Author Topic: 10 years of negative returns?  (Read 3221 times)

AD700

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10 years of negative returns?
« on: August 09, 2018, 11:29:52 PM »
What if we are on the verge of a decade of negative returns?

How will it affect your plans? Will you just ride it out? What if it stretches out to 15 years? 20?

I imagine this will rock the confidence of many here, particularly those who have only really experienced growing portfolios.

“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,”

https://www.marketwatch.com/story/behold-the-scariest-chart-for-the-stock-market-2018-08-08

reeshau

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Re: 10 years of negative returns?
« Reply #1 on: August 10, 2018, 02:31:48 AM »
Doesn't really affect me at all; this is simply why you need to diversify beyond the S&P.  The Russell 2000 took 4 years to recover--still significant, but not anywhere close to doomsday.  And even the "lost decade" is a pretty hyped-up concept. To get it, it is measured from the absolute peak of the market, a time at which exactly nobody made a single lump sum investment of their entire 'stache.  Since nobody invested everything at the peak, plenty of people made some money during this time.

My personal stache grew 10x during this lost decade.  While I was still saving during this time, it was also a period where my investment growth outweighed my contributions.

Getting specific to the article, price to sales is about the last metric I would bother with.  I invest for a share of earnings.  Everything else I have said has been said before in reference to P/E, but trying to find a "scary" chart by cherry-picking a metric shows me how weak the premise was.  The editorial meeting assignment must have been "Find me some scary metric, so we can get people clicking!"
« Last Edit: August 10, 2018, 02:35:46 AM by reeshau »

Malkynn

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Re: 10 years of negative returns?
« Reply #2 on: August 10, 2018, 04:17:52 AM »
I just don’t think about it, but it would be great timing for me in terms of my projected investing timeline.

AD700

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Re: 10 years of negative returns?
« Reply #3 on: August 10, 2018, 05:27:14 AM »
it would be great timing for me in terms of my projected investing timeline.

Is this because you would be accumulating during this period before an eventual upturn, thus buying things cheaper? Is that what you mean?

DreamFIRE

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Re: 10 years of negative returns?
« Reply #4 on: August 10, 2018, 08:41:27 AM »
What if we are on the verge of a decade of negative returns?

How will it affect your plans? Will you just ride it out? What if it stretches out to 15 years? 20?

I imagine this will rock the confidence of many here, particularly those who have only really experienced growing portfolios.

“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,”

https://www.marketwatch.com/story/behold-the-scariest-chart-for-the-stock-market-2018-08-08

It wasn't the first ever decade+ if this information is correct.  Someone had posted the info below in a previous thread after I pointed out the S&P 500 had a negative real return (inflation adjusted with dividends) over 13 years (1999-2012).

Sept 1929 - Sept 1947, -.1% per year or -2% cumulative, with dividends, inflation adjusted.  18 years with negative real return.

Jan 1966 - Jan 1982,  -1.4% per year or -20% cumulative, with dividends, inflation adjusted.  16 years with negative real return.

Jan 1906 - Jan 1921, -1.9% per year or -25% cumulative, with dividends, inflation adjusted.  15 years with negative real return.

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973
« Last Edit: August 10, 2018, 09:33:17 AM by DreamFIRE »

wirednuke83

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Re: 10 years of negative returns?
« Reply #5 on: August 10, 2018, 09:13:50 AM »
Negative returns would be disappointing, but even if the market is relatively flat you're still saving money and doing better than a regular savings account. Even if my investments only return 2-3% I'm still going to be able to retire in my 50's and that's still better than average.

What are the chances of having two or more decades with negative returns, has it ever happened? I have 30 years ahead of me, one of those decades is likely to pan out!

Just stay positive, I'm in it for the long haul.

Malkynn

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Re: 10 years of negative returns?
« Reply #6 on: August 10, 2018, 09:22:25 AM »
it would be great timing for me in terms of my projected investing timeline.

Is this because you would be accumulating during this period before an eventual upturn, thus buying things cheaper? Is that what you mean?

Yep.
I’m at the beginning of saving and I have a very very flexibile timeline for when I can start to drawdown, so assuming it recovers within the next 30 years, I’m golden.

Retire-Canada

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Re: 10 years of negative returns?
« Reply #7 on: August 10, 2018, 12:10:07 PM »
What if we are on the verge of a decade of negative returns?

How will it affect your plans? Will you just ride it out? What if it stretches out to 15 years? 20?

Since nobody [I know of] has a time machine there is no way to know this ^^^. Given that I would stick with my plan.

thd7t

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Re: 10 years of negative returns?
« Reply #8 on: August 10, 2018, 12:14:03 PM »
This is just a bizarrely small data set to get worked up about.  Backtesting one instance?  It's a bad example and a couple of bad charts.

I'm a red panda

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Re: 10 years of negative returns?
« Reply #9 on: August 10, 2018, 12:50:45 PM »
Wouldn't be any worse off then someone who just spent all their money and had nothing but junk to show for it. 
And once it turns up, you'll still be doing better.

effigy98

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Re: 10 years of negative returns?
« Reply #10 on: August 10, 2018, 03:51:06 PM »
This is a reason I diversify and keep my needed spending to a minimum. Treasuries, gold, real estate, lower spending, gig economy (skills), all of those would help carry me thru and got me thru the last two recessions.

AccidentalMiser

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Re: 10 years of negative returns?
« Reply #11 on: August 10, 2018, 04:55:50 PM »
Firesim tells me my plan is sound for every 50 year period since 1871. 
We have rental real estate. 
We don't spend much money. 
We will have no debt. 
We grow vegetables and chickens. 
We have mad skills which I can monetize. 
We fish. 
We can shoot and clean squirrels, rabbits and deer (although I don't plan to do this). 

While 10 years of negative SP500 returns would suck, I don't worry about it too much.

We're mustachians, we got this!

maizeman

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Re: 10 years of negative returns?
« Reply #12 on: August 10, 2018, 05:50:02 PM »
I imagine this will rock the confidence of many here, particularly those who have only really experienced growing portfolios.

My confidence, for one, was not rocked.

Also note that in the second chart the author is showing that the median price to sales ratio is higher than the cap weighted prices to sales ratio, which means that most of his signal is coming from companies that only make up a small percentage of the total S&P index's value.

There is had to be some inherent limit to how many lines you can draw on a stock market graph before it ceases to have meaning.


Retire-Canada

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Re: 10 years of negative returns?
« Reply #13 on: August 10, 2018, 05:55:31 PM »
There is had to be some inherent limit to how many lines you can draw on a stock market graph before it ceases to have meaning.

Dude if we take some LSD and you use a laser to project the lines I'd say the MOAR lines the better! ;)

steveo

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Re: 10 years of negative returns?
« Reply #14 on: August 10, 2018, 06:06:10 PM »
There is had to be some inherent limit to how many lines you can draw on a stock market graph before it ceases to have meaning.

Dude if we take some LSD and you use a laser to project the lines I'd say the MOAR lines the better! ;)

I'll be in that.

Retire-Canada

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MustacheAndaHalf

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Re: 10 years of negative returns?
« Reply #16 on: August 11, 2018, 08:52:58 AM »
What if we are on the verge of a decade of negative returns?
...
“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,”
Which highlights the need to diversify into bonds and international equities for those who are drawing down their retirement assets.  Be careful with advice from people going "100% US equities", as this can spell trouble owing to a lack of diversification.

For those accumulating, consider it "US equities on sale", and keep buying.

Paul der Krake

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Re: 10 years of negative returns?
« Reply #17 on: August 11, 2018, 10:07:43 AM »
I don't care.

We have so many backup options that we could indefinitely live on one income, or part-time incomes, and still save money.

This is also why we have bonds.


PDXTabs

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Re: 10 years of negative returns?
« Reply #18 on: August 11, 2018, 10:53:14 AM »
As DreamFIRE pointed out we could have a prolonged period of real negative returns, and while it won't change my strategy it would certainly change how long I would need to work before FIRE. That is, I would like to be FI if not RE 11 years from now, but with real negative returns I won't be.

On the other hand if you had invested religiously from 1966 to 1982 you would have been pretty happy with your next 16 years of returns. Which is to say that if we see 10 years of real negative returns I still expect to be just fine 20 years from now, and 20 years form now I'll be 55, so I'm not personally worried.

theolympians

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Re: 10 years of negative returns?
« Reply #19 on: August 11, 2018, 11:56:15 AM »
I don't get this. Too wonky for me. I see on growth. I always get nervous when people tell me not to believe my lying eyes.

Abe

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Re: 10 years of negative returns?
« Reply #20 on: August 11, 2018, 12:30:57 PM »
Agree with more lines = moar better! Draw enough and the chart's just a big black box, which more accurately reflects short-term stock predictions than any graph.

If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns. Here's a good visualization created by one of the forum members: https://portfoliocharts.com/portfolio/heat-map/





shinn497

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Re: 10 years of negative returns?
« Reply #21 on: August 12, 2018, 01:22:26 AM »
So in otherwords....top is in ™

Villanelle

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Re: 10 years of negative returns?
« Reply #22 on: August 12, 2018, 02:43:43 AM »
Don't much care.  Much of your FIRE money will come from an inflation-adjusted pension and while it would require some cuts to things we hope to do (mostly travel), we plan to be in a position to live on that alone if required. So we'd be fine. 

BigLaw Burnout

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Re: 10 years of negative returns?
« Reply #23 on: August 12, 2018, 11:02:51 AM »
A decade of negative returns would be exceedingly rare and only possible from extreme starting valuations.  For anyone who was invested in 1999, it's apparent that we are not in extreme market conditions right now.

PDXTabs

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Re: 10 years of negative returns?
« Reply #24 on: August 12, 2018, 11:33:48 AM »
A decade of negative returns would be exceedingly rare and only possible from extreme starting valuations.

We have seen four distinct 10-year periods since 1900 when equity returns were negative in real terms. Additionally, there have been four instances of 20-year periods with roughly 0% real returns. - CHART: Long Periods Of Crappy Stock Market Returns Are Not Unusual

I reject the premise that "things are different this time." I don't know when we will see another one of these periods, but I have plenty of evidence that they are normal.

PS - Welcome to the forum!
« Last Edit: August 12, 2018, 11:47:39 AM by PDXTabs »

DreamFIRE

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Re: 10 years of negative returns?
« Reply #25 on: August 12, 2018, 01:51:01 PM »
If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns.

5% in a random year, but what is the risk when starting with a year where CAPE is very high?  I suspect the risk considerably higher.

http://www.multpl.com/shiller-pe/

babybug

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Re: 10 years of negative returns?
« Reply #26 on: August 12, 2018, 03:38:15 PM »
Agree with more lines = moar better! Draw enough and the chart's just a big black box, which more accurately reflects short-term stock predictions than any graph.

If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns. Here's a good visualization created by one of the forum members: https://portfoliocharts.com/portfolio/heat-map/
This is exactly my plan. My 'old man $' is 100% stock, but my brokerage is 25% bond with goal of 40% bonds at retirement in both.  Also I have a rental property abroad. 

In any case I plan to continue my part time work to age 62 (I'm 42) because I like the work and the health benefits.

Sent from my KIW-L24 using Tapatalk


Abe

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Re: 10 years of negative returns?
« Reply #27 on: August 13, 2018, 12:36:00 AM »
If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns.

5% in a random year, but what is the risk when starting with a year where CAPE is very high?  I suspect the risk considerably higher.

http://www.multpl.com/shiller-pe/

The years in question that were failures at 10 years started from 1970-1980 and ended in 1974-1984. Since then, there has been no 10-year period with a negative return. The CAPE during those years were:

Jan 1, 1974   13.53
Jan 1, 1973   18.71
Jan 1, 1972   17.26
Jan 1, 1971   16.46
Jan 1, 1970   17.09

The period of the 1980s and 1990s had higher values with a positive trend, yet had positive return after 10 years.

Jan 1, 1998   32.86
Jan 1, 1997   28.33
Jan 1, 1996   24.76
Jan 1, 1995   20.22
Jan 1, 1994   21.41
Jan 1, 1993   20.32
Jan 1, 1992   19.77
Jan 1, 1991   15.61
Jan 1, 1990   17.05
Jan 1, 1989   15.09
Jan 1, 1988   13.90
Jan 1, 1987   14.92
Jan 1, 1986   11.72
Jan 1, 1985   10.00
Jan 1, 1984   9.89
Jan 1, 1983   8.76
Jan 1, 1982   7.39

I actually made a scatter plot of CAPE to 10 year CAGR from 1970 to 1998, and there is a negative correlation (y=-0.17x + 8.5) but it is weak (R2=0.26). A CAPE of >50 would correlate with a 0% return if this equation holds true. However, in this 37 year time period, the 2 years starting a 10-year sequence with negative CAGR (or 5 with <1%) all had CAPE of 12-20.

Interestingly, plotting 5yr, 10yr, 15yr and 20yr CAGR vs. CAPE all trend to a 0% return around a CAPE of 50, with somewhat improving correlation. However, the 15 and 20yr trends have not been negative at any point since 1970.
« Last Edit: August 13, 2018, 12:41:54 AM by Abe »

DreamFIRE

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Re: 10 years of negative returns?
« Reply #28 on: August 13, 2018, 05:09:18 AM »
If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns.

5% in a random year, but what is the risk when starting with a year where CAPE is very high?  I suspect the risk considerably higher.

http://www.multpl.com/shiller-pe/

The years in question that were failures at 10 years started from 1970-1980 and ended in 1974-1984. Since then, there has been no 10-year period with a negative return.

That's not true.  How about this much more recent time period in which there was a negative return of over 13 years?!

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973

That was April 1999 to June 2012.

Looking at the trend line, despite missing the data point I've mentioned here and possibly others, the odds of low returns (negative being very low) looks far more likely with a higher CAPE, which supports my earlier statement, despite the fact that the very few data points of historical negative returns occurred when CAPE was in the middle range on the chart based on your graph, which again, is missing the specific data point I mentioned.

Edit:  I looked into CAPE for April 1999 to June 2012.  CAPE was 43.892 in December 1999, near the beginning of this 13 year negative return time range.  It looks like it was around 40 earlier in 1999 as well.
« Last Edit: August 13, 2018, 05:33:09 AM by DreamFIRE »

UndergroundDaytimeDad

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steveo

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Re: 10 years of negative returns?
« Reply #30 on: August 13, 2018, 05:29:07 PM »
To answer this question seriously I think 10 years of negative returns would really really suck. This would put me in a bad position to FIRE and I intend to FIRE in 3-4 years time.

I also think the probability of this happening is extremely low and I'd probably just continue working and end up super rich because I'd have a lot of stocks at good prices.

Abe

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Re: 10 years of negative returns?
« Reply #31 on: August 13, 2018, 07:19:28 PM »
If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns.

5% in a random year, but what is the risk when starting with a year where CAPE is very high?  I suspect the risk considerably higher.

http://www.multpl.com/shiller-pe/

The years in question that were failures at 10 years started from 1970-1980 and ended in 1974-1984. Since then, there has been no 10-year period with a negative return.

That's not true.  How about this much more recent time period in which there was a negative return of over 13 years?!

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973

That was April 1999 to June 2012.

Looking at the trend line, despite missing the data point I've mentioned here and possibly others, the odds of low returns (negative being very low) looks far more likely with a higher CAPE, which supports my earlier statement, despite the fact that the very few data points of historical negative returns occurred when CAPE was in the middle range on the chart based on your graph, which again, is missing the specific data point I mentioned.

Edit:  I looked into CAPE for April 1999 to June 2012.  CAPE was 43.892 in December 1999, near the beginning of this 13 year negative return time range.  It looks like it was around 40 earlier in 1999 as well.

That is with a 100% stock portfolio in the SP500. I'm talking about a 60/40 portfolio to make the point that in the same time frame, that portfolio had a positive CAGR. You are correct that in a 100% SP500 portfolio, there would be a negative return in that time frame.

The risk of a 10-year negative CAGR for a 100% SP500 portfolio is much higher at 12.8% during the 1970-2008 time frame, vs 5% for a 60/40 portfolio. If we're talking past each other I apologize. My primary point is that bonds help reduce the risk of negative returns, even with a high CAPE. The secondary point is that SP500 != all investments, thus a downtrending SP500 over a long term does not necessarily result in negative returns for a well diversified portfolio.

Returning to the OP's question: yes that would suck since getting richer is fun. No, it won't affect most people here's long-term strategy and we'd probably just re-balance as needed, because most of us don't plan on a 100% SP500-tracking index for our investments. With enough planning and a large enough initial investment, it can be ridden out for long periods of time.

« Last Edit: August 13, 2018, 07:25:00 PM by Abe »

PizzaSteve

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Re: 10 years of negative returns?
« Reply #32 on: August 13, 2018, 07:43:40 PM »
Will stay the course.  Saw that happen to friends, having worked in Japan in early 90s.  Even that market had a nice recovery in third decade after drops.

Might spend a bit less as we ate up our cash, bond positions and perhaps sold our rental property. Would be reinvesting dividends, so even though past accumulation would be averaging down costs and paying less in taxes by taking harvests of losses to rebuy.
« Last Edit: August 13, 2018, 07:46:03 PM by PizzaSteve »

DreamFIRE

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Re: 10 years of negative returns?
« Reply #33 on: August 13, 2018, 07:43:59 PM »
If you diversify as others note, and are close to retirement with a 60% stock / 40% bond portfolio, you would have a 5% risk of a decade of negative returns.

5% in a random year, but what is the risk when starting with a year where CAPE is very high?  I suspect the risk considerably higher.

http://www.multpl.com/shiller-pe/

The years in question that were failures at 10 years started from 1970-1980 and ended in 1974-1984. Since then, there has been no 10-year period with a negative return.

That's not true.  How about this much more recent time period in which there was a negative return of over 13 years?!

https://forum.mrmoneymustache.com/investor-alley/why-not-do-100-allocation-draw-4-at-retirement-and-yolo-it/msg2023973/#msg2023973

That was April 1999 to June 2012.

Looking at the trend line, despite missing the data point I've mentioned here and possibly others, the odds of low returns (negative being very low) looks far more likely with a higher CAPE, which supports my earlier statement, despite the fact that the very few data points of historical negative returns occurred when CAPE was in the middle range on the chart based on your graph, which again, is missing the specific data point I mentioned.

Edit:  I looked into CAPE for April 1999 to June 2012.  CAPE was 43.892 in December 1999, near the beginning of this 13 year negative return time range.  It looks like it was around 40 earlier in 1999 as well.

That is with a 100% stock portfolio in the SP500. I'm talking about a 60/40 portfolio to make the point that in the same time frame, that portfolio had a positive CAGR. You are correct that in a 100% SP500 portfolio, there would be a negative return in that time frame.

The risk of a 10-year negative CAGR for a 100% SP500 portfolio is much higher at 12.8% during the 1970-2008 time frame, vs 5% for a 60/40 portfolio. If we're talking past each other I apologize. My primary point is that bonds help reduce the risk of negative returns, even with a high CAPE. The secondary point is that SP500 != all investments, thus a downtrending SP500 over a long term does not necessarily result in negative returns for a well diversified portfolio.

Ahhh, yes, I recall you mentioned 60/40 previously, but earlier, I was thinking back to the S&P500 from OP's post and my earlier post on negative time frames.   I'm actually 60% stocks myself - a recent move from 80% as I approach FIRE within a year.

Abe

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Re: 10 years of negative returns?
« Reply #34 on: August 13, 2018, 07:57:15 PM »
Me too - I'm 80% stocks / 20% bonds even though my horizon is ~15-20 years and will switch to 60/40 like you've done. I don't want to be caught with a hot potato in case something forces me to retire earlier, so may shift to 60/40 earlier. Beyond that, if there's a major recession I'll just keep working as long as possible <shrug>.

sol

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Re: 10 years of negative returns?
« Reply #35 on: August 13, 2018, 08:09:49 PM »
I'm not worried.  The 4% SWR guidance has historically survived such periods juuuuussssst fine.


DreamFIRE

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Re: 10 years of negative returns?
« Reply #36 on: August 14, 2018, 05:30:47 AM »
I'm not worried.  The 4% SWR guidance has historically survived such periods juuuuussssst fine.

No need to worry, especially with your nice pension and your large pile of cash.

sol

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Re: 10 years of negative returns?
« Reply #37 on: August 14, 2018, 09:01:00 AM »
I'm not worried.  The 4% SWR guidance has historically survived such periods juuuuussssst fine.

No need to worry, especially with your nice pension and your large pile of cash.

You must have me confused with someone else.

fattest_foot

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Re: 10 years of negative returns?
« Reply #38 on: August 14, 2018, 10:32:01 AM »
Doesn't really affect me at all; this is simply why you need to diversify beyond the S&P.  The Russell 2000 took 4 years to recover--still significant, but not anywhere close to doomsday.  And even the "lost decade" is a pretty hyped-up concept. To get it, it is measured from the absolute peak of the market, a time at which exactly nobody made a single lump sum investment of their entire 'stache.  Since nobody invested everything at the peak, plenty of people made some money during this time.

My personal stache grew 10x during this lost decade.  While I was still saving during this time, it was also a period where my investment growth outweighed my contributions.

Getting specific to the article, price to sales is about the last metric I would bother with.  I invest for a share of earnings.  Everything else I have said has been said before in reference to P/E, but trying to find a "scary" chart by cherry-picking a metric shows me how weak the premise was.  The editorial meeting assignment must have been "Find me some scary metric, so we can get people clicking!"

The bolded part is what I dislike about these types of "metrics." Unless you're getting a lump sum that you end up investing at the very absolute market top, a period of negative returns is a bit misleading. It's the volatility inbetween peaks where most of us are making our returns.

It's the same thing with "retiring at a peak." Unless your plan is to withdraw 100% of your investments at the top of the market, the peak is relatively meaningless. Yes, you'll have some losses just because you have to withdraw some money to live on, but the back end of your investments should have time to recover.

DreamFIRE

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Re: 10 years of negative returns?
« Reply #39 on: August 14, 2018, 05:25:42 PM »
I'm not worried.  The 4% SWR guidance has historically survived such periods juuuuussssst fine.

No need to worry, especially with your nice pension and your large pile of cash.

You must have me confused with someone else.

When you said you had massive "savings", I assumed you meant cash, since you had already mentioned your investments, Roth, and rental income separately.

steveo

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Re: 10 years of negative returns?
« Reply #40 on: August 14, 2018, 10:34:07 PM »
It's the same thing with "retiring at a peak." Unless your plan is to withdraw 100% of your investments at the top of the market, the peak is relatively meaningless. Yes, you'll have some losses just because you have to withdraw some money to live on, but the back end of your investments should have time to recover.

I'm not sure I buy this line. Yes it doesn't matter if it comes back quick but sequence or returns risk is a real issue when it comes to portfolio longevity. If you are withdrawing 3% then it's not an issue.

MustacheAndaHalf

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Re: 10 years of negative returns?
« Reply #41 on: August 15, 2018, 01:42:02 AM »
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Looking at the trend line, despite missing the data point I've mentioned here and possibly others, the odds of low returns (negative being very low) looks far more likely with a higher CAPE, which supports my earlier statement, despite the fact that the very few data points of historical negative returns occurred when CAPE was in the middle range on the chart based on your graph, which again, is missing the specific data point I mentioned.
Vanguard studied this in a white paper, and using data from 1926-2011 they found only a 0.43 correlation between CAPE 10 and future returns.  So it's actually not "far more likely", according to this white paper.
https://personal.vanguard.com/pdf/s338.pdf

DreamFIRE

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Re: 10 years of negative returns?
« Reply #42 on: August 15, 2018, 05:26:31 PM »
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Looking at the trend line, despite missing the data point I've mentioned here and possibly others, the odds of low returns (negative being very low) looks far more likely with a higher CAPE, which supports my earlier statement, despite the fact that the very few data points of historical negative returns occurred when CAPE was in the middle range on the chart based on your graph, which again, is missing the specific data point I mentioned.
Vanguard studied this in a white paper, and using data from 1926-2011 they found only a 0.43 correlation between CAPE 10 and future returns.  So it's actually not "far more likely", according to this white paper.
https://personal.vanguard.com/pdf/s338.pdf

That's far more likely that 5% as was stated in the post I responded to.  That doesn't mean likely, but much more so than 5%.  For example, a 7.5% chance would be 50% more likely than 5%, which is far more likely than 5%, yet the odds are still not in favor of it happening.  Rather than speaking of negative returns, I'm more interested in the fact that returns would be more likely to be lower, not necessarily negative.

The Vanguard article supports my comments about lower trailing 10 year returns when CAPE is high.  I was going to post the graph which shows that correlation, but anyone can review the pdf themselves.

Some relevant threads:

https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/

https://forum.mrmoneymustache.com/investor-alley/cape-and-safe-withdrawal-rates/

https://forum.mrmoneymustache.com/investor-alley/start-worrying-about-the-4-rule/

Linda_Norway

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Re: 10 years of negative returns?
« Reply #43 on: August 16, 2018, 04:27:21 AM »
I tried in my Excel sheet to put in a SWR of 0,1%. That should simulate not having any growth. In that case I would need a lot more stash to start with, or need to work a lot mot part time during FIRE.
So far my Excel sheet only counts on us making approx 30.000 during 2020 and after that nothing. It would be totally realistic to have some source of side-gig income in the years after.