Bogle's 10-Year Forecast

[statsman]

For someone trying to determine what to do with our portfolio as we head into retirement the middle of next year, this thread is downright depressing. For such low returns, how the heck did the Dow get to 18,000? It sometimes gives the appearance of being a manipulated market having not much to do with economic reality. 0% inflation (re: SS)? Could have fooled me.

 

[DEC-1982]

I guess we should just stop worrying and be happy.

+1

I share Buffet's faith in America and American ingenuity to take care of the future.

 

[mathjak107]

to bad hope rarely works out as a plan . a goal without a plan is a wish

 

[CaliforniaMan]

That's what Bogle said.

Life is unfair. Then we die.

Thanks, I feel much better now.

 

[ejman]

Life is unfair. Then we die.

Wow, is that the sanitized version or what

 

[razztazz]

So we've been through one lousy 15 year period, and then we get another 10 years of lousy returns?

This is my hang with these forecasts too. So, when did we have a 25 or more year crappy return period before? Just recently, I think here or maybe it was another board, someone gleefully posted some research showing how the Great Depression totally rectified itself by 1936 or some such.

Twenty-five years of bad returns? It's not only different this time, it's unheard-of. This might just be that grand low point of legend and history nobody sees till 5 or 10 yrs after it happens. Twenty FIVE years? Interesting.

 

[daylatedollarshort]

This is my hang with these forecasts too. So, when did we have a 25 or more year crappy return period before? Just recently, I think here or maybe it was another board, someone gleefully posted some research showing how the Great Depression totally rectified itself by 1936 or some such.

Twenty-five years of bad returns? It's not only different this time, it's unheard-of. This might just be that grand low point of legend and history nobody sees till 5 or 10 yrs after it happens. Twenty FIVE years? Interesting.

The way I look at it is using 100 years of U.S. history to predict the next 50 years is like trying to predict the future outcome of a 3rd coin toss on the previous 2, only on the 3rd try I would be using a new coin with a different shape and weight than than the previous two.

We still own stocks in retirement, we just aren't betting the farm on them. And when stocks, housing and bonds are all in possible bubble territory, I don't see how one can diversify away risk using only those three assets classes. We use a matching strategy with hedging and insuring for all our essential expenses instead.

 

[nash031]

Let's look at the period of 2000-2015, which is better because it is nearly peak-to-peak for the market. VFINX returned 4.15%/yr nominal, or 1.86%/yr in real terms (inflation was 2.29%). VBMFX returned 5.45%/yr nominal, or 3.16%/yr real. A 50/50 portfolio would grow 2.51%. If you draw 2%, your stash will barely beat inflation, if we ignore the sequence of returns.

So, the last 15-year period was not that great, except for accumulators who got a chance to buy low. But a retiree has no money to buy, other than some chances to do rebalancing. When you have no other income, everything changes.

...

Looking back at what Bogle said in the link provided by DLDS, he said future stock return may be 4% nominal, and bonds only 3% nominal, with inflation of 2%. This gives a 50/50 portfolio a return of only 3.5% nominal, and 1.5% real. And note that he now thinks P/E reversion is more likely. Has Shiller recently convinced him?

The period of 2000-2015 make up my entire investing lifetime. As you mentioned, annualized return assuming dividends reinvested during this timeframe was 4.3% NOT adjusted for CPI. Real return was right around 2%, or just slightly greater than the historical dividend rate.

Essentially, Bogle is predicting status quo or better for the next 10 years, if you're using 2000 as the beginning of your time frame. Within that time, there are drops of 50% and increases of greater than 30% in any given year.

This period of performance is only great for accumulators if there is a subsequent long-term bull market following that period. Bogle seems to be predicting that not to be the case.

Based on my investing lifetime 15-yr real market return of about 2% with dividends reinvested, I would be very happy if we could see 3.5% for the next ten years!

My plan calls for 3% real (using 6% nominal against 3% CPI). Perhaps I should reevaluate the numbers and use 5% and 2% to be more accurate and/or conservative, but the end result is likely the same.

 

[NW-Bound]

Wow, is that the sanitized version or what

Thanks, I feel much better now.

You are welcome.

Essentially, Bogle is predicting status quo or better for the next 10 years, if you're using 2000 as the beginning of your time frame. Within that time, there are drops of 50% and increases of greater than 30% in any given year...

If we look at just the two endpoints of the period of 2000-2010, the market had a loss. However, in between we had two terrible market crashes with drops of 46%. Accumulators in this period were able to buy stocks cheap, while a retiree would be selling stock low to exchange for food.

Quite a few retirees on this board managed to do quite OK even though they retired in the early 2000's. They were either successful in trading or rebalancing their portfolio during the stock crashes, or invested in conservative balanced funds that did not go hog-wild with tech stocks in 2000, and high-dividend financial stocks in 2008. It was clear that pure indexers would not do well, unless they timed their rebalancing right.

I was working part-time until 2012, and had sufficient income to not have to draw on my stash. So I did OK, and even grew my portfolio with some good stock picks. But looking forward, with no money coming in, I have to take a more conservative stance, and I may not be able to beat the market as in the past. No risk, no reward. On the other hand, SS will be there to help if I need to draw it early. My expenses should go down. And I have fewer years left in life to worry about this stuff.

So, me worry?

 

[audreyh1]

This is my hang with these forecasts too. So, when did we have a 25 or more year crappy return period before? Just recently, I think here or maybe it was another board, someone gleefully posted some research showing how the Great Depression totally rectified itself by 1936 or some such.

Twenty-five years of bad returns? It's not only different this time, it's unheard-of. This might just be that grand low point of legend and history nobody sees till 5 or 10 yrs after it happens. Twenty FIVE years? Interesting.

Yeah - that gives me a big grain of salt for these more dire forecasts.

But I still feel like I need to be prepared for the poorer outcome, and then hopefully be pleasantly surprised!

And yeah - I was a late 1999 retiree - so this has all be real to me!

 

[hnzw_rui]

Yeah - that gives me a big grain of salt for these more dire forecasts.

But I still feel like I need to be prepared for the poorer outcome, and then hopefully be pleasantly surprised!

And yeah - I was a late 1999 retiree - so this has all be real to me!

Pretty much all we can do. Plan for the worst and hope for the best.

 

[sengsational]

For those of us that think Jack is being too pessimistic, we might read the book "Irrational Exuberance". That book has made me re-think my strategy now that I'm no longer in the accumulation phase. It had more impact than "Spend 'till The End" had on me since it really highlighted how much risk we take-on for what appears to be very little extra reward. Those two books, plus the "Rock Breaks Scissors" PE10 sell signal and being that I'm no longer in accumulation...I at least pulled the pedal from the metal.

 

[petershk]

What I got from Bogles interview (and this thread) is.... We all have our assumptions... None of us can know what will actually happen. We each must invest the way that we think makes sense and we can't control the outcome.

What we can control (to some degree) is how flexible and resilient we are and how much we enjoy or don't enjoy what we have

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[NW-Bound]

...What we can control (to some degree) is how flexible and resilient we are and how much we enjoy or don't enjoy what we have ...

Cue the class-C-RV-camped-out-in-NM scenario that I prepare myself for if things turn really bad.

See photos below that I linked from Andy Baird Web site (Skylarking)

 

[explanade]

Didn't Bogle also say while returns may be low, there are no alternatives to equities because other investments will return worse?

Also heard that the growth of the S&P since 2009 is unsustainable, so reversion to the mean. I don't know if that's what Bogle said or what one person interpreting Bogle's comments as.d

 

[NW-Bound]

Didn't Bogle also say while returns may be low, there are no alternatives to equities because other investments will return worse?

Also heard that the growth of the S&P since 2009 is unsustainable, so reversion to the mean. I don't know if that's what Bogle said or what one person interpreting Bogle's comments as.d

He said bonds will be worse. Per the interview quoted in the OP, he said that earnings of the S&P will grow, but not exceptional. The reversion to the mean he talked about was the P/E contraction, the same as Shiller has been warning about.

So, E grows but P/E ratio shrinks, and that makes the P growth of only 4%. Take out inflation from that 4%, and you are left with bitty gains.

 

[mickeyd]

That's what Bogle said.

Life is unfair. Then we die.

All of that is probably true but when I take a peek at my account @ VG I see a total that is greater than it has ever been. LBYM conquers all. What a country!

 

[explanade]

Right, bonds will be worse and cash will be worse too so you stay in the market.

 

[NW-Bound]

And that was what Bogle said too. Stay invested because it's the best you can do, but do not expect miracle. End of his message.

Shiller recently had the same advice to young investors thinking of ER.

 

[urn2bfree]

Twenty-five years of bad returns? It's not only different this time, it's unheard-of. This might just be that grand low point of legend and history nobody sees till 5 or 10 yrs after it happens. Twenty FIVE years? Interesting.

I am no expert -but isn't this what has happened in Japan?




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[NW-Bound]

The Nikkei performance was indeed terrible. It was 39,000 back in Jan 1990, and now 25 years later it is at 19,266.

But Bogle never said it will be that bad for the US. Remember that his expectation was 4% return for the S&P including dividends. However, that is before inflation.

 

[daylatedollarshort]

And that was what Bogle said too. Stay invested because it's the best you can do, but do not expect miracle. End of his message.

Shiller recently had the same advice to young investors thinking of ER.

This is a video with advice from Shiller for his college students -

The investing golden age may be over: Robert Shiller | Watch the video - Yahoo Finance

Summary: If you are not unhappy now, keep living like a college student and save a big chunk of your income. You might not be getting very high investment returns going forward.

 

[urn2bfree]

The Nikkei performance was indeed terrible. It was 39,000 back in Jan 1990, and now 25 years later it is at 19,266.

But Bogle never said it will be that bad for the US. Remember that his expectation was 4% return for the S&P including dividends. However, that is before inflation.

Yes, my point was not that we would do as poorly as Japan, just that 25 years of bad returns is not without precedent. Does anyone know what the return rate would have been for a 50/50 Japan investor with dividends reinvested and rebalancing for the last 25 years?


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[NW-Bound]

Yes, my point was not that we would do as poorly as Japan, just that 25 years of bad returns is not without precedent. Does anyone know what the return rate would have been for a 50/50 Japan investor with dividends reinvested and rebalancing for the last 25 years?

Yes, we wonder what Japanese investors have been doing, and particularly how Japanese retirees cope.

We have seen that Japanese stocks are lousy. But bonds can't be that great either, because they have had deflation. With deflation, money hidden in a mattress gains value with time. Indeed, just now my search on the Web found this link that says that Japanese people keep up to 41% in cash.

All of that is probably true but when I take a peek at my account @ VG I see a total that is greater than it has ever been. LBYM conquers all. What a country!

Yes, LBYM trumps many difficulties. But after a life of saving, can we get some indulgence before leaving this world?

If I can just keep up with inflation, a WR of 3.33% will last me 30 years. Now, if we can get 1.5% return after inflation as Bogle expects, then 3.33% WR will last 39 years. Or with that 1.5% return, I can go up to a WR of 4.1% for 30 years.

And the above is without SS, or reduction in spending in later years taken into account. And I also do not expect to live for another 30 years.

So, all earlier jokes about boondocking in an RV aside, I don't think I will die broke. I just may not be able to leave much to my children, particularly as they may not have a chance to retire early as I did.

This is a video with advice from Shiller for his college students -

The investing golden age may be over: Robert Shiller | Watch the video - Yahoo Finance

Summary: If you are not unhappy now, keep living like a college student and save a big chunk of your income. You might not be getting very high investment returns going forward.

Yes, that is quite a sober picture that Shiller painted.

I am thinking about sending this video to my 30 and 26 year old, but I don't think that they are thinking much about retirement at this point. Maybe I just should not splurge so much and leave them a bit to help them out after I croak.

 

[Lakewood90712]

And bonds aren't predicted to do much better as well.


What's a couch potato investor supposed to do?

23 red on the roulette wheel at your favorite gambling casino ?

One or two large corrections followed by recoveries plus dividends might work, as has done so for the last century or so , but OTOH, we are in uncharted waters IMO, and no guarantees. 4% not the 7-8 expected is likely.

Some nimble hedge funds and a few individual investors (very few) will be able to profit from inevitable future recessions. Some will loose everything trying.

The municipal pension fund I am drawing from expects 7.75 % and still is has not fully recovered from tens of billions in losses from the last recession. They are in denial. When the actuary firms used by my city say otherwise, the city leaders pressure the pension board to find a new actuary ( seen this twice) The employee contribution rose from 6% of base pay to 11% of base pay during my 13 years working at the joint . Even with that, it will not be sufficient to sustain in a 4% return environment IMO.