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Vanguard Infograph
Old 04-08-2017, 01:04 PM   #1
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Vanguard Infograph

Infograph... I think that is what this is called. Not that much new data for this gang, but I like the way that it is displayed and the ease in reading it.

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We've seen only a modest global recovery—at times frustratingly fragile—since the global financial crisis. In the United States, for example, the economy has grown at an average annual rate of about 2.00%, whereas growth since 1950 has averaged an annual rate of 3.25%. Based on market and economic conditions, our outlook for the equity and fixed income markets is the most guarded it has been in ten years.
https://personal.vanguard.com/us/ins...1:MKT:XX:XX:XX
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Old 04-08-2017, 02:50 PM   #2
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We're sorry. The page you requested could not be found. If you used a bookmark or a favorite place to access this page, the link is no longer effective. Please go to the*Vanguard homepageand navigate to the desired page.
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Old 04-08-2017, 03:19 PM   #3
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The link works fine for me.
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Old 04-08-2017, 03:25 PM   #4
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The link is fine - - but the assumption that anybody, even Vanguard, knows what is going to happen to bonds and equities in the next decade, is something I just do not take seriously. YMMV.


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Old 04-08-2017, 04:22 PM   #5
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W2R,
Your image appears as a broken link.
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Old 04-08-2017, 04:23 PM   #6
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The link works fine for me.
+1
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Old 04-08-2017, 04:27 PM   #7
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https://personal.vanguard.com/us/ins...tion=Position4

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Old 04-08-2017, 04:32 PM   #8
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https://personal.vanguard.com/us/ins...ization-032017

I had to take the end off the link to make it work
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Old 04-08-2017, 05:33 PM   #9
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Originally Posted by W2R View Post
... the assumption that anybody, even Vanguard, knows what is going to happen to bonds and equities in the next decade, is something I just do not take seriously. ...
This. Nice graphics, though.
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Old 04-08-2017, 05:35 PM   #10
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W2R,
Your image appears as a broken link.
The problem might be on your end. You couldn't see the article for which the OP posted a link either.
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Old 04-08-2017, 06:11 PM   #11
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Thanks for posting this...few thoughts:

Like someone else said, predicting stock returns 10 years out is a bit silly. There are simply too many variables involved that are impossible to know that far out. The trends mentioned will not "shock" the markets and are well known.

From a contrarian standpoint the fact that a well known company like Vanguard is cautious is a good sign.

The fact that the economy hasn't grown so much in the last 9 years compared to growth rates that preceded 2008 is irrelavent and totally backward looking. Markets are forward looking.

Lastly, the fact that historically an all stock portfolio has done ~10% on average and a 60/40 portfolio has returned only 5.5% really tells you that there better be many many solid reasons to NOT own stocks!
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Old 04-08-2017, 06:32 PM   #12
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It seems that the three reasons they give in part one of the infographic might argue for lower US returns but in my view all three auger for good returns in developing markets.

With Vanguard typically urging 30% overseas investments and a mention of ex-US portfolios in part three of the infographic, it doesn't seem coherent in aggregate to me.

I do agree with the OP that the information is presented well.

(I'm sure nobody particularly cares, but personally I remain very optimistic and remain, and plan to remain, 90/10 US equities/bonds.)
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Old 04-08-2017, 06:49 PM   #13
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Originally Posted by bmcgonig View Post
https://personal.vanguard.com/us/ins...ization-032017

I had to take the end off the link to make it work
Even better, thanks.
My link came from Google.

When a link carries extra information, it may be session related, or similar. My android app refuses to go to the initial link. I suspect it is because of the extra information, which looks like it is part of an email campaign.
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Old 04-08-2017, 06:57 PM   #14
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... Lastly, the fact that historically an all stock portfolio has done ~10% on average and a 60/40 portfolio has returned only 5.5% really tells you that there better be many many solid reasons to NOT own stocks!
Huh?
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Old 04-08-2017, 07:10 PM   #15
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Huh?
Haha
I meant to say that based on the huge difference in returns in an all stock portfolio vs a 60/40 stock bond portfolio that one better that have a few really really good reasons to NOT have all stock as the difference on returns is significant.Does that make more sense?
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Old 04-09-2017, 03:47 AM   #16
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Thanks for posting! I liked the way the article set forth factors behind the prediction for limited growth over the next decade. Can't say if that viewpoint will play out that way, but I enjoyed seeing the way the article displayed the rationale.
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Old 04-09-2017, 04:06 AM   #17
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Originally Posted by W2R View Post
The link is fine - - but the assumption that anybody, even Vanguard, knows what is going to happen to bonds and equities in the next decade, is something I just do not take seriously. YMMV.
+2. Vanguard's guess is as good as any, it's certainly plausible based on what we know, but it is just a considered guess. But I agree the info format is very well done, a lot of info presented in a concise, very readable way.
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Old 04-09-2017, 10:01 AM   #18
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Originally Posted by FREE866 View Post
Haha
I meant to say that based on the huge difference in returns in an all stock portfolio vs a 60/40 stock bond portfolio that one better that have a few really really good reasons to NOT have all stock as the difference on returns is significant.Does that make more sense?
OK, thanks. Now I understand your intent. I think this broad conclusion is missing consideration of a few parameters, like standard deviation and dollar-weighted rate of return.

A 100% stock portfolio has a much higher standard deviation (magnitude of ups and downs) than a blended portfolio. This doesn't matter much for someone with a 10 or 20 year horizon, either investing regularly or just letting the portfolio coast. Rip Van Winkle wouldn't have been bothered in the least. And it's statistically the highest yielding portfolio. BTDT, got the tee shirt.

For someone who is drawing from the portfolio, however, 100% stocks is a potential disaster. This person is forced to sell stocks whenever they need money, including at such inauspicious times as October 20, 1987. (The market went down 22% on October 19 in one day, the equivalent of about a 5,000 point drop of today's Dow.) Other drops since then have been slightly less dramatic but 2007/8 was numerically worse. The effect of these draws is this: That money will not benefit when the market recovers because it is no longer in the market. This means that the dollar-weighted rate of return that the investor receives will be less than the time-weighted return that you are focused on. Maybe much less.

For people who are willing to ride the bucking standard deviation horse, the best strategy I have seen is this: Forget ratios. Figure out about how much money you will need from your portfolio in the next three or four years, put that bucket of money into cash, cash equivalents and maybe a short bond ladder. Then, as time goes by, replenish the bucket when times are good (like now) and use the bucket as a cushion when times are bad. Admittedly, this is a little like market timing but of a very mild and low risk sort. It is arguably better that being forced to sell stocks regardless of market conditions.

IMO you ought to re-think your 10% and 5.5% numbers too. I don't know what period you used to come up with these numbers but from an historical perspective 10% nominal dollar return is unrealistic. IIRC a linear regression since 1929 will give you something around 7%. Also, if your period was dominated by the last 10 years of near zero fixed income returns this, too, is atypical. If history is any guide, both stock market yield and fixed income yield will regress to their long-term means. This regression to the mean does not detract from the 100% stock argument per se, but it does make the numbers far less exciting.
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Old 04-09-2017, 11:47 AM   #19
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OK, thanks. Now I understand your intent. I think this broad conclusion is missing consideration of a few parameters, like standard deviation and dollar-weighted rate of return.

A 100% stock portfolio has a much higher standard deviation (magnitude of ups and downs) than a blended portfolio. This doesn't matter much for someone with a 10 or 20 year horizon, either investing regularly or just letting the portfolio coast. Rip Van Winkle wouldn't have been bothered in the least. And it's statistically the highest yielding portfolio. BTDT, got the tee shirt.

For someone who is drawing from the portfolio, however, 100% stocks is a potential disaster. This person is forced to sell stocks whenever they need money, including at such inauspicious times as October 20, 1987. (The market went down 22% on October 19 in one day, the equivalent of about a 5,000 point drop of today's Dow.) Other drops since then have been slightly less dramatic but 2007/8 was numerically worse. The effect of these draws is this: That money will not benefit when the market recovers because it is no longer in the market. This means that the dollar-weighted rate of return that the investor receives will be less than the time-weighted return that you are focused on. Maybe much less.

For people who are willing to ride the bucking standard deviation horse, the best strategy I have seen is this: Forget ratios. Figure out about how much money you will need from your portfolio in the next three or four years, put that bucket of money into cash, cash equivalents and maybe a short bond ladder. Then, as time goes by, replenish the bucket when times are good (like now) and use the bucket as a cushion when times are bad. Admittedly, this is a little like market timing but of a very mild and low risk sort. It is arguably better that being forced to sell stocks regardless of market conditions.

IMO you ought to re-think your 10% and 5.5% numbers too. I don't know what period you used to come up with these numbers but from an historical perspective 10% nominal dollar return is unrealistic. IIRC a linear regression since 1929 will give you something around 7%. Also, if your period was dominated by the last 10 years of near zero fixed income returns this, too, is atypical. If history is any guide, both stock market yield and fixed income yield will regress to their long-term means. This regression to the mean does not detract from the 100% stock argument per se, but it does make the numbers far less exciting.
Couple things...I got the 10% all stock returns and the 5.5% 60/40 stock/bond ratio from the chart that the OP posted. Those were the numbers given from 1926-2016. The difference between those two levels of returns over time is tremendous. Yes, the all stock version might be more volatile ( actually long term bond returns are just as volatile) , but that "volatility" is the price you pay for significantly higher returns.

And yes, a cash reserve of a couple of years is wise to avoid having to sell deeply depressed stocks.
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Old 04-09-2017, 12:10 PM   #20
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Couple things...I got the 10% all stock returns and the 5.5% 60/40 stock/bond ratio from the chart that the OP posted. Those were the numbers given from 1926-2016.
Got it. Truthfully I didn't look at the charts that carefully because of my skepticism about predictions.

Probably the difference is between a linear regression, which is what I am used to looking at, and a simple arithmetic comparison between today's price and the origin price. Since we are above the historical trend line, the latter calculation will give a higher number. I'm too lazy to verify that speculation, though.

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The difference between those two levels of returns over time is tremendous. Yes, the all stock version might be more volatile ( actually long term bond returns are just as volatile) , but that "volatility" is the price you pay for significantly higher returns ...
Yup. I was there in 1987. Exciting day. I just waited it out and everything turned out fine. Same story with the tech bubble and with 2007/8.
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