966 was 995 and 16 years later it stood at 777. So any investor who stayed fully invested in an average portfolio of shares in this period lost 22%. Yet over this time span there were four periods in which equities experienced strong rallies which boosted the Dow by 32%, 66%, 76% and 38% respective"

Hope that helps.
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Old 08-10-2007, 02:37 PM   #31
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Maybe we should move this to FIRE & Money. Might be good to make this discussion more visible.
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Old 08-10-2007, 04:05 PM   #32
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Most excellent read, and it'll probably answer questions that haven't even been asked yet.

Great doorstop & flower-presser, too. But don't drop it on your foot or fall asleep with it on your chest...
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Current valution
Old 08-10-2007, 06:46 PM   #33
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Current valution

Current valuation is the best guess of future market returns. And I do mean best guess.Triumph of the Optimists give returns for 16 capital markets the past 100 years. Spin the wheel and pick the history that fits your needs. IIRC, the U.S was a past winner (near 7% real for stocks, 2% for bonds), Italy wasn't (2.5% real for stocks, -2.5% for bonds). And with more volatility in most markets.
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