Straw poll - 10yr returns.. your expectations

[vand]

Straw poll... just curious to what people here think the future holds over the next decade

*********
1. What do you think the total real return for global stocks will be in 10 years?

ie including all reinvested dividends, in your local currency


*********

2. What do you think your own portfolio growth rate will be (time-weight, ie not accounting for any additional cashflows) over that time?

It can be higher if you think you are able to outperfrom the wider stock market, or lower if you are happy following more conservative passive approach.


*********

3. What level of gauranteed real return what level would you be happy to accept?

If someone offered you a deal that you had to put all your eggs in a single basket (ie liquidate all your current investment, plus put all your savings into) over the next decade and offered you a gauranteed real return on it, what rate of return would make you say Yes?

[Caveat here: you can't borrow to invest in this mythical instrument, you can only put in non-leveraged money that you have either already accumulated or will earn in the next 10yrs.]



*********

For me, I'll go with:

1. 5% real total return.
Slightly lower than the long run, but still a reasonable return for people who keep their money invested. Although I'm a firm believe in valuations, International markets are not horribly expensive so a global basket can still do OK

2. 8%.
Obviously as an at-least partially active investor I think I can beat the market otherwise I'd just be all in passive indexes. (The stats may say my chances are low, but hey that wasn't the question :) )

3. 4.5%. If there was risk-free 10yr inflation linked treasury that yielded 4.5%, meaning my portfolio was guaranteed to grow 55% in real terms by the end of 2031 I would probably be happy to put all my eggs in that basket.

[ChpBstrd]

1) 4% annualized and a very bumpy ride to get there. Tech bust starts in 2022 or 2023 after a massive 2021.

2) 4.5% due to hedging and selling calls, almost as unrealistic as your estimate:).

3) Corporate bonds or preferred stocks from stable companies yielding 7% would do it for me. I already own a few thousand in student loan bonds (Navient) that I bought a couple years ago when they were yielding 7.5%, and almost went all-in, but the math said no retirement on a 6% WR :(. Now the yield is closer to 6.5%. I also own some REIT preferreds in the 6% range.  PFF and PGF hit 7.5% last April and I chickened out. Now they yield <5%. None of these are 100% guaranteed but I’d feel good about a diversified portfolio of them.
3)a) The spread between 7.5% and 4% is a measure of my uncertainty. I could be wrong and stocks deliver 10% a year for a decade.

[YttriumNitrate]

1. Inflation adjusted annualized CAGR of 7.0%. It's not different this time.
2. 7.0%. Right in line with #1.
5. An guaranteed real rate of return 5-6% would probably get me to put all my eggs in this mythical basket.

[waltworks]

1: 5%
2: 5%, I've got way too much fun stuff to do to try to bother beating the market. Money is easy to get if I need to for some reason, I can't get time back.
3: 4%

-W

[Alternatepriorities]

1: I'll go with it's not very different this time too and say 6-7% world wide. - I do expect it to be bumpy getting there and the growth will likely not be distributed the way it was the past decade. There are a lot of places that need China like growth and might well get it over the next 1o years. If India quadruples it's GDP and all those new consumers buy smart Apple and Google will do alright even if the US market is stagnate. That said, if you think prices are hot now, just wait until Washington throws a couple trillion more on the fire.

2: I'm here out of curiosity. I expect average returns though I did outperform the past year. 6-7%. I'm with Walt here, there is too much living to be done to really spend my time trying to out smart the best people and computers that wallstreet can put together.

3: 6% completely safe would have me walking away with a smile. I could happily live the rest of my life on 6% of my current NW so why be greedy. I'd probably take 5% if the guarantee included that SS will pay out as advertised as that would be the same result.

[jpdx]

100% chance that nobody knows.

[harvestbook]

1. 5 percent.
2. I'm not smarter than the market.
3. 5 percent.

[American GenX]

I think we could be looking at zero real gains over the next decade, just as Jack Bogle predicted some years back, maybe a little later.  There is still time for him to be right.

https://www.benzinga.com/analyst-ratings/analyst-color/15/06/5579993/exclusive-vanguard-founder-john-bogle-projects-nominal-t

And with all the stimulus and minimum wage increases (including Biden wanting to increase it to $15/hr), I think true inflation is going to take off making "true real" returns even less than they might appear on the surface based on government figures.

[Pomegranate12]

Next 2 years 7 percent returns adjusted for inflation per year
The following 6 years will be 5 percent adjusted for inflation per year
The last 2 years will be -3 percent adjusted for inflation per year so essentially flat market
+/- half a percent error rate

[waltworks]

I think we could be looking at zero real gains over the next decade, just as Jack Bogle predicted some years back, maybe a little later.  There is still time for him to be right.

https://www.benzinga.com/analyst-ratings/analyst-color/15/06/5579993/exclusive-vanguard-founder-john-bogle-projects-nominal-t

First, the headline is pretty misleading. Bogle predicted around 4% nominal returns for stocks and 2-3 percent for bonds, not zero.

I pour one out for Bogle on the regular, but he (like everyone) didn't do very well with that prediction - the stock market (nominal) basically doubled since then. Inflation adjusted it's up 79%.

Even -10% a year for the next 4 years wouldn't get us back to zero returns from 2015-2024. A great-depression level -16% annualized for 4 years would get us in spitting distance, though.

-W

[vand]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

[Alternatepriorities]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

I agree with the concept, but in practice it seem "lower risk" rather than risk free. Here at least 10k in insulation and solar panels won't raise the price of the house by 10k. I did an insulation upgrade on a house that had a 25% ROI in lowered heating cost, but I've been told since that it has little impact of the value of the house. It boggles my mind, but buyers are much more concerned with number of sq ft than with the usefulness of that area.

I try to buy enough when I see things at a super sale price that I can make it until the next sale. As a bonus I did not need to hunt for TP last spring!

[frugledoc]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

Yea, I always buy as much non perishable items as possible when discounted.  The only problem is limited storage space.  Recently I bought 60 cans of Diet Coke from
Costco but I would have bought 300 if the wife had allowed.

[BicycleB]

1. 4% real return for global stocks (just a midpoint in my wide range of "expectations". Attempting to balance "it's not different" vs the chances of "this low rate regime will end badly", "capital is plentiful so returns should be low", "lower population growth means lower contribution to returns and nobody talks about that". Will welcome explanation of why the last 2 concerns are invalid)

2. 3.5%. My portfolio is not all stocks. I expect to get ordinary returns reduced by a small allowance for user error. Why does everyone think their return is equal to stocks? Is everyone using an all-stock portfolio? Isn't anyone accepting a slightly lower return than stocks in exchange for more stability?

3. 5%. First off, while I don't expect high returns, I admit that the market often crushes pessimistic views. My financial assets are the one bit of my overall portfolio that can generate exponential growth higher than 5%. Wouldn't trade that except for a very serious offer. But 5% guaranteed plus inflation adjustment is so far above market that I'd be worried it was Madoff-level BS and still might not take it.

[vand]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

Yea, I always buy as much non perishable items as possible when discounted.  The only problem is limited storage space.  Recently I bought 60 cans of Diet Coke from
Costco but I would have bought 300 if the wife had allowed.

Yes, storage is often a constraint on viability here. 

Another good example would be if you still using any incandescent or halogen bulbs to immediately switch them out for energy saving LEDs. While the up-front cost of LEDs is quite expensive, they typically pay themselves back well within a year and then go on to save you a handy little sum per bulb per year for the their entire typical 10-20yr lifespan. One of the best "investments" you can make imo.

[Steeze]

1.) 4% worldwide
2.) 4% with less volatility through rebalancing
3.) 4% real inflation adjusted*

Inflation would need to be calculated such that it was proportional to my spending habits, not sure CPI is capturing healthcare, childcare, education, housing, and food accurately.

FWIW I have a calculator in my spreadsheet that looks at current CAPE and compares that to historical future 10 year returns. Right now it is saying 1.9%, or 0.5% less the current inflation for all items which sits at 1.4%. That calculator also gives me a caution sign when future 10yr returns is less than 30-yr treasuries, and a warning when less than 10-yr treasuries. Currently 1.85% & 1.11% respectively, giving a “caution” signal.

Not that I do anything with that information, just keep plugging away as usual. I do hope for 7% real return over the next 50 years, and aim for 6% in my portfolio.

[EvenSteven]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

Yea, I always buy as much non perishable items as possible when discounted.  The only problem is limited storage space.  Recently I bought 60 cans of Diet Coke from
Costco but I would have bought 300 if the wife had allowed.

Yes, storage is often a constraint on viability here. 

Another good example would be if you still using any incandescent or halogen bulbs to immediately switch them out for energy saving LEDs. While the up-front cost of LEDs is quite expensive, they typically pay themselves back well within a year and then go on to save you a handy little sum per bulb per year for the their entire typical 10-20yr lifespan. One of the best "investments" you can make imo.

Huh? When was the last time you checked the price on LED light bulbs? I see them on sale regularly for under a dollar each. If that is a quite expensive upfront cost then you have too many lights in your house!!

[waltworks]

FWIW I have a calculator in my spreadsheet that looks at current CAPE and compares that to historical future 10 year returns.

Why? R2 is like .3 for CAPE/future returns. It's awful for predicting that.

-W

[Steeze]

FWIW I have a calculator in my spreadsheet that looks at current CAPE and compares that to historical future 10 year returns.

Why? R2 is like .3 for CAPE/future returns. It's awful for predicting that.

-W

Suppose it was a Saturday, saw a bunch of stats on engaging data, had recently learned to reference html in my google sheet, and had read an article not long before about cape adjusted safe withdrawal rates. Not sure there was a point to it all, never did anything with it, but it is there.

[vand]

FWIW I have a calculator in my spreadsheet that looks at current CAPE and compares that to historical future 10 year returns.

Why? R2 is like .3 for CAPE/future returns. It's awful for predicting that.

-W

I believe it's higher than that, something around 0.4-0.5 depending on what dataset you use. P/B has been correlated ever slightly higher, although it has not worked as well with more recent data.

Granted, valuation probably explains less than half of future returns, but it are still still the single biggest factor - by far, and high valuations definitely represent a strong headwind even for just matching a historical average.

[waltworks]

https://www.q-group.org/wp-content/uploads/2014/01/2013fall_siegelpaper.pdf

This fellow says it's a bit under 1/3. It's from 2013, though, so I imagine it's worse if you include data through now, since CAPE was "predicting" low returns back then.

I mean, I agree that valuations matter and I expect lower than average returns going forward. I just don't think having CAPE warnings built into a spreadsheet is a useful thing, because being biased toward ignoring that kind of warning and just investing anyway (as long as you can keep yourself from selling low) is a pretty good strategy.

-W

[ender]

Oooooh guessing games!

I personally think that returns will probably be in the 4-6% real return for the next decade. I'm guessing my portfolio will return similar, though with international in the mix it might be higher/lower.

If I get 6% real return over the next 10 years that'd be great honestly. It'd be 80% real growth on what our current investments are which basically guarantees I can be FI at the early end of my target range.

[YttriumNitrate]

Another good example would be if you still using any incandescent or halogen bulbs to immediately switch them out for energy saving LEDs. While the up-front cost of LEDs is quite expensive, they typically pay themselves back well within a year and then go on to save you a handy little sum per bulb per year for the their entire typical 10-20yr lifespan. One of the best "investments" you can make imo.

Huh? When was the last time you checked the price on LED light bulbs? I see them on sale regularly for under a dollar each. If that is a quite expensive upfront cost then you have too many lights in your house!!

At least for swapping out halogens, the upfront costs are still high. A previous owner of my house apparently liked halogen bulbs and unfortunately put them everywhere. The problem is that the LEDs that fit into the usual halogen sockets tend to be expensive and often don't produce a comparable amount of light. In many instances, swapping out the entire light fixture was the most economical option.

[vand]

There may well be an updated version of this floating around somewhere, but they have also recently discontinued the report:

https://www.starcapital.de/fileadmin/user_upload/files/publikationen/Research_2016-01_Predicting_Stock_Market_Returns_Shiller_CAPE_Keimling.pdf
the key chart is on page 11

Data across multiple markets shows R2 is 0.48. significant variation across various countries though


edit: the P/B chart showing R2 0.55 is on page 16

[waltworks]

Agreed, since the thread was about international, you're correct. R2 is about .5 for international.

That's a neat chart. SO MUCH variation in results at any given CAPE number! And even at CAPE ~35, you can expect positive real returns, which is pretty amazing. Real return expectation doesn't hit zero until CAPE 50!

Lesson is: invest when you have the money.

-W

[vand]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

I agree with the concept, but in practice it seem "lower risk" rather than risk free. Here at least 10k in insulation and solar panels won't raise the price of the house by 10k. I did an insulation upgrade on a house that had a 25% ROI in lowered heating cost, but I've been told since that it has little impact of the value of the house. It boggles my mind, but buyers are much more concerned with number of sq ft than with the usefulness of that area.

I try to buy enough when I see things at a super sale price that I can make it until the next sale. As a bonus I did not need to hunt for TP last spring!

It's not the increase in the value of the house that is providing the return (under normal accounting rules you'd gradually write that down to zero anyway), it's the saving of future cashflow in electricity/heating bills.

If you put $10k towards solar panels or a generator that enables you to halve your future payments, then that is effectively the same as taking that $10k, investing it into financial assets and earning a cashflow that would pay for half your future energy bills into perpetuity.

It is a gauranteed "return" because you are assured that you will be using energy in the future, whereas investment outcomes are usually much more variable.

[Alternatepriorities]

For my 3rd question "what gauranteed rate of return would you happily accept?" it's worth pointing out that such implied returns are very acheiveable on the personal finance side of the puzzle by buying things that save you money over the long run.

For example, if you spend a $10k up-front cost to insulate your loft or installing solar panels that will save you $1000/pa on your future energy bills that is the same as a guaranteed, risk-free, after tax, inflation-adjusted 10% perpetual return.

An even more striking example is if I go to the supermarket and they have BOGOF offers non-perishable items.. that allows me to buy eg 2 years' worth of washing powder for the usual price of 1 year then that is the same implied effect as getting a 100% annual investment return - again risk-free, after tax and after inflation.  This is not a compounded annual return however, it's a simple return (you can't buy 10 years' worth of washing powder and get 100%^10 implied return).

I agree with the concept, but in practice it seem "lower risk" rather than risk free. Here at least 10k in insulation and solar panels won't raise the price of the house by 10k. I did an insulation upgrade on a house that had a 25% ROI in lowered heating cost, but I've been told since that it has little impact of the value of the house. It boggles my mind, but buyers are much more concerned with number of sq ft than with the usefulness of that area.

I try to buy enough when I see things at a super sale price that I can make it until the next sale. As a bonus I did not need to hunt for TP last spring!

It's not the increase in the value of the house that is providing the return (under normal accounting rules you'd gradually write that down to zero anyway), it's the saving of future cashflow in electricity/heating bills.

If you put $10k towards solar panels or a generator that enables you to halve your future payments, then that is effectively the same as taking that $10k, investing it into financial assets and earning a cashflow that would pay for half your future energy bills into perpetuity.

It is a gauranteed "return" because you are assured that you will be using energy in the future, whereas investment outcomes are usually much more variable.

The difference is that I can sell the financial assets for whatever the market will pay for them if I ever need to for some reason. The risk for me is that the market will not value them as highly as the price I paid. There is no risk of that with solar panels as long as I stay in the same house. The risk is that IF I must move for some unrelated reason in five years time I loose all the future returns and most of the original investment if either the buyer or appraiser of my home doesn't value the solar panels based on their future savings.

I have not personally had this happen with solar panels, but as mentioned before it did happen with efficacy upgrades on my last house. I replaced the 1970's cast iron boiler that was 50% efficient at best and a tanked water heater with new boiler/on demand system that was 93% efficient. I also did a ton of air sealing, upgraded the attic to R60 and quadrupled the insulation below ground in the 1/2 basement. All told, I took it from a 2 star to a 4.5 energy rated home. Savings of Natural gas were about 1/2 or $1,200 a year. We spent about $12k and a lot of sweat doing it. Every agent I've talked to about selling it says something like "yeah that's nice, but it's not really going to change the price". Fortunately, a state program to offset about 2/3rds of the cost so we broke even after the fourth year. Otherwise it would still be a significant loss selling the house now.

[vand]

Agreed, since the thread was about international, you're correct. R2 is about .5 for international.

That's a neat chart. SO MUCH variation in results at any given CAPE number! And even at CAPE ~35, you can expect positive real returns, which is pretty amazing. Real return expectation doesn't hit zero until CAPE 50!

Lesson is: invest when you have the money.

-W

To be fair their analysis is effectively equal-weighted between the various different countries' datasets, but on a cap-weighted global index it's going to be much closer to whatever the US dataset is and not so much what the Danish dataset is.

[waltworks]

Yeah, that's a good point. It's overestimating the relationship a little bit if you went cap weighted.

-W

[Alternatepriorities]

One thing to consider is the impact of our collective thinking. The placebo effect is real and I see no reason it wouldn't apply to a society as well as an individual. If people expect 7% returns because "that's the way it works" it's likely to push things in that direction even if it can't actually make it. If people expect stagnation or deflation that is also likely be self fulfilling. That's why we keep track of consumer sentiment as well as the business sentiment. There is some hard limit to economic growth, but we don't know what it is yet and the world around us proves how hard predicting it is. Imagine trying to explain a future where food production is taken for granted and done by 1% of the population while half the population sit at desks all day to someone from 1900... They'd think you were nuts! Who knows they might be right, we might already be past the sustainable limit, but we also might be able to push it along for another decade or two.

[kenmoremmm]

1. 3%
2. 6%
3. 4%

[UnleashHell]

1) 7% global - not sure how you measure global but something somewhere will pull it down
2) 9% mainly US based. It is still where people will come with ideas and companies to get them funded and grow
3) 6% I'd take 6% as that's a number that sees me very comfortable.

[ChpBstrd]

For those who would lock in a 6% or less risk free return or beat their own estimates with a high level of safety, here's the closest play I can think of:

PFF yields 5.53% as of now. It is a well-established preferred stock fund.
Its price was $37.85 today.
You could sell call options maturing in July at the $38 strike for about $0.65.
The option would provide a 1.7% yield on the call option, on top of a 5.53% dividend, for a total of 7.23% / year. And that's IF you don't roll the option another 6 months.
 
Yes, the price fluctuates just like the value of your house goes up and down between cleanings, but the dividend is senior to common stock dividends and the volatility is far lower than stocks. This would be a good play for an Interactive Brokers margin account, a good excuse not to pay off the mortgage, or a good alternative to chickening out and sitting in cash/bonds.

[Glenstache]

1 = 2 = 3.

[hodedofome]

Incredible returns in tech over the next 2-5 years, followed by a huge blowup. Will make the 90s bubble look like child’s play.

[Metalcat]

Straw poll... just curious to what people here think the future holds over the next decade

*********
1. What do you think the total real return for global stocks will be in 10 years?

ie including all reinvested dividends, in your local currency

No clue, don't have a crystal ball.


*********

2. What do you think your own portfolio growth rate will be (time-weight, ie not accounting for any additional cashflows) over that time?

It can be higher if you think you are able to outperfrom the wider stock market, or lower if you are happy following more conservative passive approach.

Same as above.


*********

3. What level of gauranteed real return what level would you be happy to accept?

If someone offered you a deal that you had to put all your eggs in a single basket (ie liquidate all your current investment, plus put all your savings into) over the next decade and offered you a gauranteed real return on it, what rate of return would make you say Yes?

[Caveat here: you can't borrow to invest in this mythical instrument, you can only put in non-leveraged money that you have either already accumulated or will earn in the next 10yrs.]

Can't answer that without knowing inflation

*******