An article on the 60/40 model

[fosterscik]

I thought this was an interesting brief article on the future perfomance of a 60/40 asset allocation:
The Irrelevant Investor — How Should We Think About a 60/40 Portfolio?

With interest rates near all-time lows, the future viability of a classic 60/40 portfolio is something people are starting to think about. With the benefit of a massive bond bull market, is a sixty forty portfolio merely a product of recency bias? Will investors counting on this type of portfolio be sorely disappointed with returns going forward?

followed by a discussion of modeled returns...
Then the statement

Being that 90% of bond returns come from their starting yield, and knowing that current yields are so low, reigning in one’s expectations probably isn’t a bad idea. In fact, that’s never a bad idea.

I suppose that last statement (90%) could be true but I've never seen it quoted that way before. Reigning in one's expectations seems prudent. Interesting.

 

[daylatedollarshort]

John Bogle is predicting low returns over the next decade -

(SPX), (DJIA) - Exclusive: Vanguard Founder John Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade | Benzinga

"When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero,” Bogle explained.

Robert Shiller has a similar prediction -

Robert Shiller's (depressing) advice for investors

 

[dallas27]

John Bogle is predicting low returns over the next decade -

(SPX), (DJIA) - Exclusive: Vanguard Founder John Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade | Benzinga

"When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero,” Bogle explained.

Robert Shiller has a similar prediction -

Robert Shiller's (depressing) advice for investors

Ya, but bogle ended saying it all BS if earnings pickup. While the P is not stationary, nether is the E.


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[mrfeh]

This is where firecalc is very useful. You just need to specify your expected real returns.

For intermediate bonds, I use .5% (rates generally 2-3% and inflation generally 1.5-2.5%).

 

[Ed_The_Gypsy]

...reigning in one’s expectations probably isn’t a bad idea. In fact, that’s never a bad idea.

As early as possible!

 

[Markola]

Ya, but bogle ended saying it all BS if earnings pickup. While the P is not stationary, nether is the E.


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Right, who knows? I recall a sober book in the early 90s called "Red Sun Rising" about how Japan was certain to eclipse the American economy. Didn't happen and we'd all rather have our problems than theirs today. P and E are indeed not stationary, and only focusing on U.S. assets, as Roche, Bogle and Schiller do above, even if they are right, is also limited thinking. For example, Vanguard recently beefed up its allocations to international stocks and bonds in its Life Strategy Funds, which is the world economy in one fund of index funds. Since no one knows, I choose to lean optimistic, at least.


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[Options]

John Bogle is predicting low returns over the next decade -

(SPX), (DJIA) - Exclusive: Vanguard Founder John Bogle Projects 'Nominal To Zero' Real Returns Over The Next Decade | Benzinga

"When you factor in the costs associated with index funds, inflation, and taxes, you are actually looking at real returns of nominal to zero,” Bogle explained.

Robert Shiller has a similar prediction -

Robert Shiller's (depressing) advice for investors

To piggyback Pfau on Bogle and Schiller:

Safe Withdrawal Rates for Retirement and the Trinity Study

Specifically:

It’s important to be clear that these success rates are based on U.S. history. It is faulty logic to think that these are the success rates applying to new retirees today. The particular situation today is that interest rates are so low relative to history, and this is a very important matter when assessing the viability of different withdrawal strategies. So while I know that the Trinity study is still quite popular in practice, I would suggest a lot of extra caution for anyone seeking to plan their retirements using these numbers.

 

[daylatedollarshort]

Elroy Dimson (Triumph of the Optimists) phrased it as "a country has only one past and many possible futures" -

http://www.econ.uniurb.it/materiale/2781_triumph_of_the_optimists.pdf

According to Professor Dimson, international equity investment can help reduce the possibility of a one country stock portfolio generating negative real returns, though the risk is reduced but not entirely eliminated even over a period of 20+ years with their model international portfolio.