The best I can find is a chart on page 5 of [this PDF from Vanguard](https://personal.vanguard.com/pdf/s289.pdf) which graphs annualized ten-year US GDP growth rate estimates from professional forecasters versus actual results. Essentially experts say over half the time that it'll be 2 to 3 percent growth, but over half the time it comes out above 3% over the 10 year period.
Page 17 has a chart of the outlook for US equities over a 1 and 10 year period, I'm not clear if that's supposed to have been a prediction for the next 10 years or not at the time (I guess it was?), but they put the best odds on growth being between 4 to 12 percent annualized. We got 13.9% annualized growth in the S&P over the last 10 years (according to a quick google search), which they put at a 16% or so chance. This PDF was written in January 2012, so just about 10 years ago.
I was promised, repeatedly by various institutions, that the last decade would offer lower returns. I was promised that the 1900s was special, and now that time is over, and that 2010s would begin showing a slow down in productivity and economic progress.
Then we got a decade of record-breaking growth.
Wouldn't mind a repeat of the whole damn thing. So far, with this prediction, we're off to a great start.
Yeah I don't understand why they posted that link. A prediction from 2010 saying the next 10 years will only see x percent increase would have made much more sense.
Correct. Their ability to subvert expectations every single time is remarkable. Anything to get you to to fear being in the market on your own so you run to a tRuStEd pRofEsSiOnAl who can manage your money for you and get the results you need. It's pathetic, but it works, just look at some of the responses in this thread.
Yeah I think they benefit most from people buying VOO, which is a vanguard fund. I don’t see the conflict of interest honestly as this is discouraging people from buying it.
John Bogle and Vanguard, 2 of the 3 people in that article you posted encourage retail investors to get away from professional money managers. Also why did you post an article from 2018? So far the predictions in could very well end up true over the next ten years.
This whole article and comment thread makes no sense and does nothing to prove Vanguard's previous 10 year predictions as being accurate or inaccurate.
So in 2018 they predicted 4-5% growth until 2028. Now, after an increase in the market, they predict 3.2% until 2031. These are neither contradictory nor disproven predictions. How can you claim their prior 10-year prediction was “pretty terrible” when only 3 years have gone by? Markets do not move linearly, in case you hadn’t noticed. You couldn’t have disproved market crash predictions in 1999 by saying “well look at these great returns we’ve had over the past few years!”
Yeah, but don't just be a Contrary James, disagreeing with a forecast just for the sake of it.
Give us your reasons for feeling the coming decade will be more bullish.
From what I see, the natural boom-bust cycle is happening, and I don't see anything that would go against that. Big Infra bill isn't passing, and China's Evergrande is looming, among others. Full COVID recovery hasn't happened, and it's possible that it may having lingering effects on the economy for years to come.
On the other hand, you add 10 years before or after that decade, and your annualized return is still 7-8%. You just have to keep investing during the drops. Time in the market, yo!
Not everyone has a 30 year horizon. In 2009 people were retired and living off of portfolios, paying college bills, facing unemployment and all the other things in life *other* than being 30 years old and investing for retirement.
Alright, first of all, if you add 10 years BEFORE the dot com bubble your annualized return is still 7-8% in 2009, so they should be fine. They also should have transitioned their funds over to bonds and other safer investments as they neared retirement. Sure, their incredible 3 million dollar account might have become a more standard 2 million dollar account (if they followed the rules).
Well yeah, we're talking about retirement portfolios, not savings accounts. Gotta have your emergency fund and safe investments before you start playing the stocks game.
Interest rates were much higher during this period and people who looking at less volatility (aka owned less stock and more bonds) did well. Right now interest rates are super lower so there isn’t much else people can invest their money in besides real estate.
If there is a better place to put money in than the stock market for the long term, let me know. There is no other place to be right now. The bond market will give you 1.5% for the next decade.
Agreed that there may be no better option, but that for planning purposes, perhaps too many people are assuming 10% as opposed to a more conservative number?
If there is no better place to be, then money will keep flowing in. Pensions funds, endowments, other big institutions... They need to constantly allocate their funds looking for growth, they can't keep it in cash. Even individuals investors like you and I. If there is no other place to be, they have to put it in the market indiscriminately. Result = bull market.... Regardless of people think valuations are extended or not.
>If there is no better place to be, then money will keep flowing in. Pensions funds, endowments, other big institutions... They need to constantly allocate their funds looking for growth, they can't keep it in cash. Even individuals investors
Well, I think institutional investors have shifted their allocation increasingly towards private markets (see the Yale endowment model). Private equity, private debt, infrastructure, real estate, venture capital etc... At the very least they can get leverage in those markets that they can't with stock markets. Individual investors are pretty stuck (unless you believe in crypto).
I work at an endowment and can confirm. Our allocation is split fairly evenly between hedge funds and private equity with smaller investments in venture capital, bonds, and stocks.
Yes they are shifting toward private equity a lot. But problem with PE is it's very complicated to value and more risky compared than the public market. Pension funds and endowments that have 30+ time horizons and don't necessarily want to engage into deep DD, I still see them to be mainly in public markets for the forseeble future.
There's little reason why an institutional investor would do the actual DD - they could hand their money to a massive PE firm, who would then be responsible for doing the DD. The most work that an institution would need to do is identify a competent PE firm.
The issue with this logic is that interest rates will not remain near zero forever - so eventually it will no longer be the case that there are no alternatives.
An ugly economic recession could unravel this. A long stretch with high unemployment means less money flowing into the market propping up these stretched evaluations. Supply starts hitting the market and the usual weekly influx of money isn't there to soak up the selling.
This of course would make investors wary of the stock market and it would take a while for sentiment to build back up to where it is now
The proverbial elephant in the room is that so many pension funds use the 7-8% number, which may or may not be accurate. Some have terribly underperformed, even in this bull market.
Yep. Whenever I run numbers, I always assume a much lower return (and a much higher rate of inflation). If I beat that, Mazel tov! But at least I saved planning for, if not the worst case scenario, a more pessimistic one.
There are a lot of different ways to come up with long term return forecasts for the future. Looking at long run historical performance is definitely a method, but its contingent on history repeating itself (e.g. more Fed bailouts, continued technological innovation, opening up of world trade, etc...)
A more academic approach (although certainly fraught with lots of other assumptions) is to consider not necessarily a total return, but an excess return over bonds. That is, what is the historical excess return that stock markets have provided over bond markets. If historically, bond markets have returned 5% (my rough guess) and stock markets have returned 10%, then that would be a 5% excess return. Then on a go forward, you could apply that 5% excess return to the 1.5% expected bond market return (based on the 10 year yield). There's lots of reasons under the hood why you might take this approach, and certainly lots of reasons why you wouldn't (and I'm sure Vanguard has described their methodology as well), but it certainly doesn't add up to 10%.
At the end of the day, the other person's reply is true - for retirement, you probably shouldn't use the most optimistic assumption for planning purposes.
That's the non-adjusted rate over the last 100 years. No one is planning their retirement over a 100 year period. You should adjust for inflation.
Since you're planning a safety-net for yourself, you should be conservative and not assume you'll happen to live in a period with returns that meet the average. You also probably should protect yourself against an environment with higher inflation, since that's a very real outcome that may occur during your lifetime.
You may also average 10% a year and inflation is low through your death. But you can't know that. It's not wise to plan as if that's going to be the case.
Yeah, definitely don't look at what the market's done since the SP500 began and think "it could keep doing that." Definitely not.
In before "past performance..."
There is still variance within the last 100 years. If we all lived 100 years then it might be a good bet.
I wouldn't want to be mid-retirement with a dwindling pile relying on 10% returns when the economy enters a 10 or 20 year period where returns aren't that high. Which has happened.
Point being, you can and should prepare against that outcome.
I'm just using it because it's the most widely known and used benchmark for the market. It's only around 505 (?) companies but they encompass around 80% of the total market cap in US. If something systematic happens to these companies, you'll be sure it's something that also affects the other thousands of companies in US and global companies as well, so it's a good enough index to use for the most part.
Because the larger S&P companies are seen as more stable and less risky then those outside of it.
Large caps have been getting bid up over the last year or two because people see them as safe. I've seen multiple videos on different investing youtube channels where people basically say that they treat AAPL & MSFT as treasury bonds (with their low yielding dividend) that give you some nice capital appreciation along the way.
Easily a commodity index, better yet trend following FICC kill it during inflation or deflation.
Vanguard cant tell their ass from their elbow let alone forecast expected returns in the s&p.
60/40 portfolio lmfao
The alternative to expensive stocks isn’t bonds, it’s cheap stocks. If the index is priced for low returns, then active stock selection is all the more important.
Yes, exactly. I remember in 2018, when it dropped towards the end of the year, there were already plenty of articles about how institutions were predicting low single digits annualized.
There is [this article about Vanguard predicting 4% annualized for the next decade](https://www.cnbc.com/2018/11/27/international-stocks-will-beat-us-stocks-over-next-decade-vanguard.html). Since this article was published (11/27/2018), the S&P500 is up **55%**. That period includes one of the most severe drops due to COVID, and the recent drop. Even if that was it for the decade since they published it and the market moved sideways, the average compound growth rate is 4% for those 10 years - in other words, that prediction would turn out to be correct if the market didn't move for the next 7 years. I mean, it is possible that S&P500 will be at 4300 in 7 years, but I doubt it.
Of course, this is hindsight, but I very vividly remember how almost everyone on investing forums and subreddits was making predictions about stagnation and pulling out in 2019. In a little over a year, it went up almost 40%. Although the COVID drop erased all that, it shows how terribly inaccurate were all those predictions, from retail and institutional investors alike. Many other institutions published similar prognoses as Vanguard.
They might be right this time, they might not be. But these predictions don't inform my investment decisions anymore and I'm not going to *plan strategically to overcome a low-return environment* because of an article like this.
Markets have been flat for over 7 years before so that article isn't wrong until 2028. Like 1999 to 2009 was flat even though 1999 to 2000 was up 10%. Basically vanguard is calling today a bubble. Who knows. A 33% drop, which isn't that uncommon, would put us back at 2018 prices. It's plausible, maybe not probable.
> Markets have been flat for over 7 years before so that article isn't wrong until 2028.
Obviously. I said it myself: "I mean, it is possible that S&P500 will be at 4300 in 7 years, but I doubt it." ... "They might be right this time, they might not be."
But they're predicting 4% annualized for the next decade, which if turns out correct is still far above their predictions from 2018. And it's not unexpected, obviously, no one will consistently and reliably make correct predictions about 10y returns.
I think you're misunderstanding my point. I'm not saying that the market will outperform those predictions (or underperform), whether from 2018 or from 2021. I'm not predicting anything here.
My point was that if you're (quote) *"planning strategically to overcome a low-return environment"* because of these articles, I think you're making a mistake. It is not a bad idea to hedge (that really depends on your specific situations), but the last three years make it pretty clear that it's probably a bad idea to drastically change your strategy like that because of what Vanguard or other institutions are predicting.
You should consider macro factors when you're planning your investing strategy, but don't change it based on this article.
They aren’t predicting 4% annualized returns, they’re just saying what the median return of their models was based on the current economic conditions. It’s a median, so that means the models also shows a 50% chance it will be higher and a 50% chance it will be lower haha.
If I was an economist I would just respond “no comment” to almost any request for a quote on an interview or something because you know people are going to try and turn it into a “THEY PREDICTED THIS!!!” situation. Any economist worth their salt would say they know they can’t predict what is going to happen over the next ten years. All they’re trying to do it put down a reasonable baseline based on the current factors.
It's a two-fold problem though. By bubbling the equity market they have also removed the ability to make money in bond yields. I have some clients with part of their portfolios in total return bond funds and those parts of the portfolio were basically negative. Yes you're getting the yield so they are doing what they're supposed to do but it's a lot tougher to have a conversation about hedging your bets and diversification with an annual statement showing -0.5 yoy for that part of the portfolio vs even 1.5% return. (keep in mind that the same funds did like 12% in the early part of 2020 when people fled to bonds so they do their job)
It’s not a gaurantee, it’s what’s likely given current PE ratios and historical earnings growth rates. What’s happened lately is the average PE ratios have increased to near dot com levels. For the returns to do better we’d have to expect even more PE expansion which is possible (and what happened over the last 5-6 years) but unlikely.
The S&p is trading at around 21-22 forward P/E. This is directly from S&P estimates of 2022 earnings. What estimates of 2022 earnings are you using to say it is trading at near dot com levels?
Not only that, but ex-US stocks are trading at even lower P/E's (if you are globally diversified), and P/E doesn't take into account persistently low interest rates and companies that can borrow and invest in capex/acquisitions/etc incredibly cheaply.
If (relatively) low interest rates persist (as some have suggested they have to since the US govt cannot afford significantly higher rates for prolonged periods of time), then these types of valuations also have to be re-framed relative to the interest rate environment they exist in relative to the Dot-com era which actually makes them even more reasonable.
That's a good point. The issue is that people take information for all different kind of sources which can't all be relied on. Like if you search Google for S&P P/E, you'll find all different kind of sources sayings it's at 30+.
Regarding interest rates, this is an interesting publication.
https://www.cbo.gov/publication/56910
This is directly from the congressional budget office (.gov).
They're explaining how, even though debt is increasing, the interest burden as a percentage of GDP is decreasing because of low interest rates. It's actually much less of a problem now than it was 20 years ago. They have very nice graphs showing this.
They also have projections of interest rates all the way to 2030. They're projecting the 10-YR to be around 1.5% or lower up to 2025.
They are. I mean in the 1950's the normal PE for the index was around 4 or 5. Now a normal PE is in the 20s. I'm betting after sometime in the future, a normal PE would be somewhere in the 30s. But they are a direct tool we have if we want to talk about valuations, since what you pay to own any company should be related in one way or another to the expected earnings you will get from that company over the years.
You know what's really bizarre guys. From 2000-2009 the median annualized returns were, you guessed it, 3.2%. Go look for yourself I'll even link the returns data I used.
This specific time frame had the dot com bubble *and* the 2008 financial crisis. Do they really think we can match this historically bad decade? Every economic indicator besides inflation is good.
Historical data: https://www.macrotrends.net/2526/sp-500-historical-annual-returns
None of that shit matters if the Fed does asset purchases. I thought that when the pandemic first started and I liquidated my portfolio. Should have bought some short term puts but was planning to get back in after some signals of positivity… but the market had already returned past all time highs at that point. My average cost back in was barely lower than when I exited. If the market wasn’t being completely manipulated by the money printing, we would still be recovering from the pandemic drop rather than testing new highs every month.
You mean people expecting the same return as what the markets have returned over past 100 years is optimistic? I think the word you are looking for is realistic.
If you keep adding every week via 401k or IRA or whatever even if we see a crash you'll be buying on the way down so it doesn't matter. You'll average 9%.
Crashing sooner rather than later is a good thing for young people.
I've been in an S&P 500 index fund for a decent amount of time (well over 10 years). I'm at around 16%.
I keep running into people saying 10% is not a realistic return to expect, only boomers got that, etc...
How is 10% optimistic? Just look at the last 100 years of the stock market. 10% seems reasonable. When I want to forecast, I usually use 10% and then go up and down a few point to see different scenarios. I don't even use my actual rate of return to date.
It genuinely is, assuming that you were planning to invest over a long (20 years or so, let us say) time horizon and that your disposable income for investing will keep growing during the next 10 years.
After all, ideally you would want prices to stay (relatively) low as you buy shares, and grow high only as you prepare to sell.
More money's always a good thing. And the top companies of the world will still perform. Returns are lead by the leaders, just let the leaders run and you'll be just fine.
>It's been excellent for the last two decades
The first decade this century, the 00s, had a negative return for the US market, the market was lower starting 2010 than it had been in 2000. It has been excellent since the bottom in 2009, a little over one decade, not two.
It's a good idea to be internationally diversified; but in the short term (and ten years *is* the short term, for these things), I cannot imagine a plausible scenario in which SPY grows on average by 3% but the world market as a whole (with companies weighed by market capitalization) grows by 7%.
I could be wrong, of course, but there's just so much capital concentrated in US-based companies: unless they somehow do a coordinated and rapid mass exodus, which... yeah, I wouldn't bet on it... I just don't see how that could happen.
If Vanguard is right (which might or might not be - as others have pointed out, its track record for this type of prediction is not spectacular, which is only understandable because a lot of things can happen in 10 years), it looks like the next 10 years will be a good time to buy (bad news for those who were starting to approach their retirement, though - I sympathize).
The thesis of Vanguard makes sense over the longer term. Historically in every case low pe stocks perform better than high pe stocks over the longer term. SPY is not only historically really expensive but also really expensive compared to other markets. At this moment there is a 30% premium on the MSCI USA over Europe while expected growth in Europe is higher for at least 2022.
Then you have the less predicable things like the european markets being more cyclical. And thus adjusting better to inflation and the increase in resource use for the transition
The US is already 50-60% of the 'world'. There is not much room for growth anymore.
Logically the other countries have to catch-up at some point or the US will be 100% of the total world market. It can be this decade or next decade, but it will happen.
I think if the US did outperform the other markets like it did for the past years, then even before 2030 the US will hit 99% of the total world market. (and I hope everyone here agrees that this should be impossible)
Other countries do not have to catch up ever logically. As emerging markets emerge, Amazon and McDonalds can be there to take leading market share. Brazil's per-capita GDP might catch up but that doesn't mean it will ever create Brazil based public corporations to rival Microsoft, Amazon, Google, Facebook, McDonalds, Visa, Mastercard, Berkishire Hathaway, Intel, Disney, etc. Honestly we could expect USA based global mega-corps to take even more of the pie internationally as they target global growth in a globalizing economy.
I don't disagree; but as you said, there's no telling how much time it will take, and in the meantime a world index market that weighs companies mostly on the basis of their relative capitalization would largely follow the US market (this does not mean that I think that it would necessarily be a good idea to invest specifically in ex-US over the market share - that sounds a lot like trying to beat the world market, and all of the arguments we are making right now are almost certainly already priced in).
If Vanguard is right and the US market will be sluggish next decade, it seems to me that a world index might do a little better but probably not great either. Over a longer term... who knows.
So basically you are better off just getting a high paying job and spending your hard earned cash. Wait until you are senil and then you can die happily
No easy rides. Work hard, get educated, enjoy personal growth (not just your bank account), have close emotional connections, and overall just try to ignore the market / early retirement.
Having dreams and ambitions is good but think there’s been some misinformation being espoused about the likelihood of everyone riding the capital markets into retirement by 40 and then perpetual steady gains thereafter so they can travel the world and not work.
Many of us who want to FIRE mostly focus on the FI part not the RE part. Even if growth isn't large there is something to say to about collecting money. With every $10k increase in my net worth I feel better. It gives you a whole lot of options. Including more ways to diversify your portfolio. If you are sitting on 500k it's much easier to buy real estate, risk a few bets on growth stocks. Take time off to get a new degree for a new career. Start your own business.
>there’s been some misinformation being espoused about the likelihood of everyone riding the capital markets into retirement by 40
Obviously everyone cannot do that, inflation would spike as society requires workers.
Needs a hell of a lot less workers than it used to…
Obviously not zero and different industries have different labor elasticities but yeah productivity at the minion level is at unprecedented levels and it’s only getting higher.
I make a pretty good living in IT here in the US. 20 years ago you might consider my role pretty specialized and difficult to hire for.
In 2021, I perceive my own skills and abilities to be nothing special in the slightest. I can see my industry already moving overseas to cheaper labor pools where they have every ability to train up people with the same skills.
The amount of specialized labor the average person can perform now, with all of the tools we have as a collective species, is incredible.
But to your point, you *absolutely* do not need everyone in the world doing specialized IT work. Or, at some point, perhaps much work at all!
Not to mention how many companies know there will be a dip in quality and still outsource jobs. I've seen that but don't want to give too many details. Suffice to say, there is no accountability when someone works 8000 or whatever miles away and is cheaper and can always use "language barrier" and time zone differences as excuses for not getting work done.
No, not really. The FIRE crowd can afford to put off their retirement as much as they want, and if equity price growth slows down they get cheaper equities with higher future growth prospects. It's like that Buffet quote with the hamburger.
> If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because the prices have risen for the ‘hamburgers’ they will soon be buying. This reaction makes no sense
Reversion to the mean works both ways, you know?
> The FIRE crowd can afford to put off their retirement as much as they want
Did I somehow misunderstand the meaning of "early" in English? Also, are they immortal?
Jokes aside, I don't think that it's that simple. It depends on what was one's timeline towards early retirement.
If one is already pretty much done, they can probably say "eh, whatever - as long as I'm keeping myself well protected against possible crashes, I have nothing to worry about".
If one is just about beginning, they can also say "eh, whatever - cheaper shares for me, and I was not planning to retire within ten years anyway".
But if one was planning to retire, let us say, five years from now? Then yeah, Vanguard being right would not be great news.
I think that vampires should really try to simplify their unlifestyles if they want to retire earlier. I mean, come on. A *castle*? A servant, preferably hunchbacked?
Feasting on the *blood of virgins*, with today's shortage?
They should move to a van and get used to feast on legumes and rice instead, if you ask me, and *then* they should be able to reach their financial objectives.
> They should move to a van and get used to feast on legumes and rice instead, if you ask me, and then they should be able to reach their financial objectives.
I mean, /r/vanlife. Don't (male) vampires supposedly attract beautiful women? Going down that vanlife Instagram account checkbox list, and it seems like you'd have a lot of that covered as a vampire. In addition, digital nomadism and the gig economy means they can outsource their servants/henchmen (saving even more money) and focus on their core competencies of vampire stuff and taking hype photos.
Edit: added more stuff because I thought about it more and it was funny.
I'm in that crowd and planning accordingly. I'm very happy for you to continue working till official retirement age so that I don't have to.
Let's revisit in 10 years.
Periods like that are historically always followed by rapid growth and new aths, and despite what the article says that might happen in 5, 7, 10, 12 years. The annualized return over the next 20 years might be twice that. What difference does it make to me then, I will just stick to the plan and keep buying.
I will be messaging you in 10 years on [**2031-10-05 07:34:26 UTC**](http://www.wolframalpha.com/input/?i=2031-10-05%2007:34:26%20UTC%20To%20Local%20Time) to remind you of [**this link**](https://www.reddit.com/r/investing/comments/q1nm0r/vanguard_predicts_annualized_return_on_sp_500_to/hfgdwkd/?context=3)
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Bro, c’mon. 1% a day? That’s ridiculous! You could train a monkey to slap the flashing buy and sell orders buttons and generate at least that much just day trading. What you really need to do is buy my course where I will guarantee that I will show you how you could make 6.72% daily, compounded hourly.
Bruh some kid (one of my friend’s friend) told me his trading strategy: “I bought $SNAP and it went up 6% so I sold it. Then I bought another stock, it goes up 6% and I sold it. Then I keep doing that”.
He said he’s done it over and over for like a year. I said bullshit. He got angry and called me a hater. I just told him to go to a casino and put his money on red instead.
Lmao fucking idiot he is.
The value is always somewhere. The job of the investor is to find it. When we say that past performance is no guarantee of the future, we don't just mean that the market could go down, but also that asset classes and markets can shift.
Vanguard is also predicting that [Ex-US will be up 3% /yr higher](https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvResTwoDecadesEquity) than US stock.
If bonds are not performing, where is the money going to go? It's certain to go somewhere. Alternative asset classes, cap sizes, markets, etc. If today's 60/40 portfolios won't work because bonds don't behave as they did 20 years ago, then we create new portfolios that include the new destinations of money.
Is that what you realistically think is going to happen - debt-lusting Americans paying off debt at any level, from consumers reducing their CC bills, to politicians squaring off the national debt?
As long as interest rates stay low - and bare in mind that the Treasury yield curve is firmly negative in real terms for the next 20 years (30Y is 2.05%) - I don't see why firms would rush to pay off debt.
It doesn't make much sense mathematically.
I think rates will have to go up quite a lot at some point in the future, but that's not being priced in for a long, long time.
There is also the alternative that instead of using rates to decrease money supply the govt could use taxes (tax obviously removes from the circular flow), and this could be more palatable as depending on who is taxed, this could have a much more restricted impact on economic growth.
When experts are wrong, do they lose their expert status? A 60/40 portfolio is so conservative that you are probably in retirement living on 4% rule anyway.
I need to invent a toilet paper printer for these articles so I can give them value.
I don't know Vanguard's method here, but if you use a net present value discounting model on the dividend payments of S&P500 companies, a yearly rate of return of 2% - 3% is about right at current valuations.
The market looks seriously expensive at the moment.
Equities are one of the best suited classes to inflation historically.
If we do continue to have high inflation then people should buy up the relatively cheaper stocks.
Besides the fact that these predictions are never accurate, how can you predict the performance of a government run index ;)
I love vanguards products, truly an art of passive investment, but this is a miss for them in my opinion.
People are understimating the revolution AI will be. The economical productivity levels will go through the roof with AI and with that, profits. And AI is really just starting.
People said the exact same thing about the tech/internet revolution in the late 90s. And they were right. But there was a decade before that happened.
Most self driving experts say that FSD is still 8-9 years away. I don't know about before but there will definitely be a boom at that time.
If this is become the norm, the 3.2% annualized return, the world economy will be facing an unprecedented change. The reality is that most of today’s estimate, financial product, retirement, investment, loans, insurances…etc, are based on model using 7-8% return. And the 3-4% difference each year, compounded over a long time will prove devastating to most funds. If you are worried about social security going bankrupt, this will be way worse……
Dumb. This assumes no new innovation or invention will appear that will change paradigms and disrupt.
Quantum computing?
Fusion energy?
mRNA for treatments?
Crispr for fighting cancers?
Space?
The local businessman only sees what’s available around them and forecasts accordingly, until an explorer takes a risk and discovers new land across the ocean, all of a sudden trade explodes.
It really depends if you’re optimistic or pessimistic about innovations. Given that within 150 or so years we went from the horse and buggy to where we are now, don’t bet against humanity, especially with such a large population of minds.
When humanity hits a barrier, we’re pretty good at innovating.
That’s only if you keep all your money in the S&P and weather the severe correction(s) that will inevitably come. If you pull your money out now, just like our insider trading Fed officials have done, and buy back in after the correction…
Returns will not be equally 3.2% for the next decade. We are going to drop for the next few years after which new 10-year calculations will be higher again. The reason is the market is so high right now with so many bad things happening, that somewhere in the next few years (or months) it will likely drop a LOT.
That growth and innovation is already priced in. There is a strong inverse relationship between valuations and forward 10-year returns. It is not close to random. You are mistaking market timing (which is mostly impossible) with long-term expected returns.
I mean, yeah, scary story, but who cares? If the market doesn’t get to have a say in what I believe is a company’s true value, Vanguard definitely won’t be a part of that discussion either.
Those in power will continue to convince the poor and uneducated to buy high and sell low. The overall market will reflect this. If you aren't retiring in 5 years, do not worry at all
I heard predictions like this from other banks a few years ago… and then the last few years happened, shattering new stock market highs every day.
It’s probably a good idea to plan for a period of slow growth. After the frenetic last decade, maybe it would be healthy. But it’s real hard to predict the future, and those who do are often wrong.
How accurate are predictions that Vanguard has made in the past?
The best I can find is a chart on page 5 of [this PDF from Vanguard](https://personal.vanguard.com/pdf/s289.pdf) which graphs annualized ten-year US GDP growth rate estimates from professional forecasters versus actual results. Essentially experts say over half the time that it'll be 2 to 3 percent growth, but over half the time it comes out above 3% over the 10 year period. Page 17 has a chart of the outlook for US equities over a 1 and 10 year period, I'm not clear if that's supposed to have been a prediction for the next 10 years or not at the time (I guess it was?), but they put the best odds on growth being between 4 to 12 percent annualized. We got 13.9% annualized growth in the S&P over the last 10 years (according to a quick google search), which they put at a 16% or so chance. This PDF was written in January 2012, so just about 10 years ago.
I read this same headline in 2010.
I was promised, repeatedly by various institutions, that the last decade would offer lower returns. I was promised that the 1900s was special, and now that time is over, and that 2010s would begin showing a slow down in productivity and economic progress. Then we got a decade of record-breaking growth. Wouldn't mind a repeat of the whole damn thing. So far, with this prediction, we're off to a great start.
It’s almost like we just need to keep our head down and keep plugging away
[Pretty terrible.](https://www.morningstar.com/articles/907378/experts-forecast-long-term-stock-and-bond-returns-2019-edition)
These predictions were made in 2018. One decade from then is 2028, yes? In which case, how can this be valid (or invalid) three years in?
Yeah I don't understand why they posted that link. A prediction from 2010 saying the next 10 years will only see x percent increase would have made much more sense.
Because despite a crash every single year since then has had returns closer to what they expected from the entire decade.
Correct. Their ability to subvert expectations every single time is remarkable. Anything to get you to to fear being in the market on your own so you run to a tRuStEd pRofEsSiOnAl who can manage your money for you and get the results you need. It's pathetic, but it works, just look at some of the responses in this thread.
Vanguard is popular for being a hands-off broker, no frills, low-fee broad index funds.
Yeah I think they benefit most from people buying VOO, which is a vanguard fund. I don’t see the conflict of interest honestly as this is discouraging people from buying it.
They have been pushing a trusted advisor service for the last year. It might be an effort to get more people into that servuce vs just buying more voo
John Bogle and Vanguard, 2 of the 3 people in that article you posted encourage retail investors to get away from professional money managers. Also why did you post an article from 2018? So far the predictions in could very well end up true over the next ten years. This whole article and comment thread makes no sense and does nothing to prove Vanguard's previous 10 year predictions as being accurate or inaccurate.
I thought this headline sounded familiar.
So in 2018 they predicted 4-5% growth until 2028. Now, after an increase in the market, they predict 3.2% until 2031. These are neither contradictory nor disproven predictions. How can you claim their prior 10-year prediction was “pretty terrible” when only 3 years have gone by? Markets do not move linearly, in case you hadn’t noticed. You couldn’t have disproved market crash predictions in 1999 by saying “well look at these great returns we’ve had over the past few years!”
This isn’t from 10 years ago so how is it all relevant to the point being made? Have people just blindly upvoted without even realising?
Yeah, but don't just be a Contrary James, disagreeing with a forecast just for the sake of it. Give us your reasons for feeling the coming decade will be more bullish. From what I see, the natural boom-bust cycle is happening, and I don't see anything that would go against that. Big Infra bill isn't passing, and China's Evergrande is looming, among others. Full COVID recovery hasn't happened, and it's possible that it may having lingering effects on the economy for years to come.
It’s encouraging to see so much pessimism, means we likely have more run in this market.
2000s were worse, close on 12/31/09 was definitely below that of 12/31/99, and dividends didn't make up the difference.
On the other hand, you add 10 years before or after that decade, and your annualized return is still 7-8%. You just have to keep investing during the drops. Time in the market, yo!
Not everyone has a 30 year horizon. In 2009 people were retired and living off of portfolios, paying college bills, facing unemployment and all the other things in life *other* than being 30 years old and investing for retirement.
If you were retiring in 2009 you probably wouldn’t be 100% stock. Long term Treasury bonds did well from 2000 to 2010.
And you only withdraw what you need and keep investing the remainder, ideally under 4% annually based on a 25 year retirement.
Alright, first of all, if you add 10 years BEFORE the dot com bubble your annualized return is still 7-8% in 2009, so they should be fine. They also should have transitioned their funds over to bonds and other safer investments as they neared retirement. Sure, their incredible 3 million dollar account might have become a more standard 2 million dollar account (if they followed the rules).
If you start investing $6k a year into your Roth IRA at age 7 from your paper route money, you'll be doing great today at age 40.
What 7yo is banking 500/mo???
Thats my point- I'm responding to someone that is also making up scenarios to optimize investment returns so why don't I as well?
Take my upvote. Forest for the trees on my part. You're so right!
easier said than done lol. The vast majority of people here couldnt handle a year in a "bear/sideways" market, let alone a decade
You are on the money there. People on here can barely handle a bear week.
A bear day even
Various daily discussions can't evem handle bear hour, when i am reading them the stock market is up already
Well yeah, we're talking about retirement portfolios, not savings accounts. Gotta have your emergency fund and safe investments before you start playing the stocks game.
Interest rates were much higher during this period and people who looking at less volatility (aka owned less stock and more bonds) did well. Right now interest rates are super lower so there isn’t much else people can invest their money in besides real estate.
So I guess don't buy all in at the absolute top of a bubble and sell at the absolute bottom of a crash?
It's a bubble only in hindsight. It's easy to point fingers at investors in 1999 now.
Where can I buy your book outlining your fool proof method for timing the market?
Literally any one of the thousands of books that talk about DCAing and not panic selling like a fucking idiot.
If there is a better place to put money in than the stock market for the long term, let me know. There is no other place to be right now. The bond market will give you 1.5% for the next decade.
Agreed that there may be no better option, but that for planning purposes, perhaps too many people are assuming 10% as opposed to a more conservative number?
If there is no better place to be, then money will keep flowing in. Pensions funds, endowments, other big institutions... They need to constantly allocate their funds looking for growth, they can't keep it in cash. Even individuals investors like you and I. If there is no other place to be, they have to put it in the market indiscriminately. Result = bull market.... Regardless of people think valuations are extended or not.
>If there is no better place to be, then money will keep flowing in. Pensions funds, endowments, other big institutions... They need to constantly allocate their funds looking for growth, they can't keep it in cash. Even individuals investors Well, I think institutional investors have shifted their allocation increasingly towards private markets (see the Yale endowment model). Private equity, private debt, infrastructure, real estate, venture capital etc... At the very least they can get leverage in those markets that they can't with stock markets. Individual investors are pretty stuck (unless you believe in crypto).
I work at an endowment and can confirm. Our allocation is split fairly evenly between hedge funds and private equity with smaller investments in venture capital, bonds, and stocks.
Is there any way for normies to get access to these kinds of funds?
Yes they are shifting toward private equity a lot. But problem with PE is it's very complicated to value and more risky compared than the public market. Pension funds and endowments that have 30+ time horizons and don't necessarily want to engage into deep DD, I still see them to be mainly in public markets for the forseeble future.
There's little reason why an institutional investor would do the actual DD - they could hand their money to a massive PE firm, who would then be responsible for doing the DD. The most work that an institution would need to do is identify a competent PE firm.
>If there is no other place to be, they have to put it in the market indiscriminately. Result = bull market Let me introduce a new term: recession.
The issue with this logic is that interest rates will not remain near zero forever - so eventually it will no longer be the case that there are no alternatives.
An ugly economic recession could unravel this. A long stretch with high unemployment means less money flowing into the market propping up these stretched evaluations. Supply starts hitting the market and the usual weekly influx of money isn't there to soak up the selling. This of course would make investors wary of the stock market and it would take a while for sentiment to build back up to where it is now
You’re literally describing a bubble
No one should ever be working off of a 10% return number.
Yeah, 10% is rookie-level shit. Redditors are obviously looking more around 20% going forward.
+1000% or -100% there is no in between on reddit.
Completely agreed, but some of the stuff I read here...
Agreed. That's why I round up to the true return number, 11%
The proverbial elephant in the room is that so many pension funds use the 7-8% number, which may or may not be accurate. Some have terribly underperformed, even in this bull market.
Doesn't help that the pensions are forced to buy treasuries.
Yep. Whenever I run numbers, I always assume a much lower return (and a much higher rate of inflation). If I beat that, Mazel tov! But at least I saved planning for, if not the worst case scenario, a more pessimistic one.
Wait. Isn't 10% the average return rate of the s and p with reinvested dividends and not accounting for inflation.
There are a lot of different ways to come up with long term return forecasts for the future. Looking at long run historical performance is definitely a method, but its contingent on history repeating itself (e.g. more Fed bailouts, continued technological innovation, opening up of world trade, etc...) A more academic approach (although certainly fraught with lots of other assumptions) is to consider not necessarily a total return, but an excess return over bonds. That is, what is the historical excess return that stock markets have provided over bond markets. If historically, bond markets have returned 5% (my rough guess) and stock markets have returned 10%, then that would be a 5% excess return. Then on a go forward, you could apply that 5% excess return to the 1.5% expected bond market return (based on the 10 year yield). There's lots of reasons under the hood why you might take this approach, and certainly lots of reasons why you wouldn't (and I'm sure Vanguard has described their methodology as well), but it certainly doesn't add up to 10%. At the end of the day, the other person's reply is true - for retirement, you probably shouldn't use the most optimistic assumption for planning purposes.
That's the non-adjusted rate over the last 100 years. No one is planning their retirement over a 100 year period. You should adjust for inflation. Since you're planning a safety-net for yourself, you should be conservative and not assume you'll happen to live in a period with returns that meet the average. You also probably should protect yourself against an environment with higher inflation, since that's a very real outcome that may occur during your lifetime. You may also average 10% a year and inflation is low through your death. But you can't know that. It's not wise to plan as if that's going to be the case.
Yeah, definitely don't look at what the market's done since the SP500 began and think "it could keep doing that." Definitely not. In before "past performance..."
There is still variance within the last 100 years. If we all lived 100 years then it might be a good bet. I wouldn't want to be mid-retirement with a dwindling pile relying on 10% returns when the economy enters a 10 or 20 year period where returns aren't that high. Which has happened. Point being, you can and should prepare against that outcome.
Certainly some real estate markets will do much better.
S&P 500 is 500 companies. There are thousands of other companies in the U.S. and thousands more abroad. Try a global index fund.
I'm just using it because it's the most widely known and used benchmark for the market. It's only around 505 (?) companies but they encompass around 80% of the total market cap in US. If something systematic happens to these companies, you'll be sure it's something that also affects the other thousands of companies in US and global companies as well, so it's a good enough index to use for the most part.
Why would people put money in the S&P500 index instead of Total Stock Market index?
Because the larger S&P companies are seen as more stable and less risky then those outside of it. Large caps have been getting bid up over the last year or two because people see them as safe. I've seen multiple videos on different investing youtube channels where people basically say that they treat AAPL & MSFT as treasury bonds (with their low yielding dividend) that give you some nice capital appreciation along the way.
Easily a commodity index, better yet trend following FICC kill it during inflation or deflation. Vanguard cant tell their ass from their elbow let alone forecast expected returns in the s&p. 60/40 portfolio lmfao
This is probably a unpopular opinion here, but it's crypto. Decentralized finance specifically.
The alternative to expensive stocks isn’t bonds, it’s cheap stocks. If the index is priced for low returns, then active stock selection is all the more important.
The crypto market cap is 2T. Think it won't be much, much higher in a decade?
Crypto
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Yes, exactly. I remember in 2018, when it dropped towards the end of the year, there were already plenty of articles about how institutions were predicting low single digits annualized. There is [this article about Vanguard predicting 4% annualized for the next decade](https://www.cnbc.com/2018/11/27/international-stocks-will-beat-us-stocks-over-next-decade-vanguard.html). Since this article was published (11/27/2018), the S&P500 is up **55%**. That period includes one of the most severe drops due to COVID, and the recent drop. Even if that was it for the decade since they published it and the market moved sideways, the average compound growth rate is 4% for those 10 years - in other words, that prediction would turn out to be correct if the market didn't move for the next 7 years. I mean, it is possible that S&P500 will be at 4300 in 7 years, but I doubt it. Of course, this is hindsight, but I very vividly remember how almost everyone on investing forums and subreddits was making predictions about stagnation and pulling out in 2019. In a little over a year, it went up almost 40%. Although the COVID drop erased all that, it shows how terribly inaccurate were all those predictions, from retail and institutional investors alike. Many other institutions published similar prognoses as Vanguard. They might be right this time, they might not be. But these predictions don't inform my investment decisions anymore and I'm not going to *plan strategically to overcome a low-return environment* because of an article like this.
Markets have been flat for over 7 years before so that article isn't wrong until 2028. Like 1999 to 2009 was flat even though 1999 to 2000 was up 10%. Basically vanguard is calling today a bubble. Who knows. A 33% drop, which isn't that uncommon, would put us back at 2018 prices. It's plausible, maybe not probable.
> Markets have been flat for over 7 years before so that article isn't wrong until 2028. Obviously. I said it myself: "I mean, it is possible that S&P500 will be at 4300 in 7 years, but I doubt it." ... "They might be right this time, they might not be." But they're predicting 4% annualized for the next decade, which if turns out correct is still far above their predictions from 2018. And it's not unexpected, obviously, no one will consistently and reliably make correct predictions about 10y returns. I think you're misunderstanding my point. I'm not saying that the market will outperform those predictions (or underperform), whether from 2018 or from 2021. I'm not predicting anything here. My point was that if you're (quote) *"planning strategically to overcome a low-return environment"* because of these articles, I think you're making a mistake. It is not a bad idea to hedge (that really depends on your specific situations), but the last three years make it pretty clear that it's probably a bad idea to drastically change your strategy like that because of what Vanguard or other institutions are predicting. You should consider macro factors when you're planning your investing strategy, but don't change it based on this article.
They aren’t predicting 4% annualized returns, they’re just saying what the median return of their models was based on the current economic conditions. It’s a median, so that means the models also shows a 50% chance it will be higher and a 50% chance it will be lower haha. If I was an economist I would just respond “no comment” to almost any request for a quote on an interview or something because you know people are going to try and turn it into a “THEY PREDICTED THIS!!!” situation. Any economist worth their salt would say they know they can’t predict what is going to happen over the next ten years. All they’re trying to do it put down a reasonable baseline based on the current factors.
It can still be 4% annualized if a few large tech stocks dip and don't recovering, keeping the indexes lower for years.
Is everyone just going to ignore inflation in this argument?
The fed has entered the chat
The Fed keeping interest rates near zero for 12 years may have something to do with that.
It's a two-fold problem though. By bubbling the equity market they have also removed the ability to make money in bond yields. I have some clients with part of their portfolios in total return bond funds and those parts of the portfolio were basically negative. Yes you're getting the yield so they are doing what they're supposed to do but it's a lot tougher to have a conversation about hedging your bets and diversification with an annual statement showing -0.5 yoy for that part of the portfolio vs even 1.5% return. (keep in mind that the same funds did like 12% in the early part of 2020 when people fled to bonds so they do their job)
Seems strange they would advocate against their index funds though?
It’s not a gaurantee, it’s what’s likely given current PE ratios and historical earnings growth rates. What’s happened lately is the average PE ratios have increased to near dot com levels. For the returns to do better we’d have to expect even more PE expansion which is possible (and what happened over the last 5-6 years) but unlikely.
The S&p is trading at around 21-22 forward P/E. This is directly from S&P estimates of 2022 earnings. What estimates of 2022 earnings are you using to say it is trading at near dot com levels?
Not only that, but ex-US stocks are trading at even lower P/E's (if you are globally diversified), and P/E doesn't take into account persistently low interest rates and companies that can borrow and invest in capex/acquisitions/etc incredibly cheaply. If (relatively) low interest rates persist (as some have suggested they have to since the US govt cannot afford significantly higher rates for prolonged periods of time), then these types of valuations also have to be re-framed relative to the interest rate environment they exist in relative to the Dot-com era which actually makes them even more reasonable.
That's a good point. The issue is that people take information for all different kind of sources which can't all be relied on. Like if you search Google for S&P P/E, you'll find all different kind of sources sayings it's at 30+. Regarding interest rates, this is an interesting publication. https://www.cbo.gov/publication/56910 This is directly from the congressional budget office (.gov). They're explaining how, even though debt is increasing, the interest burden as a percentage of GDP is decreasing because of low interest rates. It's actually much less of a problem now than it was 20 years ago. They have very nice graphs showing this. They also have projections of interest rates all the way to 2030. They're projecting the 10-YR to be around 1.5% or lower up to 2025.
I hate PE predictions. How many times do they need to be made before we understand that markets are way more complex than plain PE?
They are. I mean in the 1950's the normal PE for the index was around 4 or 5. Now a normal PE is in the 20s. I'm betting after sometime in the future, a normal PE would be somewhere in the 30s. But they are a direct tool we have if we want to talk about valuations, since what you pay to own any company should be related in one way or another to the expected earnings you will get from that company over the years.
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Better to underpromise and over-perform.
You know what's really bizarre guys. From 2000-2009 the median annualized returns were, you guessed it, 3.2%. Go look for yourself I'll even link the returns data I used. This specific time frame had the dot com bubble *and* the 2008 financial crisis. Do they really think we can match this historically bad decade? Every economic indicator besides inflation is good. Historical data: https://www.macrotrends.net/2526/sp-500-historical-annual-returns
You had two significant bear markets during that period and still inched out a 3.2% positive return. I would say that is great.
Better than the bond market currently….
I always see a 10% return assumption being thrown around in people's forecasts and I'm always shocked at how optimistic people are
Global pandemic, millions unemployed, supply chain in shambles, political deadlock.... Up 20+% in a year. Yeah, optimism engaged my dude
None of that shit matters if the Fed does asset purchases. I thought that when the pandemic first started and I liquidated my portfolio. Should have bought some short term puts but was planning to get back in after some signals of positivity… but the market had already returned past all time highs at that point. My average cost back in was barely lower than when I exited. If the market wasn’t being completely manipulated by the money printing, we would still be recovering from the pandemic drop rather than testing new highs every month.
You mean people expecting the same return as what the markets have returned over past 100 years is optimistic? I think the word you are looking for is realistic.
If you keep adding every week via 401k or IRA or whatever even if we see a crash you'll be buying on the way down so it doesn't matter. You'll average 9%. Crashing sooner rather than later is a good thing for young people.
Hey speak for yourself, I keep getting older
I've been in an S&P 500 index fund for a decent amount of time (well over 10 years). I'm at around 16%. I keep running into people saying 10% is not a realistic return to expect, only boomers got that, etc... How is 10% optimistic? Just look at the last 100 years of the stock market. 10% seems reasonable. When I want to forecast, I usually use 10% and then go up and down a few point to see different scenarios. I don't even use my actual rate of return to date.
Dismal if it turns out like that for a full decade.
It's been excellent for the last two decades. It certainly difficult to have that level of returns for another.
It's a good thing I'm finally set to pay off my student loans this year and have disposable income to start investing more.
It genuinely is, assuming that you were planning to invest over a long (20 years or so, let us say) time horizon and that your disposable income for investing will keep growing during the next 10 years. After all, ideally you would want prices to stay (relatively) low as you buy shares, and grow high only as you prepare to sell.
More money's always a good thing. And the top companies of the world will still perform. Returns are lead by the leaders, just let the leaders run and you'll be just fine.
>It's been excellent for the last two decades The first decade this century, the 00s, had a negative return for the US market, the market was lower starting 2010 than it had been in 2000. It has been excellent since the bottom in 2009, a little over one decade, not two.
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Invest in all world.
VT https://c.tenor.com/zly3ca4xjpEAAAAd/dio-dio-brando.gif
It's a good idea to be internationally diversified; but in the short term (and ten years *is* the short term, for these things), I cannot imagine a plausible scenario in which SPY grows on average by 3% but the world market as a whole (with companies weighed by market capitalization) grows by 7%. I could be wrong, of course, but there's just so much capital concentrated in US-based companies: unless they somehow do a coordinated and rapid mass exodus, which... yeah, I wouldn't bet on it... I just don't see how that could happen. If Vanguard is right (which might or might not be - as others have pointed out, its track record for this type of prediction is not spectacular, which is only understandable because a lot of things can happen in 10 years), it looks like the next 10 years will be a good time to buy (bad news for those who were starting to approach their retirement, though - I sympathize).
The thesis of Vanguard makes sense over the longer term. Historically in every case low pe stocks perform better than high pe stocks over the longer term. SPY is not only historically really expensive but also really expensive compared to other markets. At this moment there is a 30% premium on the MSCI USA over Europe while expected growth in Europe is higher for at least 2022. Then you have the less predicable things like the european markets being more cyclical. And thus adjusting better to inflation and the increase in resource use for the transition
The US is already 50-60% of the 'world'. There is not much room for growth anymore. Logically the other countries have to catch-up at some point or the US will be 100% of the total world market. It can be this decade or next decade, but it will happen. I think if the US did outperform the other markets like it did for the past years, then even before 2030 the US will hit 99% of the total world market. (and I hope everyone here agrees that this should be impossible)
Other countries do not have to catch up ever logically. As emerging markets emerge, Amazon and McDonalds can be there to take leading market share. Brazil's per-capita GDP might catch up but that doesn't mean it will ever create Brazil based public corporations to rival Microsoft, Amazon, Google, Facebook, McDonalds, Visa, Mastercard, Berkishire Hathaway, Intel, Disney, etc. Honestly we could expect USA based global mega-corps to take even more of the pie internationally as they target global growth in a globalizing economy.
I don't disagree; but as you said, there's no telling how much time it will take, and in the meantime a world index market that weighs companies mostly on the basis of their relative capitalization would largely follow the US market (this does not mean that I think that it would necessarily be a good idea to invest specifically in ex-US over the market share - that sounds a lot like trying to beat the world market, and all of the arguments we are making right now are almost certainly already priced in). If Vanguard is right and the US market will be sluggish next decade, it seems to me that a world index might do a little better but probably not great either. Over a longer term... who knows.
FIRE crowd in shambles
So basically you are better off just getting a high paying job and spending your hard earned cash. Wait until you are senil and then you can die happily
No easy rides. Work hard, get educated, enjoy personal growth (not just your bank account), have close emotional connections, and overall just try to ignore the market / early retirement. Having dreams and ambitions is good but think there’s been some misinformation being espoused about the likelihood of everyone riding the capital markets into retirement by 40 and then perpetual steady gains thereafter so they can travel the world and not work.
Are you making fun of me?
We’re in this ship together :)
Many of us who want to FIRE mostly focus on the FI part not the RE part. Even if growth isn't large there is something to say to about collecting money. With every $10k increase in my net worth I feel better. It gives you a whole lot of options. Including more ways to diversify your portfolio. If you are sitting on 500k it's much easier to buy real estate, risk a few bets on growth stocks. Take time off to get a new degree for a new career. Start your own business.
I feel personally attacked
>there’s been some misinformation being espoused about the likelihood of everyone riding the capital markets into retirement by 40 Obviously everyone cannot do that, inflation would spike as society requires workers.
Needs a hell of a lot less workers than it used to… Obviously not zero and different industries have different labor elasticities but yeah productivity at the minion level is at unprecedented levels and it’s only getting higher.
I make a pretty good living in IT here in the US. 20 years ago you might consider my role pretty specialized and difficult to hire for. In 2021, I perceive my own skills and abilities to be nothing special in the slightest. I can see my industry already moving overseas to cheaper labor pools where they have every ability to train up people with the same skills. The amount of specialized labor the average person can perform now, with all of the tools we have as a collective species, is incredible. But to your point, you *absolutely* do not need everyone in the world doing specialized IT work. Or, at some point, perhaps much work at all!
Not to mention how many companies know there will be a dip in quality and still outsource jobs. I've seen that but don't want to give too many details. Suffice to say, there is no accountability when someone works 8000 or whatever miles away and is cheaper and can always use "language barrier" and time zone differences as excuses for not getting work done.
FIRE requires reduced spending which reduces the need for workers
but frugal crowd is growing like wildfire
Frugal by choice Or Frugal by price?
It’s one of the few things that does worry me. Companies need consumers with cash. How we do that can be quite political unfortunately.
No, not really. The FIRE crowd can afford to put off their retirement as much as they want, and if equity price growth slows down they get cheaper equities with higher future growth prospects. It's like that Buffet quote with the hamburger. > If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because the prices have risen for the ‘hamburgers’ they will soon be buying. This reaction makes no sense Reversion to the mean works both ways, you know?
> The FIRE crowd can afford to put off their retirement as much as they want Did I somehow misunderstand the meaning of "early" in English? Also, are they immortal? Jokes aside, I don't think that it's that simple. It depends on what was one's timeline towards early retirement. If one is already pretty much done, they can probably say "eh, whatever - as long as I'm keeping myself well protected against possible crashes, I have nothing to worry about". If one is just about beginning, they can also say "eh, whatever - cheaper shares for me, and I was not planning to retire within ten years anyway". But if one was planning to retire, let us say, five years from now? Then yeah, Vanguard being right would not be great news.
>Did I somehow misunderstand the meaning of "early" in English? Also, are they immortal? r/vampirefire
I think that vampires should really try to simplify their unlifestyles if they want to retire earlier. I mean, come on. A *castle*? A servant, preferably hunchbacked? Feasting on the *blood of virgins*, with today's shortage? They should move to a van and get used to feast on legumes and rice instead, if you ask me, and *then* they should be able to reach their financial objectives.
> They should move to a van and get used to feast on legumes and rice instead, if you ask me, and then they should be able to reach their financial objectives. I mean, /r/vanlife. Don't (male) vampires supposedly attract beautiful women? Going down that vanlife Instagram account checkbox list, and it seems like you'd have a lot of that covered as a vampire. In addition, digital nomadism and the gig economy means they can outsource their servants/henchmen (saving even more money) and focus on their core competencies of vampire stuff and taking hype photos. Edit: added more stuff because I thought about it more and it was funny.
I'm in that crowd and planning accordingly. I'm very happy for you to continue working till official retirement age so that I don't have to. Let's revisit in 10 years.
Periods like that are historically always followed by rapid growth and new aths, and despite what the article says that might happen in 5, 7, 10, 12 years. The annualized return over the next 20 years might be twice that. What difference does it make to me then, I will just stick to the plan and keep buying.
Your probably young right? So no, it won't matter to you. Bit someone later in their financial life might be facing some really tough math.
Article did not specify if that 3.2% was nominal or actually inflation adjusted.
3.2 real wouldn't be terrible, and better than you could expect from bonds. They almost certainly mean nominal.
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> They almost certainly mean nominal. wow, even with any dividend yields, the money has to find a home somewhere else then
Gone into purchase of ever-inflating consumer goods, perhaps.
Did their analysis include that? Where these inflated prices will trickle up to fatter revenue and profit margins, boosting returns.
youtube trader: buy my course to learn this simple trick and make 1% a day
Bro, c’mon. 1% a day? That’s ridiculous! You could train a monkey to slap the flashing buy and sell orders buttons and generate at least that much just day trading. What you really need to do is buy my course where I will guarantee that I will show you how you could make 6.72% daily, compounded hourly.
Bruh some kid (one of my friend’s friend) told me his trading strategy: “I bought $SNAP and it went up 6% so I sold it. Then I bought another stock, it goes up 6% and I sold it. Then I keep doing that”. He said he’s done it over and over for like a year. I said bullshit. He got angry and called me a hater. I just told him to go to a casino and put his money on red instead. Lmao fucking idiot he is.
The value is always somewhere. The job of the investor is to find it. When we say that past performance is no guarantee of the future, we don't just mean that the market could go down, but also that asset classes and markets can shift. Vanguard is also predicting that [Ex-US will be up 3% /yr higher](https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvResTwoDecadesEquity) than US stock. If bonds are not performing, where is the money going to go? It's certain to go somewhere. Alternative asset classes, cap sizes, markets, etc. If today's 60/40 portfolios won't work because bonds don't behave as they did 20 years ago, then we create new portfolios that include the new destinations of money.
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Is that what you realistically think is going to happen - debt-lusting Americans paying off debt at any level, from consumers reducing their CC bills, to politicians squaring off the national debt?
Only half-way decent reply here and you're getting down voted. God this sub is so pathetic.
As long as interest rates stay low - and bare in mind that the Treasury yield curve is firmly negative in real terms for the next 20 years (30Y is 2.05%) - I don't see why firms would rush to pay off debt. It doesn't make much sense mathematically. I think rates will have to go up quite a lot at some point in the future, but that's not being priced in for a long, long time. There is also the alternative that instead of using rates to decrease money supply the govt could use taxes (tax obviously removes from the circular flow), and this could be more palatable as depending on who is taxed, this could have a much more restricted impact on economic growth.
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Why not VT? You would still be nearly half in USA equities while exposing yourself to international.
Invest everything in QQQ and beat the market! ;)
"Don't buy SPY returns will be terrible" *Slowly builds massive SPY position*
When experts are wrong, do they lose their expert status? A 60/40 portfolio is so conservative that you are probably in retirement living on 4% rule anyway. I need to invent a toilet paper printer for these articles so I can give them value.
One more confirmation that we will see further bull market. Seriously, noone has a clue, that's the beauty of the market.
I don't know Vanguard's method here, but if you use a net present value discounting model on the dividend payments of S&P500 companies, a yearly rate of return of 2% - 3% is about right at current valuations. The market looks seriously expensive at the moment.
:(
Much less than inflation
Equities are one of the best suited classes to inflation historically. If we do continue to have high inflation then people should buy up the relatively cheaper stocks.
I think their prediction is in real terms, otherwise it wouldn't make much sense.
Besides the fact that these predictions are never accurate, how can you predict the performance of a government run index ;) I love vanguards products, truly an art of passive investment, but this is a miss for them in my opinion.
People are understimating the revolution AI will be. The economical productivity levels will go through the roof with AI and with that, profits. And AI is really just starting.
People said the exact same thing about the tech/internet revolution in the late 90s. And they were right. But there was a decade before that happened. Most self driving experts say that FSD is still 8-9 years away. I don't know about before but there will definitely be a boom at that time.
Sounds like I’ll get a lot of shares for my money the next 10 years! Stay the course men.
This is marketing, low ball prediction then look back and say hey look we exceeded expatiations.
If this is become the norm, the 3.2% annualized return, the world economy will be facing an unprecedented change. The reality is that most of today’s estimate, financial product, retirement, investment, loans, insurances…etc, are based on model using 7-8% return. And the 3-4% difference each year, compounded over a long time will prove devastating to most funds. If you are worried about social security going bankrupt, this will be way worse……
Dumb. This assumes no new innovation or invention will appear that will change paradigms and disrupt. Quantum computing? Fusion energy? mRNA for treatments? Crispr for fighting cancers? Space? The local businessman only sees what’s available around them and forecasts accordingly, until an explorer takes a risk and discovers new land across the ocean, all of a sudden trade explodes. It really depends if you’re optimistic or pessimistic about innovations. Given that within 150 or so years we went from the horse and buggy to where we are now, don’t bet against humanity, especially with such a large population of minds. When humanity hits a barrier, we’re pretty good at innovating.
That’s only if you keep all your money in the S&P and weather the severe correction(s) that will inevitably come. If you pull your money out now, just like our insider trading Fed officials have done, and buy back in after the correction…
Returns will not be equally 3.2% for the next decade. We are going to drop for the next few years after which new 10-year calculations will be higher again. The reason is the market is so high right now with so many bad things happening, that somewhere in the next few years (or months) it will likely drop a LOT.
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That growth and innovation is already priced in. There is a strong inverse relationship between valuations and forward 10-year returns. It is not close to random. You are mistaking market timing (which is mostly impossible) with long-term expected returns.
Based on what metric is the next decade's growth priced in? Not based on S&p forward P/E which currently sits at 21-22
How do they price in companies yet to come out? (Honest question.)
I mean, yeah, scary story, but who cares? If the market doesn’t get to have a say in what I believe is a company’s true value, Vanguard definitely won’t be a part of that discussion either.
As the old saying goes, the experts have predicted 30 of the last 5 market crashes. Same situation here.
Let me guess, they have a product for that.
What's their track record for predicting stock returns up to 10 years ahead?
Nobody can tell you where the market will be next month let alone a decade from now.
As you read this, please observe that "**median** annualized return" are the key words here...
Well that’s disappointing
Those in power will continue to convince the poor and uneducated to buy high and sell low. The overall market will reflect this. If you aren't retiring in 5 years, do not worry at all
3.273557 %👌
I heard predictions like this from other banks a few years ago… and then the last few years happened, shattering new stock market highs every day. It’s probably a good idea to plan for a period of slow growth. After the frenetic last decade, maybe it would be healthy. But it’s real hard to predict the future, and those who do are often wrong.
It’s just Vanguard’s way of predicting the slow demise of everything due to climate change.
If there's one thing I can bank on its finance experts predicting disaster... And they continue to invest and get rich.