Updated 30-yr Market Forecast (by asset class)

[Midpack]

I think he does this annually and I enjoy looking it over, the chart at least, as just one more opinion for my own planning. I plan on lower real returns (the best number to plan with IMO) if for no other reason than an unkind sequence of returns while I'm in drawdown, but acknowledging that Rick Ferri has forgotten way more than I'll ever know. For other data geeks out there, FWIW

The Portfolio Solutions 30-Year Market Forecast for 2012: Low cost investment manager, Portfolio Solutions

 

[Ken11]

Thanks for posting that.
It made me feel like my planning is on decent footing.
Betwen a .5% higher inlation assumption and a .5% lower return assumption Im feeling reasonably good about my spreadsheet.

I did find this contained a bit of home town bias.
Why does the world forecast simply flex off the US?
Thats not how the world works these days.
Nevertheless, every reasonalbly well thought out forecast is worth looking at.

Any way to lock this in? :>)

 

[ziggy29]

I for one would be happy with those equity returns, even if they are below long-term averages. It would certainly be sufficient for me to meet my FIRE goals assuming their expectations on return and inflation, and assuming a 60/40 portfolio.

 

[RetireBy90]

Thanks from me also. Interesting read. My plan calls for 6% return over time and that looks good from these projections. Just re-read your post, didn't realize it was Mr Ferri from the link. Shoot - now I gotta pay attention to that forcast. ;-}

 

[W2R]

I really like Rick Ferri's perspectives, although I think any predictions (even his) are guesses and time will tell.

If these predictions turn out to be correct, I'd be absolutely thrilled. I'm not counting on this possibility, though.

 

[Major Tom]

In the midst of all the dire speculation about the future, it was re-assuring to see this prediction. If the next 30 years really does pan out this way, I'll be in fine shape.

Of course it's just a prediction, but it made me feel good

 

[tightasadrum]

I don't know how useful this is really. Thirty years?! Your mom probably told you that you were pretty and smart too.

 

[ziggy29]

I don't know how useful this is really. Thirty years?! Your mom probably told you that you were pretty and smart too.

I suspect they are using a combination of historical returns with a little expected mean reversion over a very long period of time, but I could be wrong.

Of course, in 30 years I'll either be 76 or I'll be worm food, so by then my AA would likely be a bit more conservative if I am still here...

 

[Midpack]

I don't know how useful this is really. Thirty years?! Your mom probably told you that you were pretty and smart too.

[-]You have something better?[/-] [-]What would you suggest?[/-] Never mind...it was offered only for consideration.

 

[tightasadrum]

Sorry Midpack, I don't have anything that will predict that far in advance. In fact, I'm pretty sure I won't even be around to check the figures by then. Now... if you can tell me what will happen next week, we can do some business.

 

[Lsbcal]

I think the Laddered Risk Premiums table towards the end is the best part of that article. Not because the outcome will be just like that, but because the relative returns are layed out nicely.

A good way to look at things.

 

[palomalou]

Your mom probably told you that you were pretty and smart too.

Now that REALLY is pie in the sky!

 

[Ed_The_Gypsy]

Interesting. Thanks for the link. The table is very interesting.

The way he builds up total returns for T-bills, 10-year T-notes and corporate bonds does not look right to me, though.

How can you build inflation into T-bill and bond pricing? There is no connection. Take that out of the first three columns and the table looks much more reasonable to me.

And it seems to me that if we are starting from a very low interest rate as we are today and for the immediate future, in order to get those kinds of returns, interest rates will have to get a lot higher to give those averages. Any such instruments bought any time soon will drag total return down for the next 10 years no matter what happens. If interest rates go up soon, bond prices will go down--zero sum until they expire, as they will gradually.

Like you, Midpack, I am doing my planning on lower returns. I would be delighted to see those equity returns.

 

[RetireBy90]

Interesting. Thanks for the link. The table is very interesting.

snip...

How can you build inflation into T-bill and bond pricing? There is no connection. Take that out of the first three columns and the table looks much more reasonable to me.

I think what he is saying is that when looking at T-Bills/bonds, buyers would look at projected inflation over the bill duration and add an expected return above that to get a desired return and then they can say they are too expensive or they are a good buy. I've read some analysts that looked back at inflation adjusted returns on treasuries, and arrived at normal returns above inflation for different durations. Or, look at I-Bonds, they would normally sell with a return above the inflation protection.

 

[MichaelB]

Midpack, thanks for posting that. It is impossible to forecast that far ahead but just reading and seeing the differences among different asset classes is food for thought. I do suspect recent weakness in asset prices has led us to believe the future will be bleak when it does not have to be.

I like GMO forecasts, which go out 7 years

 

[Chuckanut]

I do suspect recent weakness in asset prices has led us to believe the future will be bleak when it does to have to be.
rs

"when it does to have to be" ?? Did you leave out a word or two?

 

[Chuckanut]

Thank you for alerting us to an interesting article. It is food for thought and gives a decent perspective on the future. I certainly am not planning on the famous 4% withdrawal rate for the long term (just for a few years until SS kicks in.) This reinforeces that decision and will keep me on the course.

I find it interesting that REIT's have about the same expected real return as large cap stocks. I have been thinking of expanding my REIT percentage, but now I am not sure it is such a good idea. I suppose the major benefit of REIT's would be to smooth some of the ups and downs of the equity markets

 

[MichaelB]

"when it does to have to be" ?? Did you leave out a word or two?

When it does not have to be. Posting during coffee...

 

[Chuckanut]

I understand. Occasionally have the same problem myself.... Fingers go into action before my brain goes into gear.

 

[Major Tom]

I do suspect recent weakness in asset prices has led us to believe the future will be bleak when it does not have to be.

The silver lining here could be that for those who are acting conservatively with their portfolios based on recent market malaise, the future may turn out quite well.

I like to hope for the best while planning for the worst.