Stocks will only return 4% annually for next decade - John Bogle

[vand]

Bogle actually made this "4% return" statement back in late 2017; you could argue that the market has been trading in a range for the last 30 months between SPX 2400-2900 since then.. a traditional summer slump in stocks could well take us right back in the middle of that range

[effigy98]

Another appears to be having high school age children who will be disqualified from financial aid considerations for the same reason, because even if you have no real income your taxable income on paper is too high after making the annuals rollovers required to pay the ongoing mortgage costs.  If you eliminate $30k/year in mortgage payments, suddenly you can get by on a super low annual spending rate.

Similar to this...equity in your primary home doesn't count as an asset on the FAFSA form, but other investments (stocks, bonds, rental properties, etc.) do. I have a friend with 4 kids who is running this math now, and may dump a huge chunk of cash into his mortgage around college time for his kids. I haven't run the math for my numbers, and it would depend a lot on where your kids want to go to college whether it would make a difference.

ETA: oops, secondcor521 beat me to this fact.

This is one of the primary reasons I paid off the mortgage. I grew up poor and we got a lot of handouts and it smoothed the ride. ACA alone is worth the lower AGI compared to larger returns in stocks without the risk!

[vand]

Most people use P/E to describe valuation levels, or CAPE 10 (P/E with 10 years of earnings).  But the correlation with future returns is closer to ~0.4, not 100%, according to Vanguard's white paper "Forecasting Future Stock Returns":
https://personal.vanguard.com/pdf/s338.pdf

method : correlation with 10 year real returns
CAPE/10 : 0.43
PE (1 yr) : 0.38
GDP       : 0.23
And various models of future returns under 0.20 correlation.

Most of the time, P/E will provide incorrect predictions of the next 10 years of stock returns.

Correlation rises higher to 48% if you go further out to 15 years, and looking at price to book value the correlation rises to 55% over 15 years.
That is pretty strong in the world of statistical analysis.

https://seekingalpha.com/article/3987114-predicting-stock-market-returns-using-shiller-cape-pb

[vand]

From the same article:

"A further comparison: In the period between 1871 and 2016, earnings growth in the S&P 500 and the returns of the following 15 years showed a much lower correlation (Rē 0.16 - correlation 0.40, Figure 7). This shows that CAPE and PB enable significantly more reliable long-term forecasts than correctly estimated long-term earnings growth rates for the subsequent 15 years."

So don't assume that just because we will get record earning season that this means everything will be hunka dory with the stocks market going forward. History has shown that earnings growth has already been baked into the forward price and then some.

[MustacheAndaHalf]

...
Most of the time, P/E will provide incorrect predictions of the next 10 years of stock returns.

Correlation rises higher to 48% if you go further out to 15 years, and looking at price to book value the correlation rises to 55% over 15 years.
That is pretty strong in the world of statistical analysis.

But this is the investing world - is it strong enough to guide investments?
I worry it's too much like flipping a coin (P/B is low, P/B is high) and then waiting 15 years to see if I was right or wrong.

[vand]

...
Most of the time, P/E will provide incorrect predictions of the next 10 years of stock returns.

Correlation rises higher to 48% if you go further out to 15 years, and looking at price to book value the correlation rises to 55% over 15 years.
That is pretty strong in the world of statistical analysis.

But this is the investing world - is it strong enough to guide investments?
I worry it's too much like flipping a coin (P/B is low, P/B is high) and then waiting 15 years to see if I was right or wrong.

Of course other factors should be taken into consideration. In my view, the confluence of many of those factors suggest to me that the market take itself to the point which will present investors with better risk vs return profile than what I currently think it offers, and so I adjust my investment strategy accordingly.

How right or wrong I am is almost wholly besides the point, because I understand my own attitude to risk and reward.. I know my "uncle point". IMO good investing and good personal finance is about knowing yourself much more than it is about mastering numbers and economic models.