5 ms·

That's pretty accurate. Vanguard estimates US equities 10 year returns in the range of 2.3%-4.3%. And inflation is at 7% right now. https://advisors.vanguard.c

by keltex 5y ago

That's pretty accurate. Vanguard estimates US equities 10 year returns in the range of 2.3%-4.3%. And inflation is at 7% right now. https://advisors.vanguard.com/insights/article/marketperspectivesdecember2021 https://advisors.vanguard.com/insights/article/marketperspec...

sokoloff 5y ago
It seems pretty unreasonable to take Vanguard’s equities return projections over the next 10 years and simultaneously ignore their inflation projection from that same source. Equity returns and inflation are not independent and the assumptions that led to their equities prediction are embodied in their inflation prediction.
MontyCarloHall 5y ago
It’s only accurate if 7% inflation also persists for 10 years, which seems unlikely.
- jmarbach 5y ago
  High inflation persisted in America in the 1970s. Why wouldn’t it happen again?
  - anotherman554 5y ago
    Because we have different Federal Reserve policy than we did in the 1970s, for one thing.
    - thallium205 5y ago
      The fed in the 70s slowed inflation by raising interest rates to 20%. The current fed will never do that.
      - sfe22 5y ago
        Correct. And there is a reason, at 10% interest rate, the federal government is bankrupt.
  - vkou 5y ago
    It could happen again, but equity returns wouldn't be sub-inflation for 10 years, because the real economy isn't shrinking by 4% a year.
anotherman554 5y ago
Vanguard's estimate of returns is not independent of their estimate of inflation. Vanguard estimates returns will be higher than inflation.
apatters 5y ago
That estimate seems wildly low given that the S&P 500 has returned about 10% a year since its inception 65 years ago. Also from your link, Vanguard estimates about 2% annualized inflation over the next 10 years.
- marcusverus 5y ago
  Annualized returns for the S&P from 2013-2021 was ~15% per year. For 2019-2021 the average was 24% per year. The idea is that future returns will be lower because those some of those expected future "real" gains (i.e. gains from growth and dividends) are already reflected in the current price (i.e. speculative gains). That these recent years of high returns are due to speculation is clear from the abnormally high PE ratio. Of course, Bogle has been saying stuff like this for awhile, so who knows. He was saying that future gains would be lower back in '17, and look where we are now.
  - shapefrog 5y ago
    If I cast the slide ruler over these numbers it suggests the period of time is decreasing, while the returns for said period are increasing. Thus the next values in the series are as follows; Full year 2022 +33%, H1 2023 +42%, Q3 2023 +51%, August 2023 +60%, first 10 days of Sep 2023 +69%
ska 5y ago
> 10 year returns in the range of 2.3%-4.3%. And inflation is at 7% right now. Usually those sorts of estimates are on real returns, so factor in inflation (i.e. 2.3%-4.3% above inflation). That is about right in historical data over most 10 year periods. That said there have been periods of negative real return, but are you sure this is what Vanguard is predicting?

by keltex 5y ago

sokoloff 5y ago

It seems pretty unreasonable to take Vanguard’s equities return projections over the next 10 years and simultaneously ignore their inflation projection from that same source. Equity returns and inflation are not independent and the assumptions that led to their equities prediction are embodied in their inflation prediction.

MontyCarloHall 5y ago

It’s only accurate if 7% inflation also persists for 10 years, which seems unlikely.

jmarbach 5y ago
High inflation persisted in America in the 1970s. Why wouldn’t it happen again?
- anotherman554 5y ago
  Because we have different Federal Reserve policy than we did in the 1970s, for one thing.
  - thallium205 5y ago
    The fed in the 70s slowed inflation by raising interest rates to 20%. The current fed will never do that.
    - sfe22 5y ago
      Correct. And there is a reason, at 10% interest rate, the federal government is bankrupt.
- vkou 5y ago
  It could happen again, but equity returns wouldn't be sub-inflation for 10 years, because the real economy isn't shrinking by 4% a year.

anotherman554 5y ago

Vanguard's estimate of returns is not independent of their estimate of inflation. Vanguard estimates returns will be higher than inflation.

apatters 5y ago

That estimate seems wildly low given that the S&P 500 has returned about 10% a year since its inception 65 years ago. Also from your link, Vanguard estimates about 2% annualized inflation over the next 10 years.

marcusverus 5y ago
Annualized returns for the S&P from 2013-2021 was ~15% per year. For 2019-2021 the average was 24% per year. The idea is that future returns will be lower because those some of those expected future "real" gains (i.e. gains from growth and dividends) are already reflected in the current price (i.e. speculative gains). That these recent years of high returns are due to speculation is clear from the abnormally high PE ratio. Of course, Bogle has been saying stuff like this for awhile, so who knows. He was saying that future gains would be lower back in '17, and look where we are now.
- shapefrog 5y ago
  If I cast the slide ruler over these numbers it suggests the period of time is decreasing, while the returns for said period are increasing. Thus the next values in the series are as follows; Full year 2022 +33%, H1 2023 +42%, Q3 2023 +51%, August 2023 +60%, first 10 days of Sep 2023 +69%

ska 5y ago

> 10 year returns in the range of 2.3%-4.3%. And inflation is at 7% right now. Usually those sorts of estimates are on real returns, so factor in inflation (i.e. 2.3%-4.3% above inflation). That is about right in historical data over most 10 year periods. That said there have been periods of negative real return, but are you sure this is what Vanguard is predicting?