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Old 11-05-2015, 08:33 PM   #121
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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?
Shiller does seem to get the bubble idea, and many think the Fed policies are never going to drive up consumer inflation, just asset (housing, stock and bond) inflation and when the bubble pops it is going to be a big pop:

"The Fed now leads a culture of central bankers who see their job as reducing unemployment and stabilizing prices for consumer goods only, come what may in the markets. This needs to change. In a world in which high trade and money flows tend to restrain consumer prices but magnify asset prices, central banks need to take responsibility for both. After all, asset price inflation is as dangerous as consumer price inflation. "

The Federal Reserve Asset Bubble Machine - WSJ
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Old 11-05-2015, 08:46 PM   #122
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The period of 2000-2009 was particularly bad, because it was a peak-to-trough interval for the market. The S&P returned -0.99% anualized in nominal terms, and -3.42% annualized after inflation (inflation was 2.43%). In the same period, Vanguard Total Bond VBMFX returns 6.06% nominal annualized, or 3.63% in real terms. A 50/50 porfolio would be flat after inflation!

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.

And then, looking ahead, interest rate is rising although we hope it will not be much. Still, it would apply pressure to bonds and stocks both. That's why Bogle has repeatedly warned that the future is gloomy, and pension fund managers are sticking their head in sand when they plan on having 7.5% nominal.

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?

Anyway, why doesn't one then go 100% stock to get 4% nominal, and after a WR of 2% can still match inflation of 2%? Personally, I don't do that because I like to be able to rebalance to buy low/sell high. We should embrace market volatility then, because if the market stays placid with lousy returns we are toast.
So we've been through one lousy 15 year period, and then we get another 10 years of lousy returns?
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Old 11-05-2015, 09:30 PM   #123
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S&P 500 Return Calculator - Don't Quit Your Day Job...

I see it happening way LESS often then coming up positive.

Now this is only S&P 500. Create mix adding Small/Mid Cap plus international and likelihood drops even more.

But you are 100% correct stating that dividends are significant portion.....

Historically world economies grow way faster then inflation. You think USA in 1900 was worth USA in 2000? We are with 1000's of times more now
Well, you said that you thought the idea that stocks would be at lower real prices in 10 years was "humbug", and I think the possibility is far from remote. I don't have a graphic that shows 10 year rolling real returns without dividends reinvested. But, as a rough start, the graph below shows 10 year rolling total returns for big US stocks. Now, subtract out dividends (historic US average : 4.3% per year ) and inflation (say 3% per year ) and we can see that we need about 7+% average annual price growth to end the decade in positive territory. A glance at the graph shows there are many decades where stocks didn't do that well. I'd bet the situation is worse for decades starting at today's stock valuations (which is probably Bogle's point).

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Old 11-05-2015, 10:06 PM   #124
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Looking across history as well as 16 countries, The Triumph of the Optimists authors research found that stocks for the long run has been a correct assumption, but that long run may be 40+ years. And, statistically, I'm not likely to live that long. This is not to say stocks aren't a good bet, it it just that financial writers like Bodie and Bernstein say not to bet the money you need for retirement essentials like food and health care on them. Only bet what you can afford to lose.
Personally, I'm still early in the accumulation phase and I'm using 3% real returns (25+ years) for my own projections. Alas, with practically non-existent returns on safe investments, I don't think I have much of a choice but to bet on stocks this early in the game.

The 7.5% nominal assumption is for pension fund managers and actuaries. They have a different time span than me, though, and unlike my retirement savings, they have both inflows (employer+employee contributions) and outflows (retiree pensions).
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Old 11-05-2015, 11:05 PM   #125
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So we've been through one lousy 15 year period, and then we get another 10 years of lousy returns?
That's what Bogle said.

Life is unfair. Then we die.
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Old 11-05-2015, 11:44 PM   #126
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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.
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Old 11-06-2015, 07:20 AM   #127
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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.
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Old 11-06-2015, 10:11 AM   #128
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to bad hope rarely works out as a plan . a goal without a plan is a wish
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Old 11-06-2015, 12:35 PM   #129
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That's what Bogle said.

Life is unfair. Then we die.
Thanks, I feel much better now.
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Old 11-06-2015, 12:37 PM   #130
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Life is unfair. Then we die.
Wow, is that the sanitized version or what
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Old 11-06-2015, 12:42 PM   #131
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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.
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Old 11-06-2015, 12:54 PM   #132
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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.
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Old 11-06-2015, 02:19 PM   #133
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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.
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Old 11-06-2015, 02:59 PM   #134
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Wow, is that the sanitized version or what
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Thanks, I feel much better now.
You are welcome.

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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?
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Old 11-06-2015, 03:37 PM   #135
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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!
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Old 11-06-2015, 04:07 PM   #136
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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.
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Old 11-06-2015, 04:23 PM   #137
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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.
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Old 11-06-2015, 09:05 PM   #138
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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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Old 11-06-2015, 09:31 PM   #139
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...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)



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Old 11-08-2015, 11:41 AM   #140
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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
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