John Bogle...

[Tiger8693]

OK. In his latest book, he says that he forecasted the decade starting 2006 to 2016 in his first Common Sense book at 7%, vs actual of 6.9% (this is on the S&P 500). This is both investment returns (dividends, earnings) and speculative returns (changes in PE multiple).

Based on his analysis of the market going forward, he anticipates 6% investment return going forward, but a speculative return of -2% going forward (based on current PE of 23.7, vs projected PE based on operating revenues of ~20. He states in the book that would result in reduction of 2%/year, for a net 4% total return.

He expects bond (50% Tbills and 50% Corp bonds) to be about a 3.1% yield.

This is where he gets his 3.6% (60/40 with 4% and 3.1%).

This is before deduction of investment costs, or inflation. After these deductions, he anticipates return net of 1.5%

3.6% minus low expense fund (0.1%) minus 2% inflation

As i listened, he kept saying per year, so I think he is saying the fund would grow 1.5%/year.

 

[Dtail]

You're right! It wasn't me.

I'll probably bring it out again the next time the Dow loses a thousand points in two days. I save almost all of my avatars and love changing them around.

Just let it happen naturally. no "W" words please......

 

[njhowie]

From Vanguard's 2018 economic and market outlook... for next decade:

U.S. Equities... 3.0-5.0% nominal
Non-U.S. Equities.... 5.5%-7.5% nominal
Global Equity.... 4.5%-6.5% nominal

Global fixed income... 2.0%-3.0% nominal

Global 60/40 portfolio.... 3.5%-5.5% nominal

Inflation.... less than 2%

https://pressroom.vanguard.com/nonindexed/Research-Vanguard-Market-And-Economic-Overview-120417.pdf

That is from December 2017 - almost a year old at this point. It will be interesting to see how it compares to the 2018 update.

Real inflation is significantly more than 2% for the average household. My guess is more like 5% to 10%. The basket of goods which Vanguard and the government use for their inflation readings is not indicative of actual household expenditures. As I mentioned elsewhere, wait until open enrollment next month when folks are once again hit with the reality that their health insurance premiums are going up another 20% to 30%.

 

[street]

OK. In his latest book, he says that he forecasted the decade starting 2006 to 2016 in his first Common Sense book at 7%, vs actual of 6.9% (this is on the S&P 500). This is both investment returns (dividends, earnings) and speculative returns (changes in PE multiple).

Based on his analysis of the market going forward, he anticipates 6% investment return going forward, but a speculative return of -2% going forward (based on current PE of 23.7, vs projected PE based on operating revenues of ~20. He states in the book that would result in reduction of 2%/year, for a net 4% total return.

He expects bond (50% Tbills and 50% Corp bonds) to be about a 3.1% yield.

This is where he gets his 3.6% (60/40 with 4% and 3.1%).

This is before deduction of investment costs, or inflation. After these deductions, he anticipates return net of 1.5%

3.6% minus low expense fund (0.1%) minus 2% inflation

As i listened, he kept saying per year, so I think he is saying the fund would grow 1.5%/year.

So he predicts 1.5% per year for the next decade, right?

 

[audreyh1]

Have been listening to the Little Book of Common Sense Investing 2017 Edition (one of several recommended on another thread), and the last chapter I listened to was pretty pessimistic on the next decade for stocks and bonds return (60/40). Based on RTM, etc, he expects conservatively about 3.6% return after all fees, inflation etc.

I sure hope he is wrong.

3.6% real return on 60/40 is not bad at all. Certainly good enough for the typical withdrawal schemes to be successful.

Believe it or not, even 1.5% real overall is good enough. I think the traditional schemes will be OK even with only 1% real return.

Below that hiding under a chair may be apropos - at least you'll spend less.

 

[NW-Bound]

edit/add - the previous decade, 1998-2008, saw S&P500 down 15% wrt inflation. So yeah, I'll take +3.6%.

-ERD50

I double-checked the above number. Exactly 20 years ago to 10 years ago, the Vanguard S&P fund returned 18.06%. See chart below. However, the cumulative inflation was 32.06%, so that the net return of the S&P was -10.6% over that 10-year period.

​

People do not like to hear that things are not so rosy, because

 

[pb4uski]

.... Real inflation is significantly more than 2% for the average household. My guess is more like 5% to 10%. The basket of goods which Vanguard and the government use for their inflation readings is not indicative of actual household expenditures. As I mentioned elsewhere, wait until open enrollment next month when folks are once again hit with the reality that their health insurance premiums are going up another 20% to 30%.

Inflation is 5% to 10%?... WADR that's delusional.

BTW, my health insurance premiums for next year are up 5% and in many parts of the country they are down.... including NJ. What are you smoking?

The price of a 2019 policy sold on the ACA exchanges will increase less than 4 percent, according to an analysis of preliminary filings from insurers in all 50 states by ACASignups.net, a website and blog run by analyst Charles Gaba that tracks ACA enrollment and insurer participation.

https://www.npr.org/sections/health...e-marketplace-premiums-will-stabilize-in-2019

 

[ERD50]

I double-checked the above number. Exactly 20 years ago to 10 years ago, the Vanguard S&P fund returned 18.06%. See chart below. However, the cumulative inflation was 32.06%, so that the net return of the S&P was -10.6% over that 10-year period.

People do not like to hear that things are not so rosy, because
....

I used that www.portfoliovisualizer.com, so my dates are probably a bit off from yours, Either way, -10%, -15%, it makes the point. We can and have experienced a decade of significantly negative real returns.

And as audreyh1 just alluded to, even with a (consistent) zero % real return, a portfolio will survive 30 years at a 3.33% WR. A 3.6% real return would be "Looox-ury" (as one of The Four Yorkshire-men would say)!


And I was thinking about that "You can't handle the truth!" clip as I was typing some of these responses!

-ERD50

 

[NW-Bound]

The recency effect of memory is very real.

People are so used to the return from the last 10 years, meaning 2008-2018, that they totally forgot what it was like the 10 years prior to that. Or perhaps they only started to invest recently.

And so, when people like Shiller and Bogle try to lower their expectation, they say it's BS.

They cannot handle the truth.

Same as you, if I get 3.6%/yr, that's darn good.

 

[Bir48die]

I also would be happy with 3.6% return each year for the next decade.

We all have gotten so spoiled in the last 15+ years. This would be the norm. I know all about history but if we got 4% after inflation it would be dandy.

 

[Tiger8693]

So he predicts 1.5% per year for the next decade, right?

That's how I understood it

 

[Bir48die]

Neither of my recent avatars is me.

The present one of a girl jumping up in the air, is something I found on Google images and I think it is a great illustration of what retirement feels like to me.

The one I had until a few minutes ago, of the beautiful blonde woman (see below), is a photo of actress/model Eva Habermann. It was one of several default avatars back when this forum was run on different software so I used it all the time when I first arrived here. I think she looks beautiful, intelligent and caring. So, I would use it all the time still, except that sometimes people think it is really me and it affects their behavior towards me in some very strange ways.

Per normal we experience the "shiny car" syndrome. Have a thread that gets hijacked by a squirrel running across the street.

 

[TwoByFour]

Depends on the volatility. A real return of 3.6% can be fine with low volatility. High volatility could sharply reduce the effective return.

Who knows what exactly Mr. Bogle meant? Is he saying the average annual return will be 3.6% or is he saying the 10-year annualized return is 3.6%? If he meant the former, you are right, volatility will affect the estimate of the return. If he meant the latter, the effect of volatility is already included.

At any rate it is academic - I am not going to worry about what is out of my control.

 

[ERD50]

Quote:
Originally Posted by MichaelB
Depends on the volatility. A real return of 3.6% can be fine with low volatility. High volatility could sharply reduce the effective return.

Who knows what exactly Mr. Bogle meant? Is he saying the average annual return will be 3.6% or is he saying the 10-year annualized return is 3.6%? If he meant the former, you are right, volatility will affect the estimate of the return. If he meant the latter, the effect of volatility is already included.

At any rate it is academic - I am not going to worry about what is out of my control.

I said something similar earlier. But upon reflection, MichaelB does have a point that withdrawals could lower the effective return if there was a lot of volatility. Because a draw-down on the dip takes a proportional larger percentage off the table.

But in real life, most people have an AA that includes enough bonds, that this would more likely trigger re-balancing and buying on the dip, rather than selling. We might need to put a spreadsheet together and some examples to better understand, but I'll go with "close enough".

-ERD50

 

[Scrapr]

I also dreaded opening this post. I was afraid that Jack Bogle had passed on

glad to see it was only a forecast of CAGR

 

[Markola]

I double-checked the above number. Exactly 20 years ago to 10 years ago, the Vanguard S&P fund returned 18.06%. See chart below. However, the cumulative inflation was 32.06%, so that the net return of the S&P was -10.6% over that 10-year period.

​

People do not like to hear that things are not so rosy, because

No, but picking trough to trough returns between recessions is choosing poison ivy, isn’t it? Shift that table backward a year or forward a few years and stock returns start to normalize. Bonds were up about 60% over that time above so rebalancing would have kept the boat afloat. Without that context, the implied message is, “Hi Ho, Hi Ho, it’s off to work we go...”

 

[NW-Bound]

Oct 2008 is near a trough, but Oct 1998 is not.

Look at a zoomed-out chart of say 1968 to 2018, with inflation included, you will see there were terrible periods, and the decade of 2000-2010 was very bad. That's why it is called the "Lost Decade".

The period of roughly 1970-1980 was the same. You can shift these periods around a few years, and it is still bad.

One can say, well, over 30 years or 100 years, the market was great. Sure. If you live that long and do not withdraw any for retirement living expenses, you will do great.

PS. In Oct 1998, the market was going great-gun. Kind of like right now. Back then, if people were told good times would not last, they would say "BS".

 

[Markola]

You’re right about ‘98, so fair enough. Still, stocks’ Lost Decade was also an excellent illustration of why we also own bonds. And, rebalancing would have bought some big dips.

 

[NW-Bound]

Of course.

I think people are often confused between reduced expectation and doom fearing.

When Shiller and Bogle say "don't expect 10+% return to continue", people do not like to hear that, and say they don't know what the heck they are talking about. Bogle himself never told anyone to dump stocks and to buy gold, lead, or ammo. All they try to tell people is you may need more assets than you think, because the return will not be that great.

And the picture he paints is not as bad as what actually happened in the past. And that's why some of us say we will love to have that instead of something as bad as the Lost Decade, or the period of 1970-1980.

 

[pb4uski]

Per normal we experience the "shiny car" syndrome. Have a thread that gets hijacked by a [-]squirrel running across the street[/-] pretty girl.

Fixed it for you.

 

[pb4uski]

I also dreaded opening this post. I was afraid that Jack Bogle had passed on

glad to see it was only a forecast of CAGR

+1 I was concerned about that when I first saw the title.

 

[HFWR]

The 2000-2009 decade may have been crummy, but I’m glad I was investing 10-20% of my income then.

 

[Dtail]

The 2000-2009 decade may have been crummy, but I’m glad I was investing 10-20% of my income then.

+1

 

[target2019]

The 2000-2009 decade may have been crummy, but I’m glad I was investing 10-20% of my income then.

That was me maxing out, starting 2006. Beautiful ride!

 

[clifp]

Neither of my recent avatars is me.

The present one of a girl jumping up in the air, is something I found on Google images and I think it is a great illustration of what retirement feels like to me.

The one I had until a few minutes ago, of the beautiful blonde woman (see below), is a photo of actress/model Eva Habermann. It was one of several default avatars back when this forum was run on different software so I used it all the time when I first arrived here. I think she looks beautiful, intelligent and caring. So, I would use it all the time still, except that sometimes people think it is really me and it affects their behavior towards me in some very strange ways.

"Beautiful, intelligent, and caring." yup. I'll confess, the Eve Avatar always made me want to be nice to you. Even long after I knew you didn't look like her. The intelligent and caring certainly fits you. I think men are biologically programmed to be nice to pretty women, except for bad boys.