Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Bond Returns for next decade
Old 03-22-2014, 11:18 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2010
Posts: 396
Bond Returns for next decade

I recently came across the following:

It's not just short-term returns you have to worry about. The Leuthold Group studied the historical performance of bonds and found that there is a simple rule of thumb: Whatever the yield on 10-year Treasuries currently is, that's about the annual total return you can expect from bonds over the next decade. Today that yield is a historically low 2.8%.

Do you think that rule of thumb has proven true in your own experience? Can I still use a 4 percent safe withdrawal rate if I expect that bonds will only be returning 2.8% and 30% of my investment portfolio is bonds?
__________________

__________________
nico08 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 03-23-2014, 03:16 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
it is easier to read the article by michael kitces than for me to re-hash it.

while rates will stay higher than where they are the 4% rule is based on getting such horrible average returns over the first 15 years of a retirement that we would need to get less than 2% real return per year average over the first 15 years from a balanced portfolio to duplicate those periods and fail.

What Returns Are Safe Withdrawal Rates REALLY Based Upon? | Kitces.com
__________________

__________________
mathjak107 is offline   Reply With Quote
Old 03-23-2014, 07:32 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 1,553
Quote:
Originally Posted by nico08 View Post
The Leuthold Group studied the historical performance of bonds and found that there is a simple rule of thumb: Whatever the yield on 10-year Treasuries currently is, that's about the annual total return you can expect from bonds over the next decade.
Why would you expect anything but? Same for 1,5,30 year bonds.
__________________
gerntz is offline   Reply With Quote
Old 03-23-2014, 09:01 PM   #4
Recycles dryer sheets
 
Join Date: Aug 2005
Posts: 480
Quote:
Originally Posted by mathjak107 View Post
it is easier to read the article by michael kitces than for me to re-hash it.

while rates will stay higher than where they are the 4% rule is based on getting such horrible average returns over the first 15 years of a retirement that we would need to get less than 2% real return per year average over the first 15 years from a balanced portfolio to duplicate those periods and fail.

What Returns Are Safe Withdrawal Rates REALLY Based Upon? | Kitces.com
The linked article is very interesting and encouraging.
But still, "It's hard to make predictions, especially about the future."
__________________
Gearhead Jim is offline   Reply With Quote
Old 03-24-2014, 03:53 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
it really isn't about predictions. it is simple math.

if the sum of your yearly returns/inflation/sequence of gains and losses /interest rates don't EQUAL AT LEAST 2% REAL RETURN per year over the first 15 years of your retirement as an average then 4% will likely fail just as it always has..

what events or how the combo is configured will vary every time frame but the end result will not.

That is what folks mis-understand about research and these swr studies. they don't predict or assume anything as they are in a way monday morning quarterbacking with the data and drawing conclusions that don't seem to vary mathamatically..


if every time the results are x when y yields this ,it is reasonable to assume that any time we see y happen and it equals x the results will be the same..

if every single failed time frame to date had the common denominator of falling below a 2% real return average for the first 15 years it really does not matter what got you there ,only the fact you are below matters.

if i was 7-10 years in and my numbers looked crappy i may want to start to cut my draw. certainly by 15 years in i would cut my draw if i wasn't making grade.

the real problem is 4% was never meant to be a rule , it was only a low water mark for getting a ball park day 1 of retirement.

further research now helps us use those numbers in a meaningful way.

the definition of insanity is getting the same results every time and thinking the next time will be different.

so far we learned some very important things from the work of dr wade pfau and michael kitces.


we now know in 146 years of rolling 30 year periods the entire outcome is based on the first 15 years, there has rarely if ever been a different outcome.

we know if the first 15 years yield less than 2% real return per year average on your portfolio 4% will likely fail

we know shillers pe/10 has never been wrong , if the pe10 ratio is higher than 20-25 going in to retirement the next 15 years have always been below average market returns. we are at 25 now

all these points make the trinity and earlier studies more meaningful because the results have little to do with predicting and more to do with everytime y happens and = x the results will likely be the same.

how you get to y can vary every time but the sum of what makes up y is all that counts.

we can start the next great depression tomorrow, the studies are not predicting and saying it can't happen, rather they say if it does happen and the sum of all the things that make up your yearly return fall below a certain point for a certain time frame then be aware you can fail.

mathamatically they can tell us what those failure points are and what the time frame is that will sink us. it is all just math , there is no predicting.

you know when you hear someone say that they don't understand why we base the future on the past which were very different times that they do not understand what the results mean or how to use those results.
__________________
mathjak107 is offline   Reply With Quote
Old 03-24-2014, 08:16 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,407
Quote:
Originally Posted by nico08 View Post
.... simple rule of thumb: Whatever the yield on 10-year Treasuries currently is, that's about the annual total return you can expect from bonds over the next decade. Today that yield is a historically low 2.8%....
I seem to recall Vanguard saying the same thing in a fixed income webcast a few months ago.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Bond Returns for next decade
Old 03-24-2014, 08:50 AM   #7
Thinks s/he gets paid by the post
seraphim's Avatar
 
Join Date: Mar 2012
Posts: 1,492
Bond Returns for next decade

Using that guideline, we should still be seeing a yield of about 4.5% on 10 year bonds (using 2006 figures).

No one has a crystal ball, past performance is no indicator of future performance, there are exceptions to every rule.... No one has any real idea what's going to happen.

IMO, stop looking for 'rules' and 'guidelines' - they are generally made by people looking at history and trying to derive a formula by which to guess the future - and everyone who does so seems to come up with a different guideline.

Study and learn as much as possible so you understand what you're doing; then, invest in the AA with which you are you are comfortable. Retire when you feel comfortable your income will match your future needs. As you did when you were in the accumulation stage, live beneath your means, knowing there will be good years and bad.

Plan for the worst, hope for the best.

And there no such thing as a 'safe withdrawal rate', by my definition. If you're looking for a guess based on history, run it through FireCalc. Assume the worst possible scenario.
__________________
"Growing old is no excuse for growing up."
seraphim is offline   Reply With Quote
Bond Returns for next decade
Old 03-24-2014, 09:11 AM   #8
Thinks s/he gets paid by the post
seraphim's Avatar
 
Join Date: Mar 2012
Posts: 1,492
Bond Returns for next decade

Ten year bond rates:



Mar 21, 2014 2.75%
Jan 1, 2014. 2.85%
Jan 1, 2013. 1.91%
Jan 1, 2012. 1.97%
Jan 1, 2011. 3.39%
Jan 1, 2010. 3.73%
Jan 1, 2009. 2.52%
Jan 1, 2008. 3.74%
Jan 1, 2007. 4.76%
Jan 1, 2006. 4.42%
Jan 1, 2005. 4.22%
Jan 1, 2004. 4.15%
Jan 1, 2003. 4.05%
Jan 1, 2002. 5.04%
Jan 1, 2001. 5.16%
Jan 1, 2000. 6.66%
Jan 1, 1999. 4.72%
Jan 1, 1998. 5.54%
Jan 1, 1997. 6.58%
Jan 1, 1996. 5.65%
Jan 1, 1995. 7.78%
Jan 1, 1994. 5.75%
Jan 1, 1993. 6.60%
Jan 1, 1992. 7.03%
Jan 1, 1991. 8.09%
Jan 1, 1990. 8.21%
Jan 1, 1989. 9.09%
Jan 1, 19888.67%
Jan 1, 19877.08%
Jan 1, 19869.19%
Jan 1, 198511.38%
Jan 1, 198411.67%
Jan 1, 198310.46%
Jan 1, 198214.59%
Jan 1, 198112.57%
Jan 1, 198010.80%
Jan 1, 19799.10%
Jan 1, 19787.96%
Jan 1, 19777.21%
Jan 1, 19767.74%
Jan 1, 19757.50%
Jan 1, 19746.99%
Jan 1, 19736.46%
Jan 1, 19725.95%
Jan 1, 19716.24%
Jan 1, 19707.79%
Jan 1, 19696.04%
Jan 1, 19685.53%
Jan 1, 19674.58%
Jan 1, 19664.61%
Jan 1, 19654.19%
Jan 1, 19644.17%
Jan 1, 19633.83%
Jan 1, 19624.08%
Jan 1, 19613.84%
Jan 1, 19604.72%
Jan 1, 19594.02%
Jan 1, 19583.09%
Jan 1, 19573.46%
Jan 1, 19562.90%
Jan 1, 19552.61%
Jan 1, 19542.48%
Jan 1, 19532.83%
Jan 1, 19522.68%
Jan 1, 19512.57%
Jan 1, 19502.32%
Jan 1, 19492.31%
Jan 1, 19482.44%
Jan 1, 19472.25%
Jan 1, 19462.19%
Jan 1, 19452.37%
Jan 1, 19442.48%
Jan 1, 19432.47%
Jan 1, 19422.46%
Jan 1, 19411.95%
Jan 1, 19402.21%
Jan 1, 19392.36%
Jan 1, 19382.56%
Jan 1, 19372.68%
Jan 1, 19362.65%
Jan 1, 19352.79%
Jan 1, 19343.12%
Jan 1, 19333.31%
Jan 1, 19323.68%
__________________
"Growing old is no excuse for growing up."
seraphim is offline   Reply With Quote
Bond Returns for next decade
Old 03-24-2014, 09:53 AM   #9
Thinks s/he gets paid by the post
seraphim's Avatar
 
Join Date: Mar 2012
Posts: 1,492
Bond Returns for next decade

"if the sum of your yearly returns/inflation/sequence of gains and losses /interest rates don't EQUAL AT LEAST 2% REAL RETURN per year over the first 15 years of your retirement as an average then 4% will likely fail just as it always has.."

Of course, you won't know that until you're 15 years into your retirement lol

What mathjak says makes sense - but there's more to the market than math. If you look back at a hundred years of the market's performance, you can get an idea, assuming no major unprecedented catastrophes, of the next hundred years average performance. But what it's going to do over the next 10 years? And that's of major import to a new retiree. You and I aren't going to live another hundred years. External factors of the next 10 years can play hell with mathematical predictions. There's a good reason we look to the past for indicators: but there's no guarantees the indicators will tell us what will happen tomorrow. Were it that simple, all statisticians would be rich.

Somehow, this conversation brings Asimov's 'Foundation' series to mind...
__________________
"Growing old is no excuse for growing up."
seraphim is offline   Reply With Quote
Old 03-24-2014, 10:01 AM   #10
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 1,823
So if the results of the first 15 years of returns is significant for a 30 year time period, should we extrapolate that the first 20 years of returns is the appropriate period to measure if you are planning for a 40 year retirement period?
__________________
Ready is offline   Reply With Quote
Old 03-24-2014, 12:14 PM   #11
Thinks s/he gets paid by the post
robnplunder's Avatar
 
Join Date: Nov 2013
Location: Bay Area
Posts: 2,124
Quote:
Originally Posted by mathjak107 View Post
we know shillers pe/10 has never been wrong , if the pe10 ratio is higher than 20-25 going in to retirement the next 15 years have always been below average market returns. we are at 25 now
Dang! This is not a good news for those who plan to retire soon.
__________________
Pura Vida
robnplunder is offline   Reply With Quote
Old 03-24-2014, 12:46 PM   #12
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,074
Looks like rates fall off a cliff beginning in 19888. We'd better enjoy the high rates we have now while we can.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 03-24-2014, 05:53 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
Quote:
Originally Posted by seraphim View Post
"if the sum of your yearly returns/inflation/sequence of gains and losses /interest rates don't EQUAL AT LEAST 2% REAL RETURN per year over the first 15 years of your retirement as an average then 4% will likely fail just as it always has.."

Of course, you won't know that until you're 15 years into your retirement lol

What mathjak says makes sense - but there's more to the market than math. If you look back at a hundred years of the market's performance, you can get an idea, assuming no major unprecedented catastrophes, of the next hundred years average performance. But what it's going to do over the next 10 years? And that's of major import to a new retiree. You and I aren't going to live another hundred years. External factors of the next 10 years can play hell with mathematical predictions. There's a good reason we look to the past for indicators: but there's no guarantees the indicators will tell us what will happen tomorrow. Were it that simple, all statisticians would be rich.

Somehow, this conversation brings Asimov's 'Foundation' series to mind...

we don't really need to know what will happen tomorrow. all we need to know is we have to watch over the first 15 years to see that we are on track for clearing that 2% real return , if not make some changes early in the game while it isn't to late.

all the studies and all the data all boil down to one thing and that is what is the common denominator to every time frame where 4% failed to hold.

that is a simple number and it turns out to be the same number over and over. any 15 year time frame that averaged less than 2% real return failed.

quite franly i don't see anything different that will occur in any time frame that will change that number. i don't see it as predicting , the math holds true regardless.

it is just another tool in a knowledgable retirees arsenal .
__________________

__________________
mathjak107 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Stocks: The Next Decade EvrClrx311 Stock Picking and Market Strategy 43 06-04-2012 08:25 PM
Realistic "real" returns for next 20 years kenpoed FIRE and Money 62 06-02-2012 12:54 PM
Equity returns in the coming decade traineeinvestor FIRE and Money 3 03-18-2011 09:08 PM
Buffett: Don't expect returns over 7% over next century cardude FIRE and Money 84 03-07-2008 05:30 PM
Investors' actual returns versus total returns JohnEyles FIRE and Money 0 11-14-2006 01:20 AM

 

 
All times are GMT -6. The time now is 07:01 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.