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Old 11-01-2015, 10:52 AM   #41
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...Going forward, the US labor force will once again begin to increase, albeit at a low rate. Still, this points to a period of renewed growth in internal aggregate demand and a positive outlook for the US economy...
This is not contrary to what most economists including Bogle predict. In the talk in 2006 that pb4ski referenced, Bogle said that we should not expect the return of 1980-2000. Is he wrong? I have not seen any poster here in this forum disagree with the above, but if you do, please raise your hand.

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We just plan for 0% real and anything over that is party time...
At 3.3% WR, if one can just keep up with inflation, that's good for 30 years. I do not think I will live that long, and then there's SS too.

But same as Bogle, I do not think the stock return will be 0 after inflation. It will be positive. It's just not going to be gangbuster. Do people really read what he said?

People keep saying one cannot predict the future. True. But if someone says we are all going to live to 100 and travel the world at that age, I will say he is really dreaming, the same way if you expect wonderful stock returns as in 1980-2000. Agree? There's optimism, and then there's delusion.
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Old 11-01-2015, 11:08 AM   #42
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That's a good point. The inflation rate in Japan over the last 20 years has been very low with only one year at over 2% and 11/20 being negative Historic inflation Japan – historic CPI inflation Japan
That was also what I was thinking, so if inflation is low, which I know I heard the fed expects, then returns in the market can also be lower without any net impact... I'm only 43, so planning for 2.5-3% inflation over my lifetime (assuming a long life) is rather daunting but if inflation stays in check for the next 10 years, that will be a windfall for me.
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Old 11-01-2015, 11:31 AM   #43
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At 3.3% WR, if one can just keep up with inflation, that's good for 30 years. I do not think I will live that long, and then there's SS too.
I hope you are wrong about you not living that long but you are right about the 3.3% safe withdrawal rate at a zero real return for 30 years. Plus with a TIPS ladder even at current yields, the 10 years are at around .6% + CPI inflation the last time I checked. So there is an almost a worry free ~4% SWR over 30 years just like one of the Zvi Bodie books was called (Worry Free Investing).

But our main strategy for ER remains to keep the same life or better than when we were working full time but much lower expenses and of course, more free time. We like bargain hunting and sustainable living ideas so finding ways of lowering our annual run rate but not our lifestyle has turned into an ER hobby for us.
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Old 11-01-2015, 01:03 PM   #44
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What will it take for PE ratios to normalize in the next ten years as he predicts. Rising interest rates, higher taxes, stunted growth, a bubble, a combination? It's a mystery to me.
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Old 11-01-2015, 01:17 PM   #45
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Who knows. He's making an assumption that it "regressed to the mean." And then basically says... Maybe it will maybe it won't. No one knows. If you think it's wrong... Plug in a different number . Maybe it goes to 40 or 60.

Same with inflation. Maybe it goes up... Maybe down. But the system is designed to reduce the real spending power over time.

Japan really was no different. If you look at expected returns as Japan went nuts... What you saw in the next 10-15 years made sense from a long term perspective.

I think the key is that there's not much you can do to either (a) predict macro economic strands or (b) change them.

So that leaves 2 options:
1) the buffet approach: ignore the macro and identify/buy great businesses when they are cheap
2) the bogle approach: ignore the macro and buy the entire economy as cheaply as you can diversified by your tolerance for risk.

Conducting transactions and making predictions is the path to suboptimal returns.

I wish I was Buffett... But I'm not so... I guess I'll have to be Bogle .

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Old 11-01-2015, 01:20 PM   #46
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So that leaves 2 options:
1) the buffet approach: ignore the macro and identify/buy great businesses when they are cheap
2) the bogle approach: ignore the macro and buy the entire economy as cheaply as you can diversified by your tolerance for risk.
I'd add liability matching to that list:
https://www.bogleheads.org/wiki/Matching_strategy
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Old 11-01-2015, 01:29 PM   #47
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I hope you are wrong about you not living that long but you are right about the 3.3% safe withdrawal rate at a zero real return for 30 years. Plus with a TIPS ladder even at current yields, the 10 years are at around .6% + CPI inflation the last time I checked. So there is an almost a worry free ~4% SWR over 30 years just like one of the Zvi Bodie books was called (Worry Free Investing)...
True. And I am strongly optimistic that the market will beat that modest TIPS return, maybe not by much but every little bit helps. And when I add in SS, I will be all right. And then, there's that reduced spending that Bernicke has observed with geezers.

Then, again, I will surprise myself if I can still make posts here 30 years from now.

I think younger ER's should be more concerned with a reduced market return than geezers like myself.

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What will it take for PE ratios to normalize in the next ten years as he predicts. Rising interest rates, higher taxes, stunted growth, a bubble, a combination? It's a mystery to me.
As I know, neither Bogle nor Shiller have described the factors that may cause P/E reversion to the mean. So, they just say to be prepared and not act surprised if it happens. I guess people are still scratching their head on the P/E expansion in the period of 1980 to now. They have to explain that first.
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Old 11-01-2015, 03:09 PM   #48
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True. And I am strongly optimistic that the market will beat that modest TIPS return, maybe not by much but every little bit helps. And when I add in SS, I will be all right. And then, there's that reduced spending that Bernicke has observed with geezers.

Then, again, I will surprise myself if I can still make posts here 30 years from now.

I think younger ER's should be more concerned with a reduced market return than geezers like myself.



As I know, neither Bogle nor Shiller have described the factors that may cause P/E reversion to the mean. So, they just say to be prepared and not act surprised if it happens. I guess people are still scratching their head on the P/E expansion in the period of 1980 to now. They have to explain that first.

Quite frankly I think what they're all suggesting, just like Grantham, Hussman etc., is that the SP500 should trade around 1400 or thereabouts. They expect reversion to come about by way of a major correction. The only other way for the market to stay steadyish and earnings to grow. I'm a year or two from full retirement but I sure don't want to retire before that correction happens, if it does. Rightly or wrongly I'm keeping my stock allocation quite low until something happens.


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Old 11-01-2015, 03:55 PM   #49
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If you look at the Japanese market, you can get a prediction of what could, or is, happening here. We have rampant global deflation. There is a global surplus of workers, and workers are a major commodity that factor into prices. That worker surplus is growing, not slowing.

When you look at upcoming demographic changes, the world is producing lower wage earners, and not higher wage earners. Changing what you pay a worker beyond what they can produce, does not mean you get a bunch of higher wage workers.

In the USA, there are less high-skill workers as work gets outsourced and workers gain productivity with new software and better hardware. The few (as a percentage) high wage earners left, will be required to pay additional taxes to support the rest of the lower paid workers. It becomes a death spiral as the incentive to not work replaces the incentive to work.

The USA is getting ready to retire the greatest generation that it has ever produced, the baby boomers. These people are the highest wage earners that the US, and possibly the world, has ever seen. The next generation will not have the same wages, and 3 people making $33K a year pay a lot less taxes than one person making $100K a year. That downward wage curve is going to start to go down exponentially after that generation retires.
Harry Dent has been making the "demographic cliff" argument for years.

He is actually quite convincing... much of what he describes makes a lot of sense. But from my experience... you can't expect or predict market reactions to make sense.

If you want to really depress yourself read his predictions. He is calling for the DOW to hit 6000 in the next 20 months.
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Old 11-01-2015, 04:24 PM   #50
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Harry Dent has been making the "demographic cliff" argument for years.

He is actually quite convincing... much of what he describes makes a lot of sense. But from my experience... you can't expect or predict market reactions to make sense.

If you want to really depress yourself read his predictions. He is calling for the DOW to hit 6000 in the next 20 months.
As I recall the DOW was at the 6000-7000 level back in early 2009. Certainly not a pleasant time but as it turned out, full of opportunity for those that didn't panic. I had already been ER'd 6+ years by then and fortunately I had experienced and survived the crashes of 1987, 1990, and 2000-2002. None of them pleasant - all of them very educational in that they made me a believer of the long term philosophy behind Mr. Bogle's approach. Mr. Dent - not so much.
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Old 11-01-2015, 04:30 PM   #51
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Right. And that's where I think Bogle (and Buffett) make sense. Bogle paints a pessimistic picture, admits he could be totally wrong and then says if you think you can stay out and get back in when it's good again you're statistically going to do even worse. So maybe you change your allocation a little.

Buffett is permanently optimistic on the US economy. He says all the time that in 10-20 years the market will be much, much higher. How and when and what along the way. No idea.

He then proceeds to invest in a small number if companies (compared to VTI) with great conviction.

Neither of then does what guys like hussman do. Have compelling theories about why what they think will happen is almost certain and make investment decisions around it. That's what most of us (including me) naturally tend to do. When I look at my results compared to just simple indexing... I kinda suck at it

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Old 11-01-2015, 07:27 PM   #52
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.... How and when and what along the way. No idea.

....
And imho, that's the most important aspect for most people here. Given any 10 year projection, people in accumulation mode will hope that the market dips now and comes roaring back just in time for them to retire. Those in the decumulation phase are hoping that the market soars now and if it has to come down, it does so in the waning years of their life.

I think Bogle's 'predictions' are good for some back of the envelope planning for what to expect your current stash to do in 10 years, but doesn't say anything about the performance you can expect for moneys you add to your portfolio in the intervening years, or the performance of your current portfolio if you're withdrawing from it.
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Old 11-01-2015, 08:31 PM   #53
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Quite frankly I think what they're all suggesting, just like Grantham, Hussman etc., is that the SP500 should trade around 1400 or thereabouts. They expect reversion to come about by way of a major correction.
This is hardly a gloom & doom scenario. I don't now what Bogle really means because he won't, as someone else posted, actually get specific.

If the "real" SP500 value is 1400 that's less than a 30% correction from current levels and there's no reason to think "when" it does that it will stay there for an indefinite period of time
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Old 11-02-2015, 11:39 AM   #54
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Have no idea whether he is right or wrong but what strikes me is how we are always searching for the oracle, the wizard, the old wise one with the answers. Even though he has built his company on the premise that no one can predict the future, which company, which sector, etc. will do best, we still ask him to predict the future. Just seems a little strange to me.

Now there is no argument from me that we should prepare expecting the worst, and maybe be pleasantly surprised when things turn out better than expected. His arguments make sense, but one could equally make the argument with so much of the world exiting poverty and becoming consumers, and with unprecedented productivity potential (think robotic cars, manufacturing automation) and with all the potential of new discoveries (Recombinant DNA, medical advances, etc.) that we equally have the potential for profound growth.

I have great respect for Bogel and what he has done almost single-handedly to improve the investment options for normal people, but sometimes I think, we expect a little too much from our heroes.
Well said.
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Old 11-02-2015, 11:48 AM   #55
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Ok, I will play. Let us step back 10 years instead. It is 2005. Who saw Tesla becoming worth nearly half the market cap of Ford? Who thought Nokia would be a 2 bit rubber boot company and Apple would be nearing a trillion dollar market cap? Radio Shack bankrupt? (Ok, I give you that one...everyone saw that coming). Uber taking over taxi cab driving? Netflix being worth twice the value of CBS?

Yeah, if you can see 10 years ahead, you are much better than I am.
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Old 11-02-2015, 02:04 PM   #56
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Suppose Tesla grows to take over all market shares from Detroit. How big can it be? Can it grow even larger and become an even bigger portion of US GDP? How long can a company grow at a rate faster than the GDP? Should we leave some room in the GDP for other hot sectors like biotech and smartphone makers too?

I would not mind if Bogle turns out to be too pessimistic. But do you think it is prudent to plan your retirement, particularly for young ER's in the 40s or early 50s, to use outsized projection of the pre-2000 return?

S&P Return from 1/1/1983 to 1/1/2000: 12.51% nominal, 7.67% real (after inflation), dividend reinvested.

S&P Return from 1/1/2000 to 12/31/2014: 4.20%/yr nominal, 1.91% real, dividend reinvested.

What's for the next 10 years? I side with Bogle and other economists, and say that it is going to be somewhere between the above 2 numbers. Remember that the 1983-2000 return number benefited from P/E expansion which added around 3%/yr. This P/E expansion can happen only once, and we are now hoping that it will not reverse.

By the way, the difference in nominal and real returns of the stock market in the bull years of 1983-2000 was huge, and corresponds to an inflation rate of 4.84%/yr!

So, I checked another Web site, and indeed although inflation kept on dropping from 1/1/1983 to 1/1/2000, the cumulative inflation still ran 121% (or 4.8%/yr annualized over the 17 years), and the dollar lost 55% of its purchasing power over that period.
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Old 11-02-2015, 06:34 PM   #57
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Yellen and Buffet have both expressed concerns about the falling(ok flat) wages for the shrinking middle-class.

Interest rates will remain very low and consumers without income cannot buy enough Coke and DQ Blizzards to keep old Warren happy.

Bogle is cautious because he knows the markets on many levels are being manipulated and the market makers are driving earnings. Its sure not real consumer spending.
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Old 11-02-2015, 10:40 PM   #58
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My takeaway from this good debate is that some respected investors, including Mr. Bogle, confine their analysis to U.S. markets, which is limiting. I understand his reasons but am not convinced to do that when there is good news to capitalize on in how poverty is declining as consumption increases globally as emerging economies, well, emerge. Yet, global population will continue to grow in my lifetime, meaning lots more customers despite mature economies' anemic population growth. I'm not smart enough to predict which countries will benefit the most so I hedge the risk by buying the global economy in a single fund of index funds, i.e. a risk-appropriate Vanguard Life Strategy Fund. My macro strategy to by the whole casino could well prove wrong but of course "You places your money and you takes your chances."


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Old 11-03-2015, 12:37 AM   #59
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As investors looking forward 10 years what do you see?
This economy is changing fast. We now have a millennial generation who are delaying marriage,delaying having kids, and they are not able to buy a home.
Not to mention the 7 year car loans.
Think about how this broke generation has and will change the Xmas shopping season for retailers.
This is touches on one my concerns. With lower returns, many boomers will be forced to sell off assets. Who is going to buy those assets? Millennials? Certainly not at current prices. Priorities have shifted for upcoming generations for whom the American Dream looks different than in generations past. As you mentioned, a large number of them are struggling, and having the money to invest and support our retirement like many of us have done for our parents generation is not their reality. Of course this won't be of major concern immediately but it will be a factor in the coming years.
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Old 11-03-2015, 06:50 AM   #60
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Re: international.
I think the point he makes (and others) is that the country of origin of a company is no longer a good indicator of international exposure and many of the biggest US companies derive much if their growth and revenue from those growth markets. So by investing in Apple, coke, yum, Pepsi, Disney you are very well exposed to developed and developing markets while avoiding the risks associated with local companies. I agree it's a subset but its totally possible that over the next 50 years Starbucks and coke benefit more from the rise of consumers in developing countries than their local brands... But who knows .

In any case... If you invest in large us multinationals you have pretty decent international exposure.

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