Long-Term Market Returns

[NW-Bound]

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Originally Posted by USGrant1962 ... Regarding Bogle's prediction in the link was June 2015 - inflation adjusted total return for the S&P500 has been about 44% since then. So he really whiffed that one. Market timing is bad. I believe valuations matter and expect lower returns in stocks (and guarantee lower returns in bonds) over the near term (i.e. 5 to 10 years). But one routine bear market will re-set all of that...

Bogle failed at market timing?

I am not a Boglehead, but find myself defending him, or rather explaining him, quite often. Bogle was the last one you would call a market timer (which I try to be ).

He was just trying to temper people's expectation of returns of stocks and bonds, in order to match the current economic background. He often decried the use of the expectation of high return by pension managers that would lead to underfunding for example.

Bogle never said one should time the market. He strongly advised against it, and kept saying that in his life he had never seen anyone being able to do it consistently.

When Bogle talked about market return, he always said it was for the next 10 years, 20 years. Yes, a recession or a market correction every so often will reset a wonderful return we got. He admitted that he could not tell when that would happen.

[OldShooter]

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Originally Posted by Lsbcal ... on a rolling 12 month basis things are not nearly so moon-shot like. Which makes me feel better. Perhaps not so much irrational exuberance after all?

Yes.

I have never understood the popularity of YTD numbers. A randomly selected and variable time period? How about measuring from April Fools' Day, Halloween, or your own birthday? It makes just as much sense.

Whenever I want a look at the market, I click on the trailing one- or five-year graphs. And, really, even the one year is too short to draw any conclusions.

[marko]

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Originally Posted by OldShooter Yes. I have never understood the popularity of YTD numbers. A randomly selected and variable time period? How about measuring from April Fools' Day, Halloween, or your own birthday? It makes just as much sense. Whenever I want a look at the market, I click on the trailing one- or five-year graphs. And, really, even the one year is too short to draw any conclusions.

Fully agree. I tend to follow the 3 and 5 year, however comparing any full year (Jan to Dec) against the last 12 months (August to August) makes for an apples/oranges comparison.

If you want to compare August 1997 to August 1998 versus the last 12 months, fine, otherwise it seems like cherry picking IMO.

[HI Bill]

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Originally Posted by jimbee Yeah, I've noticed a lot of people forgetting what happened during the end of last year. It was about a 20 percent drop, you'd think it would be somewhat memorable.

I haven't forgotten losing $300K in 'electronic losses', but it has made the market's volatility more tolerable for me. As long as I'm at less than a 20% drop, I'm not too concerned!

[gooddog]

Schwab intelligent portfolio system is great for this. Also the preferred dividend ETF, PSK is a safe harbor of sorts. To protect against the potential of a falling $, ENZL & AUSE are good.

[DogGone]

I am in a similar position... for the models where I input, I used a range of 3-5% nominal returns and 2-3% inflation.

Before pulling the trigger this year, I also modeled losing 20% of my balanced portfolio in a 30+% market correction .

Monte Carlo’s are statistically interesting, but we each only get one spin of the wheel, so best to plan very conservative and adjust sow I g down the road.

[NW-Bound]

Well, we do not even get to spin the wheel ourselves. The market god dishes out what he will, and we all share the same outcome. Some will manage to live better than others on the same return.

[joe8012]

I have averaged 5.8% over past 30 years at 65% stocks. After retirement I am at 50% stocks and use a 4.5% estimate for future earnings.

[imoldernu]

https://www.marketwatch.com/story/ex...ero-2019-08-13

Quote:

There is some $15 trillion in government debt that now yields less than zero, and former Federal Reserve Chairman Alan Greenspan believes there’s no reason why U.S. government bond yields couldn’t join much of the developed world in the subzero world. Greenspan, during a phone interview with Bloomberg News on Tuesday, said “zero” has no real meaning for the U.S. bond market and that a slide below that psychological level, already traversed by many others countries, wouldn’t be inconceivable for U.S. paper. The 93-year-old economist’s comments come as more Wall Street participants contemplate the very real possibility of negative Treasury rates.

right now, Dow -$545

apropos of nothing important, but just another thing to keep life interesting.

[younginvestor2013]

Am I the only one that thinks many folks % returns are excessively (perhaps conservatively) low? My research has always shown long term nominal returns (not accounting for inflation) of close to 10% for the market, with real returns being closer to 7% (net of inflation). But I'm certainly no pro

I typically use 7% (net of inflation) in my calculations, under the assumption that if I have $XYZ today and contribute $ABC per year for 10 years earning 7% annually, I will have $ZZZ 10 years from today, in today's dollars (not the dollars of 2029). In reality, my stash will be larger but by using a real return, it lets me know what I will be able to spend 10 years from now, in today's dollars.

Or are my assumptions totally whack??

[OldShooter]

Quote:

Originally Posted by younginvestor2013 Am I the only one that thinks many folks % returns are excessively (perhaps conservatively) low? My research has always shown long term nominal returns (not accounting for inflation) of close to 10% for the market, with real returns being closer to 7% (net of inflation). But I'm certainly no pro I typically use 7% (net of inflation) in my calculations, under the assumption that if I have $XYZ today and contribute $ABC per year for 10 years earning 7% annually, I will have $ZZZ 10 years from today, in today's dollars (not the dollars of 2029). In reality, my stash will be larger but by using a real return, it lets me know what I will be able to spend 10 years from now, in today's dollars. Or are my assumptions totally whack??

Well, as I tried to point out in post #11, I don't think using one's highest accuracy estimate for future planning is wise and if I understand you, that sounds like what you are doing.

The reason is that the consequences of a "miss" are asymmetric. Underestimating is not really a problem, but overestimating returns could result in running out of money. Stirring inflation into the pot (not that it isn't important) is the same -- consequences of an error are assymetric.

So IMO we can play with these numbers, consult crystal balls, fortune tellers, and astrologers, but in the end we had better be conservative with our planning numbers. "Excessive conservatism" is probably judged only in the eye of the beholder.

[Archman]

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Originally Posted by Starsky ............I'd be interested to hear what number others use for long-term forecasting - or how you approach it over such a long term.,,,,,,

For my calculations in Monte Carlo simulations, I have a time frame of 40 years, 4% average annual return, with standard deviation of 7.5% ( due to being ~half in equities), with a 3% inflation.

[NW-Bound]

Quote:

Originally Posted by younginvestor2013 Am I the only one that thinks many folks % returns are excessively (perhaps conservatively) low? My research has always shown long term nominal returns (not accounting for inflation) of close to 10% for the market, with real returns being closer to 7% (net of inflation). But I'm certainly no pro I typically use 7% (net of inflation) in my calculations, under the assumption that if I have $XYZ today and contribute $ABC per year for 10 years earning 7% annually, I will have $ZZZ 10 years from today, in today's dollars (not the dollars of 2029). In reality, my stash will be larger but by using a real return, it lets me know what I will be able to spend 10 years from now, in today's dollars. Or are my assumptions totally whack??

When people talk about long-term market return, they use a number that is computed over several decades. Any period of 10 years can deviate significantly from that average. And the market tends to alternate between these extremes.

Most recently, we had wonderful years from 1990 to 2000, followed by the Lost Decade of 2000-2009, then wonderful return again from 2009 till now. So, what is likely to happen in the next 10 years?

It makes more of a difference to retirees, who have to live off their stash. They want to sell high for food and for travel. People who are still accumulating can just keep on buying stocks, the cheaper the better. Different situations here.

[jjuneau]

The future is unpredictable, but there are quite a few mutual funds that have provided double digit returns over 5, 10, and even 20 years.

[Navigator]

Quote:

Originally Posted by younginvestor2013 Am I the only one that thinks many folks % returns are excessively (perhaps conservatively) low? My research has always shown long term nominal returns (not accounting for inflation) of close to 10% for the market, with real returns being closer to 7% (net of inflation). But I'm certainly no pro I typically use 7% (net of inflation) in my calculations, under the assumption that if I have $XYZ today and contribute $ABC per year for 10 years earning 7% annually, I will have $ZZZ 10 years from today, in today's dollars (not the dollars of 2029). In reality, my stash will be larger but by using a real return, it lets me know what I will be able to spend 10 years from now, in today's dollars. Or are my assumptions totally whack??

Your real market return seems high, but that depends on your asset allocation. In reality, you are unlikely to get 7 % return every year, but will have a range of returns. The low interest rates and high market valuations of today suggest that returns will be below average for the next ten years. A good way to get an idea of the range of possible ten year returns is to use both a Monte Carlo simulator and a calculator based on historical return sequences. They will not agree, but both give useful information.

[OldShooter]

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Originally Posted by jjuneau The future is unpredictable, but there are quite a few mutual funds that have provided double digit returns over 5, 10, and even 20 years.

Yes. There are people who have won the lottery, too. But they are impossible to identify ahead of time.

[Rianne]

I'm glad FIRE calc uses the depression data in it's calculations.

[Dtail]

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Originally Posted by Rianne I'm glad FIRE calc uses the depression data in it's calculations.

Agree, although I think that the 1966 retiree was considered the worst off in a 30 year retirement from a historical sequential concept.
Not 100% sure though.

[Navigator]

Quote:

Originally Posted by OldShooter Well, as I tried to point out in post #11, I don't think using one's highest accuracy estimate for future planning is wise and if I understand you, that sounds like what you are doing. The reason is that the consequences of a "miss" are asymmetric. Underestimating is not really a problem, but overestimating returns could result in running out of money. Stirring inflation into the pot (not that it isn't important) is the same -- consequences of an error are assymetric. So IMO we can play with these numbers, consult crystal balls, fortune tellers, and astrologers, but in the end we had better be conservative with our planning numbers. "Excessive conservatism" is probably judged only in the eye of the beholder.

I know a lot of people believe this, but I think it misses an important point: there are two parts to the retirement equation, time and money. If you are overly conservative with money then you are throwing away time to enjoy life. To me, the goal is to have the best possible life. As someone who has performed modeling their whole career, I would suggest the best way to balance both time and money is to perform an analysis with a best guess of likely market returns and look at the range of possibilities around this. Using this, I would develop strategies that minimize the likelihood of bad outcomes, both in terms of running out of money and in not having enough free time to do the things in life I want.

[Running_Man]

Quote:

Originally Posted by OldShooter Yes. There are people who have won the lottery, too. But they are impossible to identify ahead of time.

Well you could increase your odds of identifying if you look at those that buy lottery tickets versus those that don't.