Poll

Will US economic growth continue to shrink? Will US index fund returns shrink 2?

Economic growth will continue to shrink and index fund returns will too
Economic growth will pick up so future index fund returns will be similar to historical returns
Economic growth will continue to shrink but index fund returns will be similar to historical returns regardless

Author Topic: Will US economic growth continue to shrink? Will US index fund returns shrink 2?  (Read 4804 times)

J Boogie

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Excuse my clunky wording of the question and the options.

Here's some background - the statistics I'm referencing when I say US economic growth is shrinking.  I'm comparing current US economic growth to past US economic growth.

http://www.multpl.com/us-gdp-growth-rate/table/by-year


Do you think US index funds can thrive without decent US economic growth?  It seems thus far index funds have done just fine this past 10 year period where we averaged only 3.09% growth.

Do you think the next ten years will be above or below that 3.09% average, and do you plan on increasing your allocation to international index funds if you think it will be below?






Retire-Canada

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You are missing one option from your poll "I do not have a crystal ball and do not know what will happen so I am invested globally and will stay the course."

nereo

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I'm comparing current US economic growth to past US economic growth.

What are the time frames you are looking at?  This decade compared to previous decades?  The trailing 5 year averages?  Generational??  The last 5 years of growth may be below the 50 year average, but it's better than many 5 year periods.


Do you think US index funds can thrive without decent US economic growth?
Sidestepping what you consider "decent" for a moment (is 2% "decent" enough? 3%?) - yes, at least with large companies that can tap into foreign markets.  Most of the largest US companies do >50% of their business abroad now. Even if GDP grows by "just" 2% there can still be a thriving domestic market, particularly if efficiencies improve and the population isn't rapidly expanding.


Do you think the next ten years will be above or below that 3.09% average, and do you plan on increasing your allocation to international index funds if you think it will be below?
I have no idea/crystal ball is broken/ ask again later.
It's certainly possible that the next 10 years will have growth above 3.09%.  It's also possible it will be less.
I have my current AA set and I will continue to follow that, with no increases or decreases to my current international exposure.



dougules

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I don't know whether or not economic growth will keep up with history, but I don't know that it necessarily matters in the long run.  What does matter is how much the companies in your index funds earn.  Even if growth stops they're still earning money, and you're entitled to that money as a shareholder.  The companies are retaining and reinvesting a lot of it right now, but if that can't produce growth in long run the owners (you and me) will have the earnings all given out as dividends. 

Where economic growth does matter is to increase that earning power.  The last two decades have made businesses afraid to take risks and invest in new ideas that are high risk, high return.  Once greed takes back over we will probably see growth start to move again.  I know it seems like the economy can't keep growing, but how many things are on the horizon that should grow the economy?  And it's not just the flashy things like regenerative medicine or driverless cars.  Plenty of small improvements can be made to increase efficiency in everything we already do. 
« Last Edit: September 14, 2016, 11:05:05 AM by dougules »

Kaspian

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Shrink?  I don't know where you get your ideas.  Is this part of "the economy is bad," bullshittery meme which has been going around for...  Oh, the last 50 years or so?  Factual headlines posted yesterday now that real numbers have been processed:  "U.S. household income posts record surge in 2015, poverty falls"  Everything now is pretty much the same as it's always been and the people who say otherwise run those aluminum hat, pyramids on Mars, death of fiat websites for crazy people.  Please read this FIRE blog article about the dangers of weak thinking:  http://livingstingy.blogspot.ca/2016/08/mental-health-prosperity-and-urban.html

nereo

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Shrink?  I don't know where you get your ideas.  Is this part of "the economy is bad," bullshittery meme which has been going around for...  Oh, the last 50 years or so?  Factual headlines posted yesterday now that real numbers have been processed:  "U.S. household income posts record surge in 2015, poverty falls"  Everything now is pretty much the same as it's always been and the people who say otherwise run those aluminum hat, pyramids on Mars, death of fiat websites for crazy people.  Please read this FIRE blog article about the dangers of weak thinking:  http://livingstingy.blogspot.ca/2016/08/mental-health-prosperity-and-urban.html

I think the rate of growth has slowed compared to other decades.  Saying growth is 'shrinking' does get confusing and give the impression that our economy is getting smaller, which is absolutely not the case.

Scandium

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Shrink?  I don't know where you get your ideas.  Is this part of "the economy is bad," bullshittery meme which has been going around for...  Oh, the last 50 years or so?  Factual headlines posted yesterday now that real numbers have been processed:  "U.S. household income posts record surge in 2015, poverty falls"  Everything now is pretty much the same as it's always been and the people who say otherwise run those aluminum hat, pyramids on Mars, death of fiat websites for crazy people.  Please read this FIRE blog article about the dangers of weak thinking:  http://livingstingy.blogspot.ca/2016/08/mental-health-prosperity-and-urban.html

If they don't convince people the economy is broken how can politicians run on the promise of fixing it?

"The economy is great, but I will make it even better!" ?
"Economy is good, but it could be gooderer!"?

Doesn't sound so good does it? And to the average voter (across the spectrum); if the economy is great why do I still have credit card debt? Since most people spend what they earn the economy will almost never be "good enough".

waltworks

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I think it is more likely that we'll hit some kind of post-scarcity economy in our lifetimes and everyone (at least in the US) will be *born* FIRE for all practical purposes.

Or that we'll cook ourselves alive and civilization will collapse.

I'm investing optimistically and consistently for the long term, since I can't control either of those things.

-W

J Boogie

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Shrink?  I don't know where you get your ideas.  Is this part of "the economy is bad," bullshittery meme which has been going around for...  Oh, the last 50 years or so?  Factual headlines posted yesterday now that real numbers have been processed:  "U.S. household income posts record surge in 2015, poverty falls"  Everything now is pretty much the same as it's always been and the people who say otherwise run those aluminum hat, pyramids on Mars, death of fiat websites for crazy people.  Please read this FIRE blog article about the dangers of weak thinking:  http://livingstingy.blogspot.ca/2016/08/mental-health-prosperity-and-urban.html

Well, shoot.  You seem to be on a crusade to douse the financial conspiracy theory types with a blast of your logic.  I don't fault you for desiring to spread knowledge and optimism, but I believe you have strawmanned me.

I didn't say the US economy is shrinking, I said US economic growth is shrinking.  Which is true.  For the past 10 years, US economic growth has averaged 3.09%, which is down from 5.44% for the 10 year period before that, which is down from 6.37% the 10 year period before that, which is down from 10.02% for the ten year period before that.  Doesn't change much whether you slice it up into 7,8,9,10,11, or 12 year periods - the trend is that growth is significantly shrinking.  I have no axe to grind with the US and no reason to try and deceive this forum.

The question I'm putting to the forum is whether this growth will continue to slow, and how will that affect index fund performance.

If the current trend of the last 40 years continues, we'll average under 1% growth over the next ten years.

So, if you're not concerned, I'd like to know - is it because you don't think the current trend will continue, or you don't think the US averaging 1% growth each year will mean we'll have low index fund returns?

I ask because there are wiser and more educated minds here than my own.

Hopefully we can have a substantive discussion here.  Thanks everyone for your contributions so far.










nereo

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I didn't say the US economy is shrinking, I said US economic growth is shrinking.  Which is true.  For the past 10 years, US economic growth has averaged 3.09%, which is down from 5.44% for the 10 year period before that, which is down from 6.37% the 10 year period before that, which is down from 10.02% for the ten year period before that.  Doesn't change much whether you slice it up into 7,8,9,10,11, or 12 year periods - the trend is that growth is significantly shrinking.  I have no axe to grind with the US and no reason to try and deceive this forum.


wait, what..????  I'm seriously questioning your numbers. I've got no idea where you're getting 10% for a 10 year period (which seems to be in the 80s based on your text).
In real dollar terms GDP growth over the last ~65 years has looked like this:

The blue line represents the 50 year average, which is basically 3%.
If it looks noisy as hell, that's because annual GDP growth rates jump all over the place.  Which is why most economists use multi-year averages like this one:


It's worth noting that while GDP growth dropped substantially during the 08-09 recession, it's been on an upward trend ever since.  It still hasnt hit the 3% 50 year average, but it's right about 2.3% right now.

Vagabond76

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Over a long term, there should be a correlation between the rate of economic growth or contraction, dividends, and asset prices.  The earlier chart shows that growth (or contraction) fluctuates but averages a positive.  Unfortunately, I haven't seen a chart of the integral of the S&P 500 or its combined dividend payout, where a positive reading indicates that the index or dividends are rising and a negative reading shows them declining.  I would expect the three graphs to look about the same.

J Boogie

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I didn't say the US economy is shrinking, I said US economic growth is shrinking.  Which is true.  For the past 10 years, US economic growth has averaged 3.09%, which is down from 5.44% for the 10 year period before that, which is down from 6.37% the 10 year period before that, which is down from 10.02% for the ten year period before that.  Doesn't change much whether you slice it up into 7,8,9,10,11, or 12 year periods - the trend is that growth is significantly shrinking.  I have no axe to grind with the US and no reason to try and deceive this forum.


wait, what..????  I'm seriously questioning your numbers. I've got no idea where you're getting 10% for a 10 year period (which seems to be in the 80s based on your text).

In real dollar terms GDP growth over the last ~65 years has looked like this:

The blue line represents the 50 year average, which is basically 3%.
If it looks noisy as hell, that's because annual GDP growth rates jump all over the place.  Which is why most economists use multi-year averages like this one:


It's worth noting that while GDP growth dropped substantially during the 08-09 recession, it's been on an upward trend ever since.  It still hasnt hit the 3% 50 year average, but it's right about 2.3% right now.

Oh shoot, I was using nominal GDP.  I must admit I did not know that real GDP offers a better perspective than nominal GDP when tracking economic output over a period of time.  Well! I'm gonna keep loading up my US index funds then.  Good stuff.  Thanks guys.










TexasRunner

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jjcamembert

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Another thing to consider is what is GDP actually measuring? Some people suggest that GDP is an outdated measurement that doesn't account for a lot of new variables in our modern economy. For example Google, which for the average consumer doesn't "sell" anything: they don't make widgets that are sold for a profit per unit. A lot of their value is their consumer base, which sure, they funnel into measurable ad revenue; but is that their full economic output? What about all the free productivity tools that many of us are benefiting from, increasing our output?

I'm no expert, but I'm hesitant to put a lot of faith into, "here's a single number that says how good our economy is." I don't think I could even do that for myself, i.e. how would I rate my personal economic output today? Sure it's worth thinking about, but it's not enough evidence for me to short the US markets. If it were, the market would have corrected to that assumption anyway.

Scandium

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Another thing to consider is what is GDP actually measuring? Some people suggest that GDP is an outdated measurement that doesn't account for a lot of new variables in our modern economy. For example Google, which for the average consumer doesn't "sell" anything: they don't make widgets that are sold for a profit per unit. A lot of their value is their consumer base, which sure, they funnel into measurable ad revenue; but is that their full economic output? What about all the free productivity tools that many of us are benefiting from, increasing our output?

I'm no expert, but I'm hesitant to put a lot of faith into, "here's a single number that says how good our economy is." I don't think I could even do that for myself, i.e. how would I rate my personal economic output today? Sure it's worth thinking about, but it's not enough evidence for me to short the US markets. If it were, the market would have corrected to that assumption anyway.

The famous quirk; a person marrying their maid (or prostitute) will lower GDP. Unpaid work isn't counted. Dishwashers results in us spending less time doing dishes, but this is not reflected in GDP. (But is it reflected in increases in other paid activities?)

talltexan

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what kind of sick person would marry their maid only to fire him/her?

GuitarStv

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what kind of sick person would marry their maid only to fire him/her?


TexasRunner

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what kind of sick person would marry their maid prostitute only to fire him/her?

LOL.  FTFY.

nobodyspecial

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what kind of sick person would marry their maid prostitute only to fire her?

cough Trump cough

dougules

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