But, Should We Really Expect Lower Returns Going Forward?

[24601NoMore]

Aren't your numbers ignoring dividends?

I don't believe so. It's not my chart (was on SeekingAlpha) but both the chart and article say "Total" returns - ie: with dividends reinvested.

 

[ncbill]

I don't believe so. It's not my chart (was on SeekingAlpha) but both the chart and article say "Total" returns - ie: with dividends reinvested.

It's more than just re-investing dividends:

https://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html

"An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.

How can this be? Three factors have obscured this truth from investors: deflation, dividends and the distinction between the Dow Jones industrial average and the overall stock market."

https://www.livemint.com/Money/Oww1...ce-back-from-the-1929-crash-Try-fouranda.html

 

[Sniggle]

I contemplated this thread and made a move. Found that the 401K had an inflation protection bond fund, so shifted 60% over into it. May move 100%...still pondering. I think it is better to lock in this years gains and wait and see, as the market is really acting funny as of late.

 

[mickeyd]

Yes. This. Who knows? No one.

No amount of studying market history will yield reliable predictions for the future.

Well, the stock market will PROBABLY increase long-time (whatever that means) and short-term return (whatever that means) is PROBABLY unknowable. It's a bit of a crap shoot. That is what risk is.

 

[OldShooter]

Well, the stock market will PROBABLY increase long-time (whatever that means) and short-term return (whatever that means) is PROBABLY unknowable. It's a bit of a crap shoot. That is what risk is.

I agree completely. I do think, though, that the OP's time horizon alost certainly falls into the "unknowable" range.

 

[kevink]

Good interview with William Bernstein in Barron's that's relevant to this discussion:

https://www.barrons.com/articles/hes-bearish-he-sees-lots-of-small-bubbles-and-he-still-favors-u-s-stocks-51620420500

 

[NW-Bound]

Good interview with William Bernstein in Barron's that's relevant to this discussion:

https://www.barrons.com/articles/hes-bearish-he-sees-lots-of-small-bubbles-and-he-still-favors-u-s-stocks-51620420500

Good no nonsense from Bernstein, as usual.

A couple of snippets:

I can tell you stock returns are going to be lower than they’ve been for the past three decades. Annual returns are going to be in the range of 4% to 6% nominal over the next several decades.

I can’t tell you what they’ll do over the next decade. That’s too short a time. It’s entirely possible over the next 10 years, we’ll see stock returns at 10% or 15% annualized, and it’s entirely possible we’ll see 0% returns.

Regarding bonds, Bernstein said:

There’s a risk. And the question you have to ask yourself is whether you’re being compensated for that risk. And the answer is maybe not. The only truly safe investment out there in the short term is Treasury bills.

He still thinks stock market is the place to be, even if the return is not as good as it used to be. Additionally, he thinks foreign stocks have a good chance to outperform US stocks. And small and value stocks will do better than large cap stocks.

 

[mickj]

Lower returns, but even more important, MUCH lower REAL returns (think negative) when factoring in runaway inflation, which we are already seeing skyrocketing, with the worst to come. And actually much worse than the government figures. CDs/savings/MMF are losers, bond funds will be hit when the Fed is forced to increase interest rates due to hyperinflation, and stocks are greatly overvalued and are certain to crash one of these days, like when the Fed starts to tighten things up. There's no where to hide.

If you believe that, short the market

 

[OldShooter]

Lower returns, but even more important, MUCH lower REAL returns (think negative) when factoring in runaway inflation, which we are already seeing skyrocketing, with the worst to come. And actually much worse than the government figures. CDs/savings/MMF are losers, bond funds will be hit when the Fed is forced to increase interest rates due to hyperinflation, and stocks are greatly overvalued and are certain to crash one of these days, like when the Fed starts to tighten things up. There's no where to hide.

I'll respond with Nassim Taleb's favorite: "Don't tell me what you think. Show me your portfolio." If you truly believe this statement then you must be out of the stock and bond markets completely.

 

[NW-Bound]

I believe that stocks will fluctuate. And that's why my porfolio always has a few dozens of option contracts. When a stock goes up like crazy, I sell covered calls to sell it even higher. When a stock drops for nothing bad that I perceive, I sell cash-covered puts to buy it even cheaper.

And I do think bonds ain't worth having for their risks. So, I have little, and most of it is inside some balanced funds.

 

[kevink]

Two more quotes from the Bernstein interview:

"How is your own money invested?

Very complexly. If you read my book, I believe there is an excess return over the market for value stocks and small stocks. And it’s worked out well in the long term, but not over the past decade.

What are your actual percentages in different asset classes?

I’ve always been close to 50/50 stocks and bonds, and I divide that pretty evenly between domestic and foreign stocks. I overweight small stocks and value stocks.

I think foreign stocks will outperform domestic stocks. I think that’s a 55% to 60% probability, so don’t bet the farm on it."

Just didn't want anyone to think that he didn't own bonds just because current yields are atrocious.

 

[mickeyd]

Thanks for the Bernstein link.

I think I get warm and fuzzy about index funds with this quote:

You made your reputation by recommending low-cost index funds. But your latest book is called “The Delusion of Crowds.” That seems like an argument not to own index funds.

I’m not sure that’s the case. If I suppose if you want to connect the book with my investment philosophy, it’s a book about why people don’t do the right thing. They invest in hot mutual funds because it seems like the right thing to do, but in the end it’s not.

 

[OldShooter]

... I think I get warm and fuzzy about index funds with this quote:

Yes. I don't know of a single scholar of stock market investing who doesn't say the same thing: Malkiel, Ellis, Buffett, Swensen, Fama, Bogle, ... The list is nearly endless.

The "who doesn't say it" list is also large, but AFIK limited to the legions whose income relies on customers believing the myth that stock picking works. As Upton Sinclair told us “It is difficult to get a man to understand something when his salary depends upon his not understanding it ."

 

[NW-Bound]

Thanks for the Bernstein link.

I think I get warm and fuzzy about index funds with this quote:

Well, the good gurus all say it, but they meant it for the average joe.

Buffett said the same thing, but he's an active investor. Bernstein himself has an international/small-cap/value tilt, as he said in the same article.

What they mean is that you could do a lot worse than indexing, and that is true. However, they still try to get themselves a little more than the index.