Nothing to fear but fear itself.............

[haha]

3) and "gordon equation" bears who don't necessarily expect a big correction, but who are resigned to lower returns going forward

This is a very interesting idea. I think it has <5% chance of occurring. Returns may well be poor going forward, but there will be many peaks and troughs. Investors will ignore high valuations as long as the market is going up. But once it stops that behavior, and it's a lead pipe cinch that it must, if only because trees don't grow to the sky, then the market has a strong bias toward declining. Somebody might think , well, 6% nominal is better than cash, so I'll take it. But as soon as he starts seeing some losses, he will be gone. It's like standing around an angry person until he hits you. Once you think there is a good chance that he will strike, you are either gone or have punched him.

Until the election, a lot of crap will be pulled out of hats to keep both the economy and the markets looking alive. After the election, all bets are off. Even this fall we could be jarred by another audacious terrorist attack.

Markets anticipate. And when the tide changes, it can really go out fast.

Mikey

 

[John Galt]

unclemick tickles us all
with tales of Charles De Gaul
With instincts most sure
he seldom demurs.
Still, stocks will eventually fall.

John Galt

 

[Cut-Throat]

3) and "gordon equation" bears who don't necessarily expect a big correction, but who are resigned to lower returns going forward

This is what I'd say is most likely to happen. Returns of 3%-4% real for the next couple of decades. I would not rule out big corrections, but I'm still betting that we'll see a positive return.

We had a big correction in 1929, but stocks turned positive in 15-20 years.

 

[Bob_Smith]

Nobody knows what the stock market will do, only what it has done, and I expect more of pretty much the same. It's probably overvalued now. On the other hand, there is a tremendous amount of cash and ST bonds on the sidelines waiting to go in, so maybe now is just the wrong time to bail. Who knows? That's the problem with timing - plus the fact that you must be right twice (when to get out and when to get back in).

I expect that those who keep enough in short-term bonds, cash, CDs, etc. to cover several years of expenses, have a pension and SS coming now or in the future, and a stock allocation appropriate to their age and risk tolerance will do just fine as long as they are willing to cut expenses periodically (play canasta), re-balance, and stay the course. Wabmester, we don't need to make a case for a bull market - most of us will also survive a big bear that starts tomorrow.

 

[charlie]

The people who run Vanguard's Asset Allocation fund
are basing their allocation on a predicted 9.9% annual
return for stocks and 5.8% for long bonds over the next decade. They use very sophisticated models to
arrive at their forecast.

Cheers,

Charlie

 

[newellcr]

Wabmester,

You asked, "Does anybody want to present a compelling case for a long-term bull market?" How's this?

Companies continue to make money, people continue to have jobs, worker productivity continues to improve, and the US government understands the world economy better than at any time in history. The market will shake out the truth of value in the near term, but the in the long term we have what we need for a sustained bull market.

Cheers,

Chris

 

[wabmester]

Companies continue to make money....

That's basically argument (i) above: stocks went up in the past, so that's reason enough to think they'll continue to go up in the future. This argument has been "refined" recently to go something like this:

1) assume that stock market growth is a proxy for economic growth (or vice versa)

2) assume that economic growth continues at the same rate it has in the past

3) assume that P/E values revert to the mean

4) assume that average inflation stays around the historical mean

If all of these assumptions are true, you get something close to Cut-Throat's 6%+ annual returns. But given some of the trends I mentioned in a previous post, I think (2) and (4) are optimistic assumptions, which could further dampen an already diminished expectation for stock market returns.

So, if I *know* that the stock market is *always* volatile (i.e., risky), and I *think* that there's a pretty good probability that returns won't be very exciting, I logically will lighten up on my stock exposure (which I have).

 

[Cut-Throat]

If all of these assumptions are true, you get something close to Cut-Throat's 6%+ annual returns.

I never said this! I said 3%-4% real returns!

 

[wabmester]

I never said this! I said 3%-4% real returns!

Well, I figured that you had to make an assumtion that inflation stayed around 3% to come up with this number. Sorry if I made a logical leap. What are your inflation assumptions?

 

[hankjoy]

Wabmaster: Warren Buffett predicts the overall market will return in the 5-7% range for the next decade or so, but that individual stocks can do better or worse. Yes there will be ups and downs but the average for those who don't have to sell is very dependable. But guys think about this;
1. volatility does not equal and is not the same thing as risk.
2. if you had invested in the Dow utilities index at the start of the Nasdaq you would have beat the Nasdaq (from inception up to today) with far less volatility.
3. If you invest for a growing high yield you only have to be right once (when you buy, you don't plan to sell) and since you can choose when to buy based on yield there is no guess work to it. HankJoy

 

[sewinglady26]

Just as I was watching the sun go out........ How about my 2 personal favorites. Terrible illness, no insurance, under 65, lawsuit to seize assets for medical costs.... or in this suing society, your fault, nobodies fault, you get sued and the opponent gets a judgement to grab everything you have worked for?

Any ideas to prevent these 2 scenes from running mentally like a hampster on a wheel?

 

[brewer12345]

How about liability insurance? Works for me.

 

[John Galt]

Well, here is what I think. sewinglady26 is focusing on the bad stuff. Not good! Before I got up this morning
I was worrying about my cholesterol (off the chart).
Last night I ate about 6 deviled eggs and grilled
fillet mignon wrapped in bacon. I don't get much excercise now and imagine my arteries seizing up.
Or, I can visit several physicians who will all have
ideas about more tests, medication, etc etc. Bottom
line is we are all going to die. I don't wish to spend my
"golden years" tracking cholesterol and going to doctors.
I'd rather check out a few years early than spend my
time worrying about what is flowing through my
system.

John Galt

 

[Michael]

Any ideas to prevent these 2 scenes from running mentally like a hampster on a wheel?

If excessive anxiety is affecting your life, it can be treated. Thinking about possible scenarios is sensible, but stressing out is not.

Or, I can visit several physicians who will all have
ideas about more tests, medication, etc etc.

It only takes me about 10 seconds to swallow the Lipitor cholesterol pill, so I figure why not. I can give up 10 seconds per day.

 

[Bob_Smith]

How about my 2 personal favorites.  Terrible illness, no insurance, under 65, lawsuit to seize assets for medical costs.... or in this suing society, your fault, nobodies fault, you get sued and the opponent gets a judgement to grab everything you have worked for?

Sewinglady26, I do believe that having assets in retirement plans provides some level of protection from judgment. The specifics vary from state to state, but you may not be as exposed as you think. As long as you have auto and home insurance you should be OK. Nevertheless, I think the fear of lawsuits is greatly overstated. It's very low on my list of concerns, even though insurance companies have tried very hard to convince us that we live in a "suing society".

Keeping or finding health insurance is a concern many of us face. I have access for life, but if the price becomes too high I'll be forced to downgrade coverage and would, at some point, be forced to go without. But even if I were forced to drop coverage due to cost, that would free up ~$1,500 per month that I was spending on health insurance (that's the max we're willing to pay for our family's health insurance in today's dollars). I'd set that aside and it would buy a fair amount of doctor visits and medicine - so it's not like we'd have NO health care. We could buy a fair amount, actually. A major medical catastrophe would do us in, but the odds are pretty good that we'd muddle through and survive intact until medicare kicks in. Regardless of what happens, I refuse to build my life or live my life around health care.

 

[Cut-Throat]

A major medical catastrophe would do us in, but the odds are pretty good that we'd muddle through and survive intact until medicare kicks in. Regardless of what happens, I refuse to build my life or live my life around health care.

I'm with you on this one Bob! - Right now we have health ins. thru my wife's employer, and every year they cover less and less.

In fact the only health Insurance coverage that I'm interested in, is one that would protect against a major medical event, until medicare kicks in. Have you checked the prices for such a policy for 2 with say a 5K or 10K deductable?

Bob - You seem to be becoming quite the night owl

 

[sewinglady26]

I appreciate all the discussion. I agree with the majority of all points raised. I should have asked if I need to do more legally like trusts, FLP etc. for protection. This may have been discussed and being new I have missed it.

Probably missed this too...any crystal ball predicting how a nest egg will manage when boomers start cashing in their assets to live on?

 

[Cut-Throat]

I use my home also as an Ace in Hole , so to speak.

Currently it is valued at $520K. If I ever needed some extra cash down the road, it would generate about $140K immediately/lump Sum on a reverse Mortage.

It is not part of my main retirement plan, but the option is there just in case.

 

[Bob_Smith]

Have you checked the prices for such a policy for 2 with say a 5K or 10K deductable?

Cut-Throat, none are available to me yet. My choices are limited to low deductible and the only way I can reduce the price is to go with an HMO. That might be what I have to do eventually, but in a rural area it's risky - it essentially closes the door on going to a major medical center such as the Mayo Clinic. But I'm hoping the employer will get with it and offer a high deductible plan before long. Otherwise I'll have to downgrade.

Bob - You seem to be becoming quite the night owl

I'm loving ER so much that I get less sleep now than I did when I worked. The days are far too short to do all I want to do!

 

[sgeeeee]

If the sun does burn out, I hope it happens before the next ***** post. I'm way behind on my reading and I don't see how I can afford the time required to get through it.