Poll

What do you think will be US Stock Market's real return over the next 25 years?

<4%
30 (10.4%)
4-5%
90 (31.1%)
6-7%
94 (32.5%)
>7%
46 (15.9%)
Who cares?
29 (10%)

Total Members Voted: 283

Author Topic: US Stock Market Expected Real Return  (Read 14054 times)

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: US Stock Market Expected Real Return
« Reply #50 on: July 13, 2016, 06:23:17 AM »
Do ADRs not solve this problem?

You are 100% correct that to the extent that ADRs stick to the negotiated tax treaties, you don't lose out on foreign tax credit, but you also don't get to keep all of the dividend like you would a US company. It comes down to opportunity cost at that point. For example, if you held Nestle ADR in a taxable account, you would get charged 15% dividend and then not owe federal tax (unless if you were in the 20% investment tax bracket). If you kept it in a tax deferred account, you just have withholdings of 15% dividend tax. But say you owned both Nestle and Hershey's, well, if you placed Hershey's in taxable and Nestle's in tax deferred, you'd get taxed on dividends for both, but if Nestle's was in taxable and Hershey's was in tax deferred, you'd only pay the 15% on Nestle's dividend - make sense?

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1526
  • Location: West-by-god-Virginia
Re: US Stock Market Expected Real Return
« Reply #51 on: July 14, 2016, 04:40:47 AM »
Do ADRs not solve this problem?

You are 100% correct that to the extent that ADRs stick to the negotiated tax treaties, you don't lose out on foreign tax credit, but you also don't get to keep all of the dividend like you would a US company. It comes down to opportunity cost at that point. For example, if you held Nestle ADR in a taxable account, you would get charged 15% dividend and then not owe federal tax (unless if you were in the 20% investment tax bracket). If you kept it in a tax deferred account, you just have withholdings of 15% dividend tax. But say you owned both Nestle and Hershey's, well, if you placed Hershey's in taxable and Nestle's in tax deferred, you'd get taxed on dividends for both, but if Nestle's was in taxable and Hershey's was in tax deferred, you'd only pay the 15% on Nestle's dividend - make sense?

Yeah, so basically the foreign tax comes out before you ever see the dividend payment.  Which means the ADR dividend needs to be higher by the amount of the tax to put it on par with a similar domestic company's dividend.

Which leads to another question.  When you pull up a quote for an ADR on your US broker's web site, does the quoted dividend yield already account for the withholding of the foreign tax?  If it does, then you've got an easy apples to apples comparison.

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1024
  • Location: Cincinnati
Re: US Stock Market Expected Real Return
« Reply #52 on: July 14, 2016, 06:44:15 AM »
Thanks for everyone's participation.

<4% 28 (10.9%)
4-5% 78 (30.5%)
6-7% 79 (30.9%)
>7% 43 (16.8%)
Who cares? 28 (10.9%)

Not sure about the "Who cares". Most folks care a great deal about investment returns. It's kinda important.

Almost half of you are an optimistic lot given current market conditions. Let's hope you are right.

I'd rather be surprised to the upside rather than the down, and a bit under 4% is my guess, reasons given earlier in the thread (Gordon equation). Anything over 4% would be wonderful.


Seppia

  • Pencil Stache
  • ****
  • Posts: 616
  • Age: 39
  • Location: NYC
Re: US Stock Market Expected Real Return
« Reply #53 on: July 14, 2016, 06:53:17 AM »
Thanks for everyone's participation.

<4% 28 (10.9%)
4-5% 78 (30.5%)
6-7% 79 (30.9%)
>7% 43 (16.8%)
Who cares? 28 (10.9%)

Not sure about the "Who cares". Most folks care a great deal about investment returns. It's kinda important.

Almost half of you are an optimistic lot given current market conditions. Let's hope you are right.

I'd rather be surprised to the upside rather than the down, and a bit under 4% is my guess, reasons given earlier in the thread (Gordon equation). Anything over 4% would be wonderful.

Completely agree.
For safety reasons, all my calculations are based on average CAGR of 3.5% from now on.
Will be happy to be surprised positively, but to be honest I would really, really like the market to vastly underperform expectations during my accumulation phase.

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: US Stock Market Expected Real Return
« Reply #54 on: July 14, 2016, 07:32:13 AM »
Which leads to another question.  When you pull up a quote for an ADR on your US broker's web site, does the quoted dividend yield already account for the withholding of the foreign tax?  If it does, then you've got an easy apples to apples comparison.

Not to my knowledge, from the sites I've looked at - would have to calculate it yourself

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1024
  • Location: Cincinnati
Re: US Stock Market Expected Real Return
« Reply #55 on: July 14, 2016, 03:18:07 PM »
It occurs to me that our expectations of future returns might be colored by what we have lived through.

Total US Stock Market real CAGR:
30 years 7.3%
20 years 5.9%
15 years 3.4%
10 years 5.4%
5 years 10.3%

I've been seriously investing for...16 years...2.3%.

Explains a lot :-)





Mr. Green

  • Handlebar Stache
  • *****
  • Posts: 2054
  • Age: 36
  • Location: Wilmington, NC
Re: US Stock Market Expected Real Return
« Reply #56 on: July 14, 2016, 03:31:16 PM »
It occurs to me that our expectations of future returns might be colored by what we have lived through.

Total US Stock Market real CAGR:
30 years 7.3%
20 years 5.9%
15 years 3.4%
10 years 5.4%
5 years 10.3%

I've been seriously investing for...16 years...2.3%.

Explains a lot :-)
Only the future will tell you whether you just happened to start investing during a bad cycle or if this will actually become the worst period for stocks in history. I think all the macro-economic data points in the direction of bad timing but who knows? That's why it's the future!