Making 11% return in the market

[cronewitch]

Phil thinks 11% over 30-40 years

I budget to get 4-6% but hope Phil is riht.

What do you think the average return on say S&P 500 index funds will be over the next 30-40 years?

[blackcard]

I hope phil is right also. But according to my DH the key is to stay ahead of inflation. 11% increase in the markets will do you no good if inflation is higher. He said that happened back in the 70's. Inflation outpaced the markets for several years.

[whoisjohngalt]

I don't know what it will be, but I also hope Phil is right.

I want to be just like him when I grow up.

Lena

[Deleted]

7-8%

/pulls number out of sky/

[SVT]

Feb 20, 2011 18:35:03 GMT -5 cronewitch said:

Phil thinks 11% over 30-40 years

I budget to get 4-6% but hope Phil is riht.

What do you think the average return on say S&P 500 index funds will be over the next 30-40 years?

The mean is like 10% a year. The worst 30 year return ever for the S&P 500 is like 7.79% but a lot of that was dividend reinvestment as the 30 year returns without it was 2.16! EEK! The best 30 year period was 13.51 with dividend reinvestment, 9.48 without.

I believe in reversion to the mean.

Also understand that simply investing in the S&P 500 is not really diversified, even just for equities, IMO.

[SVT]

The best 30 year return in S&P 500 history I posted above, was 1970 - 1999. Phil retired in 1999 IIRC...

[blackcard]

<<I belive in reversion to the mean>> Thats what DH always says. SVT You related to me/us?

[SVT]

Feb 20, 2011 19:13:06 GMT -5 blackcard said:

<<I belive in reversion to the mean>> Thats what DH always says. SVT You related to me/us?

Haha, who knows lol

And even if Phil didn't retire in 1999, the second best 30 year period was between 1969-1998, the third best between 1971-2000, and the fourth best between 1968-1997. LOL

[phil5185]

He said that happened back in the 70's. Inflation outpaced the markets for several years.

I remember it too, double digit inflation 1979, 80, & 81. (We were pretty happy that Carter was a one-termer).

The constant that keeps stocks growing at 11%/yr is human behavior. Everything around us changes - we moved from gatherers to agrarian to industrial to automation to computerization - with each move we get way more productive, we consume way more goods But the human condition has been the same for milennia.
Humans have always grow the population at about 2%/yr, we desire about 3%/yr more material goods (bigger houses, more cars, TVs), our productivity grows about 3%/yr, and our currency inflates at about 3%/yr. Ie, our businesses are called upon to produce about 11%/yr more goods. So the value (stocks) of business grows at about 11%.
The trend is interrupted by wars, famines, etc, it may be reversed for a decade or more, and but it reverts to the mean. Way over-simplified but that's the concept.
The 'experts' (Money magazine?) say that trends may be only 6% for decades because of some societal shift - but those 'reports' have been mostly wrong for the whole last century - hard to give them too much credibility now.

[debtheaven]

This message has been deleted.

[schildi]

Feb 20, 2011 19:05:24 GMT -5 SVT said:

Feb 20, 2011 18:35:03 GMT -5 cronewitch said:

Phil thinks 11% over 30-40 years

I budget to get 4-6% but hope Phil is riht.

What do you think the average return on say S&P 500 index funds will be over the next 30-40 years?

Also understand that simply investing in the S&P 500 is not really diversified, even just for equities, IMO.

With everything in the SP500, you are not even diversified in equities. U.S. equities, maybe ...
I think we will see 5-6% if we are lucky over the next 30 years in annual S&P500 growth. But it may be far worse.
I also hope (like the others) that I am wrong and Phil is right. Even if my 5-6% is true, there is probably nothing better to invest in out there (except some foreign indexes, maybe), so that's why I hope Phil is right: the majority of my net worth is in the market ....
But only about 50% of my equity holdings are in U.S. equities.

[formerexpat]

Phil thinks 11% over 30-40 years

I budget to get 4-6% but hope Phil is riht.

What do you think the average return on say S&P 500 index funds will be over the next 30-40 years?

When you budget, do you account for inflation?

My base case is 10% stock, 7% bond, 3% inflation.

My worst case is 7% stock, 5% bond, 2.5% inflation.

My best case is 11% stock, 7% bond, 3% inflation.

I'm a huge fan of mean reversion.

Every dollar I put in is with the full intent to allow it to see the full 30 year cycle of the market. I do both the S&P index and total market index for my domestic equities. [/size]

[SVT]

Why both S&P and TSM?

[Deleted]

I'd love to make 11% on average but it doesn't look realistic to me. From 2003 to date, my annualized IRR is 6%, which is what I have in the long-term projection. As you get closer to retirement and move towards more conservative investments, you're going to have a tradeoff of lower return for less volatility.

I see two possible forces at work 30-30 years into the future. One is that the baby boomers will be moving out of stocks. If there aweren't enough people behind them (possibly including investors from outsode the US), stocks won't be as valued by investors. The other is inflation. That tends to push up the returns on most investments; if inflation is 8% annually, for example, no one is going to lend money at 3%. The cirtical variable in any long-term projection is not the inflation rate or the return on investments, but the relationship between the two. If the return is 10% but inflation is 8%, you may be in teh same situation as if the return were 6% but inflation were 4%.

[Savoir Faire-Demogague in NJ]

The long range return for the equities market is just a hair under 11%. This assumes you are 100% in equities.
Additionally, there are numerous segments of the equities markets and one should be thinking of diversifying across all these segments.

[Savoir Faire-Demogague in NJ]

I see two possible forces at work 30-30 years into the future. One is that the baby boomers will be moving out of stocks. If there aweren't enough people behind them (possibly including investors from outsode the US), stocks won't be as valued by investors.

That concept has been analyzed many times. Someone retiring today, at say 65 for example, would be thinking of a minimum of a 20 year horizon. They still need equities exposure.

[DVM gone riding]

I have my expectations set for 8% As long as it does that and I stick to the plan I should come out alright (2-3mil) if it does better great, if it does worse guess I might need a different plan!
But then I have 30 yrs to figure it out so that helps.

[runewell]

I'd like to see exactly where this mysterious 11% comes from. Remember it was only a year or two ago that Phil was using 12% as the magic number.

As i said in a recent post elsewhere, our stock market has required massive overspending and debt to get propped up to the point where it is now, and eventually difficult financial choices will involve extracting more $$ from our paychecks and the result will be lower spending and lower stock returns. I think 6-8% is a good long-term range. If it is higher than that, it will be due to higher inflation, and when we may become millionaires a gallon of gas and a loaf of bread will each sell for $10.

Yeah what Athena said.

[Savoir Faire-Demogague in NJ]

I'd like to see exactly where this mysterious 11% comes from. Remember it was only a year or two ago that Phil was using 12% as the magic number.

The S&P 500 has a long range(75 year) return of around 10.5%, give or take a few basis points.

On a personal note, I am diversified across roughly 18 asset classes. I am not looking for a 10%+ return, or planning on anything. I just keep my head down, fully fund my 401K($22,000) and Roth($6000) each year. Once or twice per year I re-balance to my target allocation.
My holdings have sky rocketed the last two and one half years.

[formerexpat]

I see two possible forces at work 30-30 years into the future. One is that the baby boomers will be moving out of stocks. If there aweren't enough people behind them (possibly including investors from outsode the US), stocks won't be as valued by investors.

A Gen Y population that is just 13m lower than the boomers but will make more as they enter the various age groups than the boomers that will more than offset this difference.

Add in the likelihood that a number of boomers move from the stock market / 401k into annuities, I think the sharp decline that a lot of people speculate about is over rated.

How old are you now, Athena? How much of your portfolio is currently in stocks? Savoir Faire - same question? Most boomers have been moving out of stocks already to weight themselves appropriately as they enter the wealth preservation stage.

On the other hand, aren't we saying that boomers retirement accounts are severely underfunded? If so, then they don't exactly have the assets to take out of the market, do they?

I think people look at Japan and think that will happen here in the US. Japan's population dynamics are completely different than the US. We've got a population that rivals the boomers in size here in the US.

www.stat.go.jp/english/data/handbook/c02cont.htm#cha2_2

www.census.gov/population/www/projections/analytical-document09.pdf

Notice the population distribution difference in the two countries, both currently and as expected in 2050.

While I agree that there is some pain due to the aging population, it is nothing like Japan that will look like a funnel in 40 years.

The US is also unique in the sense that we can attract [at least now] the young and talented from other nations to create a strong base of tax payers for our aging population.
[/size]

[formerexpat]

Why both S&P and TSM?

Over the long run, there is very little difference between the return of the two [something like 20 bps difference].

I'm unsure which will perform better over the next 30-50 years so I've got it split in half so I get 10 of the 20 basis points.

That's of my domestic equity exposure. My overall equity exposure is 30% international weighted right now [so 70% going to domestic, split 50/50 between S&P and TSM index]. I may weight heavier in the future as there are more regulations in some of those emerging markets. [/size]

[Deleted]

Feb 21, 2011 12:52:48 GMT -5 formerexpat said:

How old are you now, Athena? How much of your portfolio is currently in stocks?

I'm 58 and about 65% in stocks. It's a bit aggressive but I'm planning to work to age 65 and so far I see no reason that won't happen. I;ve also got enough that I could live off selling the bond-type investments for awhile if the stock market crashed and I wanted to wait for a recovery. I agree with those who say retirees always need some equities. I need look no further than a friend who works in the trust department of a bank, helping little old ladies renew their CDs when they mature. They're not happy at the returns they're getting.

[cronewitch]

I am about 100% equities at 62 and don't believe in bonds or cash as investments. I don't plan to spend all my investments in retirement and expect most to be left when I die. When I am 82 I won't want to see that I went safe at 62 and have 20 years of no growth. I will probably retire at 65-67 and the first few years spend very little of my investments maybe 2% the increase it to my RMD at 70 plus 4% of my taxable and ROTH accounts.

I don't have big wants for money and have rental income so only need about 5-10K from investments but expect to get 20-40K so they can keep growing. I expect my rental income to end about 70-75 when I plan to increase my withdrawals.

I am starting to feel rich like I can meet all my personal wants and have money leftover. I will gradually increase my spending. Today I am taking people out to dinner to a pretty nice place spending about $150-$200 for dinner. That would have been a major expense a few years ago now it is no big deal.

People sometimes see retirement as the end line of investing for retirement but to me it isn't even really much past the beginning. More and more people are living really to old ages. We are also more active than earlier old people. You can't spend it all the first year or even the first 10-20 years and have enough for old age.

[Regis]

The S&P 500 has a long range(75 year) return of around 10.5%, give or take a few basis points.

Today the S&P 500 stands at 1343.01. On 2/21/50 (as far back as I can get historical prices on Yahoo Finance), it was at 17.17. That works out to approximately 7.4%.

[runewell]

Feb 21, 2011 14:26:56 GMT -5 Regis said:

The S&P 500 has a long range(75 year) return of around 10.5%, give or take a few basis points.

Today the S&P 500 stands at 1343.01. On 2/21/50 (as far back as I can get historical prices on Yahoo Finance), it was at 17.17. That works out to approximately 7.4%.

And it doesn't include dividends.

[formerexpat]

Today the S&P 500 stands at 1343.01. On 2/21/50 (as far back as I can get historical prices on Yahoo Finance), it was at 17.17. That works out to approximately 7.4%.

As runewell said; excludes dividends.

politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html

Go back as far as 1871. Play with 30 year investing block periods [the period which most people have to invest in the market before having to move to wealth preservation mode; although, as Crone and Athena have shown, you can still remain fairly aggressive as long as it fits your plan]. Have a blast.

From 1933 to now, the gross return including dividend reinvestment is 11.03%. I use January 1933 because that is after the formation of many financial regulations from the SEC acts of 1933 and 34.

As an FYI, the 1950 to now period that you used above was 11.05% including reinvested dividends and before inflation.[/size]

[runewell]

That's a handy site. The return since 1950 was 11%, and you lose 3.7% of that to inflation, so the return was 7% over inflation.

[formerexpat]

That's a handy site. The return since 1950 was 11%, and you lose 3.7% of that to inflation, so the return was 7% over inflation.

Precisely. Stocks generally return 6.5-7% above inflation while bonds will generally return approx 3-3.5% above inflation. This largely pays the investor for the differences in risk that the investor is taking since risk and return are proportionate.

CD's, savings and other vehicles that have essentially no risk, will return the rate of inflation [i.e. 3.5-4%].

It's important to keep an appropriate amount of risk [and therefore return] even as you close in on and are in retirement. You won't need your entire nest egg on day one of retirement. The hope is that you'll live a good 20 years in retirement. You'll be a lot more comfortable if you maintain the age appropriate amount of risk. [/size]

[cronewitch]

The hope is that you'll live a good 20 years in retirement.

Read more: notmsnmoney.proboards.com/index.cgi?board=finance&action=display&thread=3663&page=2#ixzz1EdhDxOMQ

If you retire at 65 or so that 20 years is only to about 85. The odds are you will live much longer than that, at least one of the couple if you have two people.

Mom retired at 61 and is 84 so it has already been 23 years and she is in perfect health pretty much, doctors are saying she has no reason not to live to 120. Odds are she will live another 10-15 years and is glad she isn't poor now thinking she would be dead by now. My grandmother retired at 57 and lived to 98 so over 40 years of retirement.

[Regis]

Great site. Goes to show you how much difference dividend reinvestment makes when building wealth.