Sequence of returns can have a dramatic impact on your eventual retirement account value, so the outlook for the next 10 years is far from irrelevant for a long term investor.
Agree that sequence of returns has an impact, where I disagree is the 'given current valuations' part. It implies that because the market is high right now the returns in the short term will be lower.
Count me in the camp that says this is akin to market timing, and it's impossible to tell. The market could be 40% higher in 5 years or 30% lower...nobody has any idea.
Is your view that future returns are random and completely ininfluenced by current prices?
If so there's Plenty of data to suggest you are wrong, and not much to support your belief.
Even vanguard attributes > 40% of future returns to valuation levels/CAPE.
https://personal.vanguard.com/pdf/s338.pdf
To each his own, I guess.
But since the question is what do you project future stock earnings to be, by your definition any answer is market timing, so why even read the thread?
Alright well first no need to get defensive. I read the thread and expressed my thoughts because that's the point of a message board, to share ideas and read ones that might be different from your own and talk about them. I'll be sure and not express any 'ideas' in the future. Also you will note that the question was not 'what do you predict future stock earnings to be', it was what rate of return people use to calculate their projections. Not the same.
To answer your questions:
No, my view is not that it's 'completely random'. That's ridiculous and nor was it implied by my answer. My view is that over a long time horizon the market will generally trend upward, mostly likely around the historical rate, probably in a range of somewhere around 8-12%, and that it doesn't matter at which point you start investing, at XX years in the future you will have made about that return, based on ALOT of years of historical data. Can this change depending on when you enter the market, sure, but I have no idea when the market is at a 'top'. How many people were crying out that the market was overblown in '12, '13, etc.
Furthermore in your initial statement you didn't put a time horizon on your 'based on current valuations' answer. If you had said returns over the next 3-5 years, perhaps I would say yes, that is more plausible. The OP asked in general terms what rate of return everyone was using (with no time guideline), I replied with a view that current valuation doesn't impact what I use for my long term return expectations.
I am fully aware of the CAPE/PE 10. I know it's on the high end right now though not ridiculously so. I'm also smart enough to not use one number to blindly guide my thoughts, especially when that number is based on 10 years of trailing earnings, of which a substantial part include one of the most severe and prolonged recessions/economically stagnant periods in history. Of course the trailing PE10 is going to be high, earnings were kicked in the teeth for a solid chunk of that time. I'm not saying the metric has no value just that I think it's disproportional impacted by recent events moreso than at other times in history with more mild growth/recession cycles.
Another tidbit of using the CAPE/PE 10. At the very nadir of the stock market the CAPE was sitting right about 15. Coincidentally right around it's historic average. It's been over it's average (one could say this implies 'overvaluation') for the entire run in the market from '11 to now.
Regarding the article, thanks for sharing I am interested to read it. As I have not read it yet I can't comment, though I do see it was written in October 2012. Does it imply in it that stocks were at a value where they should not be purchased at the time of writing? (this is an honest question and not a dig...as I have not read it I don't know).