Kudos for the Video! Excuse me for chiming in, I am interested in your initial thoughts. Have you thought about - Rozardner Mind Tricks Reality (do a search on google)? It is an awesome one of a kind product for revealing the trick to get the mind of a millionaire minus the hard work. Ive heard some decent things about it and my best friend Jordan at last got great success with it.
Yeah but those "random and extreme" returns don't happen over night, particularly if you hold some bonds. As long you're prepared for a unlikely but possible 20% loss on your investment, then you have nothing to worry about.
Learned more from this guy than the entirety of my high school career. Yes, that's an insult to my teachers, my school, and the Canadian education system.
Not really. I remember learning about business at school. Unfortunately, not everyone paid attention, and later blamed the education system for their own problems.
For 10-year future returns for stocks, I estimate the return by 1/PE10. It is hard to find PE10(Shiller PE) data for anything other than S&P 500. In this case, I use the standard PE. I compare the PEs for large and small cap, value and growth, foreign and emerging market and moderately tilt my stock portfolio by rebalancing to lower PEs where I believe the expected return are higher. Financial firms also give estimates on future returns and I also take those into consideration. These usually agree with my estimates as they use similar analysis that I have learned.
Ben, your content is insanely good. I've been working through your channel and the quality is consistently excellent. I love the information-rich format and your rigorous, evidence-based approach. For the life of me I can't work out why you don't have more subscribers. I'm so glad to have found your channel, thank you ! As far as your question of "how do you estimate future returns ?", I look at the consensus and then assume about half that much to be safe :)
To be honest, it was a very vague statement. A good thing for sure. I'm not sure of your understanding of LSD, but it basically activates the whole brain(not too literally) and gets you going mentally. You start thinking about things you wouldn't normally in different perspectives that weren't available to you before taking it. Long story short, I feel like thats who you are for the investing community. Your videos cover things I've never thought of in investing and you do it well. You're so unbiased at times that it hurts(compliment), yet another thing that happens when you take the substance. It makes it so you can't lie to yourself, you can't accept falsehoods, and you want to find the truth and only the truth. Hopefully that helped clarify where I'm coming from.
Thanos sums up long term investing nicely: "The hardest choices require the strongest wills." (Buy a market tracking ETF then choose not to look at it for at least 3 years = true long term investor).
You mentioned in a different video ETFs that rebalance regularly is a good thing, but you also say active fund managers rarely outperform the market. What's the different between a fund that someone regularly rebalances, and an active management fund? Thanks for your videos, they're very insightful!
Rebalancing is just keeping things the same. You decide that you want 50% of your portfolio in Canada and 50% in the US. If Canada beats the US stock market for a few years, your 50/50 allocation will be undone. Rebalancing just means putting it back to where you intended it to be. This is a rules-based decision. Active management would be more like thinking that right now we should be 60% Canada and 40% US, and then deciding next year that we should change to 20% Canada and 80% US based on how we think each market is going to do. That is a prediction-based decision.
I made an experiment by downloading daily prices for the past 10 years and calculated annual returns by dividing a price a year from a given day's price. The data I got is much more interesting than the one obtained in the classical way of calculating returns that relays on setting a specific time distance between the data points. Though, you cannot compound these returns, you can estimate an expected annual return and volatility. I still need to find out if there is much sense in doing it that way. I actually done it to avoid scaling of daily volatility, as returns are not normally distributed. Thus you have to take into account autocorrelations. There are some methods for that, but they are complicated. The more you study the math the more you understand that you don't understand anything and that the traditional finance are broken.
Far more money has been lost preparing for corrections than corrections themselves. Today is 2/1/2020 and the DOW has just crashed 600 points for the coronavirus. Thanks Ben, I was on the fence. Sticking with it!
JC watch the next couple of weeks it will take off. They claimed to be able to treat the virus and the China markets will open back up and the money will flow like crazy
Great content here. The question that is not clear to me is: once you estimate the future expected returns in say next 10 years, how do you act on this information? One way of thinking would be that if the expected return of stocks is lower , you increase the stock part of your portfolio to reach your goal, but that seems crazy to me. I would try to optimize the level of returns of the total portfolio for a given risk profile and that would mean to decrease the stock part of the portfolio when the expected return is low and increase it, when the expected return is higher. On the other hand, isn't it that a kind of market timing? Which percentage of stocks would you recommend at a certain expected return value?
To be honest, I don’t think we’ll use this information at all. It’s just us being super geek about our investments and trying to let the time pass as we get distracted with random data. Btw I love it.
This video does an excellent job explaining the tumultuousness that is to be expected of the stock market. That is, having an extremely high- or low-yielding year should not be an indication for one, in either direction, to lose one's senses or one's mind.
Hi Ben, if the average stock market return is just above 5% above inflation, do you really have to take the risk of 50% or more market downturns to get exactly that? What do you think of low volatility ETFs like SPLV and EFAV?
Good analysis..one thing that seems to be a "Gospel" in investing is "do not try to time the market"-yet investing at the "bottom" seems to be a valid way to increase overall return. How to determine the bottom? As you point out-this is very difficult. I am interested in non-market signs that might yield such information-such as the high end art markets-the theory being that if the ultra rich see no prospects for good returns, they will buy stuff like Chinese antiques or Rembrandt paintings. I wonder about you thoughts..Highs in these markets might sisgnal a low in the stock markets/.
There's no good way to time the bottom. DCA'ing over time habitually is your best bet. Maybe, when times are rough and your assets aren't doing as well as you would hope they would, that would be an opportunity to try and contribute a little bit more that month.
with this numbers and time frames(at least 10 years) to get some potential return, i just dont see that much value in investing when you can open an certificate of deposit at term with the bank and get 5% annual return without asuming any risk. your videos are great i learn a lot from them but making the expectations as low as that i think is detrimental
As someone who just started investing; I just buy as per name some ETF and have that as my weekly lottery to see how it's doing (not selling, but just following. This replaces the need for doing actual lottery.) The actual investing plan is in ESG indexes and stocks, fairly well knowing that they'll underperform the market. My reasoning being that I don't want to benefit from environmental or socially harmful stocks and my hope and wishes are in politics actually putting hard quotas for example carbon emission, as in that case my holdings have "real" upper arm compared to average market. And if this keeps me entertained for next 3-5 decades, then it can also pay for additional retirement. (living in Europe and country forcing employer to invest 26% of my pre-tax salary to common retirement fund, so basically I wouldn't have to do anything and I still wouldn't starve to death on my old days.)
I'm considering in estimating future returns using the forward earnings yield, however I'm still unsure about that. The fact that so many big firms give lower estimations makes me think that I'm too optimistic.
I've created a model that uses CAPE and PB to shift allocation from 90% to 10% between US, DEV and EM, depending on those numbers. My back testing of this model (which goes back to 2004), gives me a smoother curve (lower volatility) and superior return relative to the winner since then, the S&P500. This model today, June 2019, calls for substantial under weighting of US market, which requires some courage to implement, specially because I reside in the US. But the back-testing and my global mobility serve as support.
My estimate for long term future returns = growth + dividend yield (if reinvested) + upside or downside due to adjusted-to-risk-free-interest-rates-historical average valuation
No one can predict the future but a globally balanced diversified approach with ETFs and bonds and long term 40 years at least view holding is the only hope
When determining how much you need for retirement, is there any data on the difference between a retiree who spends a fixed amount annually vs. one who varies their expenses to spend more when markets are up and less when they are down?
Absolutely. Variable spending strategies give you better chance of not running out of money while also being able to spend more of your wealth over your lifetime. However, you have to live with a variable income which may affect lifestyle. There are a lot of very personal tradeoffs there that any retiree has to weigh.
I remember someone important had said: "The markets will do what they always do: Fluctuate." That being said, I would tentatively guess that a 5% rate of return could be a reasonable expectation.... No one knows though, and there few better places to put one's investment capital. Most productive assets, on average, won't beat buying and holding an index fund. Even if the future return is as low as 1%, that is probably the best return you could get in that time period anyway, so I suppose regardless of the return, if you think the economy will still exist later on, stay the course with index funds.
So is the return percentage, a return on what the market makes in total? For example if the market made 60 dollars total, I get whatever percentage of that? Or no
Hey Ben, Given that returns for any given year are so variable, what do you suggest that people do with the money that they will likely need in 2-3 years time/to be liquid? I get that money that you can afford to invest long term should go into low cost market ETFs... but what about the capital that one will likely need on the order of 2-3 years or any time shorter than "long term"? Do you suggest lower risk investments or just holding it in cash? Thank you!
Hey Rajesh, Anything needed for a known expense in 5 years or less I would park in a high interest savings account like www.eqbank.ca/ (up to $100k). If the time frame is certain (which it rarely is) you can use GICs to get a bit more yield. The problem with GICs is that people don't usually have expenses with a concrete timeline, and even if they think they do a lot can change in 5 years.
@@BenFelixCSI What about relatively safe bonds and holding them to maturity? Thank you! Love your videos - they are my go to for investing. Appreciate your time.
@@rajeshbhayana2934 Good question. The idea that holding a bond to maturity avoids losses is not rational. When rates go up the value of your bond goes down because its economic value relative to new bonds issued at the now-higher rates has decreased. Even if you hold to maturity and get your principal back, you have accepted lower interest for the remaining life of your bond. You should be indifferent between selling a bond at a loss and buying a new higher yielding bond and holding your bond to maturity. I have a video coming out about this soon. Thanks for the kind words!
Thanks! That makes sense -- but if you hold a bond to maturity and receive a rate that is still superior than savings accounts and GICs in that time-frame (
Keep me calculations simple. Expected return before retirement 8%, during retirement 6%. I also calculate inflation to be 2.5%. That's the longterm historical average, not 1.7% as suggested in this vid.
Those numbers are too high. Historical is not a good estimate of the future. Methodology for 1.7% is the spread between a real return and nominal 30-year bond. Methodologies for expected returns are here www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Kerzerho-Bortolotti-Great-Expectations-2019.pdf
I guess if you invest long term in the market and wanted to make a large exit the strategy would be to wait for a year with returns of higher than 15% but how frequent is that in a 5 year period or even 10 year?
That sounds like a market timing decision. You're more likely to lose than win by trying to wait for the right time to exit. If you know that you need a substantial portion of the portfolio to be liquid, it should not be invested aggressively in the first place. A retiree, for example, needs only tiny amounts of the portfolio each month. They are able to stay invested without worrying about needing to withdraw everything when it's down.
Agreed, but if you're invested for 20-30 years and decide you want to start exiting for retirement or perhaps buying a cottage or something. then what? I suppose a retiree in your model would just sell off a small portion every month or so to pay for their expenses regardless of the markets going up or down?
@@JustinDuhaime Yes you've got it exactly right. Something like a cottage would be planned for years in advance either through savings or selling a chunk of the portfolio. The challenge with waiting for the right time is that markets could decline for 10 years. In that case the right time, in hindsight, was the beginning of the period.
Can’t you just fit the parameters of a normal or t distribution to past data and use that to estimate the distribution that future yearly returns are drawn from? Assuming yearly returns are drawn from a stationary distribution. It’s not going to be super precise for any given year, but there’s nothing to stop you expressing your beliefs about the future return distribution.
You know it is funny. I have used sites like portfolio manager and some estimates from the SP500 but i still want to learn more and utilize the shill CAPE ratio. I can't wait to read your paper!
Ben says that global real (inflation adjusted) stock market returns have been 5.2% on average since 1900. A PhD thesis done in the early 1970's found that long term global real returns, adjusted for survivorship bias, had been 0%. Granted, markets have done better than that since the 1980s, and the U.S. market has done much better than the global market. Another, recent, thesis forecast the chances of losing money in real terms at between 1 and 12% with a basket of stocks held for thirty years. The bottom line is that there is no certainty.
I would just add that Ben Felix obtained his numbers from a Credit Suisse report. That's a very highly respected organization, but it has many employees, not all of whom have proven reliable, resulting in it being involved in a series of scandals in recent years, so take their report with a grain of salt until it's confirmed by others. Also, it is not rare for stock advisors to lead people to expect an unrealistic return.
This might be a dumb question but if you have active mutual fund in ira type account could that be better than index fund since active one will have dividend and capital gains te investment over time
Hi Ben, thank you always for your concise and informative videos! Would "buying US stocks as a Canadian" warrant a video? Is it as simple as using Norbert's gambit to switch currency and start trading, or is there more to it? Is opening a US broker account something to consider?
It's a good question. I did cover this to an extent as part of the Asset Location video th-cam.com/video/vTFP36EfZa0/w-d-xo.html Practically you are correct that all you need to do is find a low cost way to get USD and start trading. I think the considerations are more around how much complexity you want to add to your portfolio. Doing the Norbert's Gambit is not the easiest thing to do. Tracking the Canadian ACB of your US stocks adds a bit of complexity. I think thinking through implications like that are probably more important than the practical elements. Maybe worth a video. I will keep it in mind.
My 401k offers a small cap fund with expense ratio of 0.05% and a small value find with expense ratio 0.6%. I am just investing in the low expense fund. But could the value fund still make sense at the higher expense ratio?
i am looking to estimate a safe rate of return for my retirement planning which will need to be over a 20 year + period. Most of the estimates i see when using the current market P/E ratios are numbers for 10 years. It would seem logical that if due to high valuations the 10 years return would be estimated as 4% for example that using the same logic the next 10 year block should perform higher as the starting point for the valuation is lower? Does my logic make sense here?
If you use the Shiller CAPE to estimate future returns then you will always have a lower expected return when prices are high, and higher expected return when prices are low. Here's a good resource www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Kerzerho-Bortolotti-Great-Expectations-2019.pdf
Ben Felix Thanks Ben, for simplicities sake, if you were going to use an estimated ROR for a 70/30 index funds mix over a long term period (30 years +), what would you use as conservative and real. I know this is a pie in the sky question but we have to use something right? Thanks for your help, great channel by the way. Do you do any financial advisor work or are you just an investment guy?
The paper that I linked above shows expected returns for various portfolio mixes, including 70/30. At PWL we do wealth management which encompasses all aspects of financial planning and portfolio management.
Anyone here know why did Russian and China economy go down to zero? Ben has mentioned this in one of his earlier videos too and I could not find any information on it. When communism started in these countries, was there a period where their stock market went to zero? Or did the stock market cease to exist?
This excerpt from the book Financial Market History answers your question: _For Russia and China, market closure was followed by expropriation of investors’ assets, so we have market returns only for the pre- and post-communist eras. We incorporate these returns into the world and regional indices, showing a total loss on both Russian and Chinese stocks and bonds at the start of the communist eras._ www.cfainstitute.org/en/research/foundation/2016/financial-market-history
Here is an interesting question. If the new money managers that Berkshire hired, are just trailing the s&p 500, what does Berkshire gain of having them? They are obviously not doing it for shits and giggles.
Presumably they think the managers are making good long term decisions. I think I saw Buffett say recently that he is not sure BRK will beat the S&P 500 going forward.
@@BenFelixCSI If they raise interest rates, how will that change? When you see the S&P 500's history, there are decade long periods where returns are 0. If you happen to retire at that point, tough luck. Berkshire recovers from crashes much faster. Usually, after a year or two after a crash, they are good to go. This is because they make large investments during the crash. I would argue that Berkshire is much more relyable. The S&P 500 has benefited from these artificially low interest rates but that won't go on forever.
I gave up on stocks, mutual funds quite a while ago. Being 6 years out of retirement my Gics since 2010 have out performed all mutual funds and etfs up to 2018. Go figure. Screw the market.. too dangerous for baby boomers.
Hi Mike, in the long-run I think that GICs alone are riskier than stocks and bonds. That may seem counter-intuitive, but GICs are not likely to keep pace with inflation or allow you to grow your assets enough to last until death. I have to say I'm a bit skeptical that your GICs have outperformed all mutual funds and ETFs since 2010. From 2010 through November 2018 equity markets have been very good. Here are some index returns (in CAD) from 01/01/2010 through 11/30 2018: MSCI EAFE IMI Index (net div.) (International stocks): 7.65% S&P/TSX Capped Composite Index (Canadian stocks): 5.97% S&P 500 Index (US stocks): 16.04% There are low cost ETFs that track all of those indexes, so your GICs would have had to have spectacular returns to have done better than all ETFs. The market is only dangerous if you pick stocks, time the market, or invest in high fee actively managed mutual funds. For a long-term investor (including a retiree) the market is a necessity.
Maybe not but at least I wont half my investments in the market like some people I know did in 09 and have over this past year. Baby boomers should be very very cautious no matter what they hear, see or read on the internet.
There is literally a 0% chance in the past 8 years of you holding only GICs, that you outperformed the market. The Canadian market is up 83% in that time. You did not do that with GICs, because if it was possible everyone would be doing it.
@@Cornuts1000 But here's the thing about the 2008/9 dip: it took about 2-3 years for a lot of funds to recover back to where they were. If you're younger than 65, you're not spending that money anyway, so you can afford to wait for a recovery. If ppl had stayed in during those years instead of pulling out from panic, they would've had their money back and then some in a couple years. I understand it depends on the funds held, but a lot of ppl who pulled out were expecting the apocalypse and the end of the world and that the markets would never recover in their lifetime. Sure they'd have to wait for the recovery, but they could stomach it if they didn't imminently need their money. Sadly, there were ppl who truly needed their retirement funds at the time, but most ppl (assuming they had less risky funds/indexes) would've come out ahead had they just waited.
There are no normal stock returns!The past says nothing about the future!There are changes we never had befor like a fast ageing population!So yes its possibe that this time its diffrent!
Stock Market Returns Per Year are around 5% 😂above inflation ....this is a joke , I know somethings way better like 15% per month #fintech #returns #stockmarket #investment
"Normal returns are random and extreme." So true! That message needs to be understood by every beginner investor.
Kudos for the Video! Excuse me for chiming in, I am interested in your initial thoughts. Have you thought about - Rozardner Mind Tricks Reality (do a search on google)? It is an awesome one of a kind product for revealing the trick to get the mind of a millionaire minus the hard work. Ive heard some decent things about it and my best friend Jordan at last got great success with it.
Yeah but those "random and extreme" returns don't happen over night, particularly if you hold some bonds.
As long you're prepared for a unlikely but possible 20% loss on your investment, then you have nothing to worry about.
This should be required viewing before anyone invests in the market.
Learned more from this guy than the entirety of my high school career. Yes, that's an insult to my teachers, my school, and the Canadian education system.
Same for france....
Not really. I remember learning about business at school. Unfortunately, not everyone paid attention, and later blamed the education system for their own problems.
It's by design that you dont learn this stuff in public education. You aren't meant to know these things.
Hihi
Couldn't POSSIBLY suck as much as the U.S. education system..of which I am unfortunately a product.
For 10-year future returns for stocks, I estimate the return by 1/PE10. It is hard to find PE10(Shiller PE) data for anything other than S&P 500. In this case, I use the standard PE. I compare the PEs for large and small cap, value and growth, foreign and emerging market and moderately tilt my stock portfolio by rebalancing to lower PEs where I believe the expected return are higher. Financial firms also give estimates on future returns and I also take those into consideration. These usually agree with my estimates as they use similar analysis that I have learned.
"Time is your friend. Impulse is your enemy." -Jack Bogle ..."Use DCA and index ETFs and listen to some Ben Felix." - me
Hey, what do you mean with DCA? Greetings from Austria.
Nemanja Lazic dollar cost averaging. Ben also made a video about investing in lump sum or spreading it out (DCA).
@@HoangDuong-mi4ow thanks
Be careful with DCA on ETFs it can lead to punitive transaction fees unless your broker allows a pass to automate your drips.
@@roryboytube i believe most brokers such as Vanguard and Fidelity now have no fees when buying or selling
This video is Investing 101. Everyone should watch and understand this video before beginning any serious investment involving the stock market.
i write -10 to +30 on a board and throw a dart at it...
Ha. I'd do that 1,000 times and take the average.
on 95% confidence level it should be more like -30 to +40
Ben, your content is insanely good. I've been working through your channel and the quality is consistently excellent. I love the information-rich format and your rigorous, evidence-based approach. For the life of me I can't work out why you don't have more subscribers. I'm so glad to have found your channel, thank you ! As far as your question of "how do you estimate future returns ?", I look at the consensus and then assume about half that much to be safe :)
This dude is the LSD of investing. Literally. Super subscribed and bell 🛎
What does that mean? Seems like a good thing in the context, so thanks!
To be honest, it was a very vague statement. A good thing for sure. I'm not sure of your understanding of LSD, but it basically activates the whole brain(not too literally) and gets you going mentally. You start thinking about things you wouldn't normally in different perspectives that weren't available to you before taking it.
Long story short, I feel like thats who you are for the investing community. Your videos cover things I've never thought of in investing and you do it well. You're so unbiased at times that it hurts(compliment), yet another thing that happens when you take the substance. It makes it so you can't lie to yourself, you can't accept falsehoods, and you want to find the truth and only the truth.
Hopefully that helped clarify where I'm coming from.
So of course you're not literally LSD and you're not perfect, but your approach comes very close to perfection. Keep it up
@@BenFelixCSI He means you're the shit mate!
Thanos sums up long term investing nicely: "The hardest choices require the strongest wills." (Buy a market tracking ETF then choose not to look at it for at least 3 years = true long term investor).
You mentioned in a different video ETFs that rebalance regularly is a good thing, but you also say active fund managers rarely outperform the market. What's the different between a fund that someone regularly rebalances, and an active management fund? Thanks for your videos, they're very insightful!
Rebalancing is just keeping things the same. You decide that you want 50% of your portfolio in Canada and 50% in the US. If Canada beats the US stock market for a few years, your 50/50 allocation will be undone. Rebalancing just means putting it back to where you intended it to be. This is a rules-based decision. Active management would be more like thinking that right now we should be 60% Canada and 40% US, and then deciding next year that we should change to 20% Canada and 80% US based on how we think each market is going to do. That is a prediction-based decision.
@@BenFelixCSI thanks, appreciate the response on this 👍
I made an experiment by downloading daily prices for the past 10 years and calculated annual returns by dividing a price a year from a given day's price. The data I got is much more interesting than the one obtained in the classical way of calculating returns that relays on setting a specific time distance between the data points. Though, you cannot compound these returns, you can estimate an expected annual return and volatility. I still need to find out if there is much sense in doing it that way. I actually done it to avoid scaling of daily volatility, as returns are not normally distributed. Thus you have to take into account autocorrelations. There are some methods for that, but they are complicated. The more you study the math the more you understand that you don't understand anything and that the traditional finance are broken.
I've been blow-en away by what you have show-en me about the stock market.
like nearly every question in finance: it depends..
Far more money has been lost preparing for corrections than corrections themselves. Today is 2/1/2020 and the DOW has just crashed 600 points for the coronavirus. Thanks Ben, I was on the fence. Sticking with it!
JC watch the next couple of weeks it will take off. They claimed to be able to treat the virus and the China markets will open back up and the money will flow like crazy
jakemf1 yikes -may 1, 2020
Great content here. The question that is not clear to me is: once you estimate the future expected returns in say next 10 years, how do you act on this information?
One way of thinking would be that if the expected return of stocks is lower , you increase the stock part of your portfolio to reach your goal, but that seems crazy to me. I would try to optimize the level of returns of the total portfolio for a given risk profile and that would mean to decrease the stock part of the portfolio when the expected return is low and increase it, when the expected return is higher.
On the other hand, isn't it that a kind of market timing?
Which percentage of stocks would you recommend at a certain expected return value?
To be honest, I don’t think we’ll use this information at all. It’s just us being super geek about our investments and trying to let the time pass as we get distracted with random data. Btw I love it.
This video does an excellent job explaining the tumultuousness that is to be expected of the stock market. That is, having an extremely high- or low-yielding year should not be an indication for one, in either direction, to lose one's senses or one's mind.
What do you think about the MSCI World?
Hi Ben, if the average stock market return is just above 5% above inflation, do you really have to take the risk of 50% or more market downturns to get exactly that? What do you think of low volatility ETFs like SPLV and EFAV?
Just found your excellent video about low volatility ETFs. Keep up the good work!
I’d be curious to know what the rate of inflation calculates to today using the formula mentioned.
Good analysis..one thing that seems to be a "Gospel" in investing is "do not try to time the market"-yet investing at the "bottom" seems to be a valid way to increase overall return. How to determine the bottom? As you point out-this is very difficult. I am interested in non-market signs that might yield such information-such as the high end art markets-the theory being that if the ultra rich see no prospects for good returns, they will buy stuff like Chinese antiques or Rembrandt paintings. I wonder about you thoughts..Highs in these markets might sisgnal a low in the stock markets/.
You can’t accurately time the market, no matter how clever you think you are.
There's no good way to time the bottom. DCA'ing over time habitually is your best bet. Maybe, when times are rough and your assets aren't doing as well as you would hope they would, that would be an opportunity to try and contribute a little bit more that month.
with this numbers and time frames(at least 10 years) to get some potential return, i just dont see that much value in investing when you can open an certificate of deposit at term with the bank and get 5% annual return without asuming any risk. your videos are great i learn a lot from them but making the expectations as low as that i think is detrimental
5% ? Where do you live ? Intrest rates are more like 1% here :p
As someone who just started investing; I just buy as per name some ETF and have that as my weekly lottery to see how it's doing (not selling, but just following. This replaces the need for doing actual lottery.) The actual investing plan is in ESG indexes and stocks, fairly well knowing that they'll underperform the market. My reasoning being that I don't want to benefit from environmental or socially harmful stocks and my hope and wishes are in politics actually putting hard quotas for example carbon emission, as in that case my holdings have "real" upper arm compared to average market.
And if this keeps me entertained for next 3-5 decades, then it can also pay for additional retirement. (living in Europe and country forcing employer to invest 26% of my pre-tax salary to common retirement fund, so basically I wouldn't have to do anything and I still wouldn't starve to death on my old days.)
25% VTI
25% VXUS
10% SPHQ
10% XMHQ
10% XSHQ
10% IDHQ
10% EEMV
Is a good investment?
Excellent content and you don't seem like a greasy grifter like other YT traders. Subscribed.
I'm considering in estimating future returns using the forward earnings yield, however I'm still unsure about that. The fact that so many big firms give lower estimations makes me think that I'm too optimistic.
I've created a model that uses CAPE and PB to shift allocation from 90% to 10% between US, DEV and EM, depending on those numbers. My back testing of this model (which goes back to 2004), gives me a smoother curve (lower volatility) and superior return relative to the winner since then, the S&P500. This model today, June 2019, calls for substantial under weighting of US market, which requires some courage to implement, specially because I reside in the US. But the back-testing and my global mobility serve as support.
So have you invested or not?
My estimate for long term future returns = growth + dividend yield (if reinvested) + upside or downside due to adjusted-to-risk-free-interest-rates-historical average valuation
No one can predict the future but a globally balanced diversified approach with ETFs and bonds and long term 40 years at least view holding is the only hope
That is true.
Bonds are gross. :)
@@brettmclennan4363 Correction, Bill Gross is bonds.
Thanks for this Ben. Very valuable lessons.
Read the PLW paper and am learning so much. Thanks!
When determining how much you need for retirement, is there any data on the difference between a retiree who spends a fixed amount annually vs. one who varies their expenses to spend more when markets are up and less when they are down?
Absolutely. Variable spending strategies give you better chance of not running out of money while also being able to spend more of your wealth over your lifetime. However, you have to live with a variable income which may affect lifestyle. There are a lot of very personal tradeoffs there that any retiree has to weigh.
I remember someone important had said: "The markets will do what they always do: Fluctuate." That being said, I would tentatively guess that a 5% rate of return could be a reasonable expectation.... No one knows though, and there few better places to put one's investment capital. Most productive assets, on average, won't beat buying and holding an index fund. Even if the future return is as low as 1%, that is probably the best return you could get in that time period anyway, so I suppose regardless of the return, if you think the economy will still exist later on, stay the course with index funds.
Ok so.... what is the actual number then?
So is the return percentage, a return on what the market makes in total? For example if the market made 60 dollars total, I get whatever percentage of that? Or no
i use a mix of (nominal CAPE yield + (vanguard + blackrock estimates)/2))/2
Hey Ben,
Given that returns for any given year are so variable, what do you suggest that people do with the money that they will likely need in 2-3 years time/to be liquid? I get that money that you can afford to invest long term should go into low cost market ETFs... but what about the capital that one will likely need on the order of 2-3 years or any time shorter than "long term"? Do you suggest lower risk investments or just holding it in cash?
Thank you!
Hey Rajesh,
Anything needed for a known expense in 5 years or less I would park in a high interest savings account like www.eqbank.ca/ (up to $100k). If the time frame is certain (which it rarely is) you can use GICs to get a bit more yield. The problem with GICs is that people don't usually have expenses with a concrete timeline, and even if they think they do a lot can change in 5 years.
@@BenFelixCSI
What about relatively safe bonds and holding them to maturity? Thank you! Love your videos - they are my go to for investing. Appreciate your time.
@@rajeshbhayana2934 Good question. The idea that holding a bond to maturity avoids losses is not rational. When rates go up the value of your bond goes down because its economic value relative to new bonds issued at the now-higher rates has decreased.
Even if you hold to maturity and get your principal back, you have accepted lower interest for the remaining life of your bond. You should be indifferent between selling a bond at a loss and buying a new higher yielding bond and holding your bond to maturity. I have a video coming out about this soon.
Thanks for the kind words!
Thanks! That makes sense -- but if you hold a bond to maturity and receive a rate that is still superior than savings accounts and GICs in that time-frame (
You’re right. If you have a specific goal with a specific cost and time frame then a bond or GIC is well suited.
Excellent video
Keep me calculations simple. Expected return before retirement 8%, during retirement 6%. I also calculate inflation to be 2.5%. That's the longterm historical average, not 1.7% as suggested in this vid.
Those numbers are too high. Historical is not a good estimate of the future. Methodology for 1.7% is the spread between a real return and nominal 30-year bond. Methodologies for expected returns are here www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Kerzerho-Bortolotti-Great-Expectations-2019.pdf
If you buy a stock for $100 and it goes up to $200 are you having 100% return in that stock?
well... yes...
I guess if you invest long term in the market and wanted to make a large exit the strategy would be to wait for a year with returns of higher than 15% but how frequent is that in a 5 year period or even 10 year?
That sounds like a market timing decision. You're more likely to lose than win by trying to wait for the right time to exit. If you know that you need a substantial portion of the portfolio to be liquid, it should not be invested aggressively in the first place. A retiree, for example, needs only tiny amounts of the portfolio each month. They are able to stay invested without worrying about needing to withdraw everything when it's down.
Agreed, but if you're invested for 20-30 years and decide you want to start exiting for retirement or perhaps buying a cottage or something. then what? I suppose a retiree in your model would just sell off a small portion every month or so to pay for their expenses regardless of the markets going up or down?
@@JustinDuhaime Yes you've got it exactly right. Something like a cottage would be planned for years in advance either through savings or selling a chunk of the portfolio. The challenge with waiting for the right time is that markets could decline for 10 years. In that case the right time, in hindsight, was the beginning of the period.
Can’t you just fit the parameters of a normal or t distribution to past data and use that to estimate the distribution that future yearly returns are drawn from? Assuming yearly returns are drawn from a stationary distribution. It’s not going to be super precise for any given year, but there’s nothing to stop you expressing your beliefs about the future return distribution.
You know it is funny. I have used sites like portfolio manager and some estimates from the SP500 but i still want to learn more and utilize the shill CAPE ratio. I can't wait to read your paper!
I'll talk about the Shiller CAPE in an upcoming video. Spoiler: don't use it for market timing!
What do you mean by short-term real returns on stock and short term goverment bills?
From where do I get those research paper that you mentioned in the beginning of the video?
It is called the "Google" ... It's great you'll love it.
Ben says that global real (inflation adjusted) stock market returns have been 5.2% on average since 1900. A PhD thesis done in the early 1970's found that long term global real returns, adjusted for survivorship bias, had been 0%. Granted, markets have done better than that since the 1980s, and the U.S. market has done much better than the global market. Another, recent, thesis forecast the chances of losing money in real terms at between 1 and 12% with a basket of stocks held for thirty years. The bottom line is that there is no certainty.
I would just add that Ben Felix obtained his numbers from a Credit Suisse report. That's a very highly respected organization, but it has many employees, not all of whom have proven reliable, resulting in it being involved in a series of scandals in recent years, so take their report with a grain of salt until it's confirmed by others. Also, it is not rare for stock advisors to lead people to expect an unrealistic return.
This might be a dumb question but if you have active mutual fund in ira type account could that be better than index fund since active one will have dividend and capital gains te investment over time
No, indexing beats active management
Both can and probably do have dividends. Capital gains don't matter in an IRA. Active funds usually have higher fees which can lower overall returns
Thank you for this video. So good.
Thanks!
Thank you this was very helpful and informative 👍👍
You just got a new bell from me
Love your shirt!
As with all of your videos... top notch info!
Thank you!
Another great video. Question: is there any evidence that projecting future returns results in accurate projections?
There are some methodologies that are more accurate than others (Shiller CAPE for example) but even then the predictive ability is not great.
I estimate return by praying and crossing my fingers..lol
Thats why Im here...to learn the right way:)
Thank you
Bogle says 3% growth + 2% dividend.
Peanuts then?
@@roryboytube yep but money printing and crazy interest rates are producing a bubble
Can we use debt cycle factor by ray dalio to estimate future returns on equity?
Hi Ben, thank you always for your concise and informative videos! Would "buying US stocks as a Canadian" warrant a video? Is it as simple as using Norbert's gambit to switch currency and start trading, or is there more to it? Is opening a US broker account something to consider?
It's a good question. I did cover this to an extent as part of the Asset Location video th-cam.com/video/vTFP36EfZa0/w-d-xo.html
Practically you are correct that all you need to do is find a low cost way to get USD and start trading. I think the considerations are more around how much complexity you want to add to your portfolio. Doing the Norbert's Gambit is not the easiest thing to do. Tracking the Canadian ACB of your US stocks adds a bit of complexity. I think thinking through implications like that are probably more important than the practical elements. Maybe worth a video. I will keep it in mind.
My 401k offers a small cap fund with expense ratio of 0.05% and a small value find with expense ratio 0.6%. I am just investing in the low expense fund. But could the value fund still make sense at the higher expense ratio?
I'd have to know more about the fund, but my initial reaction is that it's probably not worth it.
Nice shirt🙂
Excellent
thanks great info
Past performance does not guarantee future results, do not voerestimate the value of historical data
I suspect this is excluding dividends. Including dividends stock returns are ~9% nominal and ~7% real in the series I've seen, like Shiller's.
This is total return. Shiller’s data series is S&P 500. Edit: this is total return for global stocks.
But Ben, but Ben, my buddy knows a guy who said.... ______________!
I want a smart guy like you to help me, how can I reach out to you?
i am looking to estimate a safe rate of return for my retirement planning which will need to be over a 20 year + period. Most of the estimates i see when using the current market P/E ratios are numbers for 10 years. It would seem logical that if due to high valuations the 10 years return would be estimated as 4% for example that using the same logic the next 10 year block should perform higher as the starting point for the valuation is lower? Does my logic make sense here?
If you use the Shiller CAPE to estimate future returns then you will always have a lower expected return when prices are high, and higher expected return when prices are low. Here's a good resource www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Kerzerho-Bortolotti-Great-Expectations-2019.pdf
Ben Felix Thanks Ben, for simplicities sake, if you were going to use an estimated ROR for a 70/30 index funds mix over a long term period (30 years +), what would you use as conservative and real. I know this is a pie in the sky question but we have to use something right? Thanks for your help, great channel by the way. Do you do any financial advisor work or are you just an investment guy?
The paper that I linked above shows expected returns for various portfolio mixes, including 70/30.
At PWL we do wealth management which encompasses all aspects of financial planning and portfolio management.
Anyone here know why did Russian and China economy go down to zero? Ben has mentioned this in one of his earlier videos too and I could not find any information on it. When communism started in these countries, was there a period where their stock market went to zero? Or did the stock market cease to exist?
This excerpt from the book Financial Market History answers your question:
_For Russia and China, market closure was followed by expropriation of investors’ assets, so we have market returns only for the pre- and post-communist eras. We incorporate these returns into the world and regional indices, showing a total loss on both Russian and Chinese stocks and bonds at the start of the communist eras._
www.cfainstitute.org/en/research/foundation/2016/financial-market-history
@@BenFelixCSI Thanks Ben 👍
Ben you should wear a power suit
Like an Iron Man power suit?
Here is an interesting question.
If the new money managers that Berkshire hired, are just trailing the s&p 500, what does Berkshire gain of having them? They are obviously not doing it for shits and giggles.
Presumably they think the managers are making good long term decisions. I think I saw Buffett say recently that he is not sure BRK will beat the S&P 500 going forward.
@@BenFelixCSI If they raise interest rates, how will that change? When you see the S&P 500's history, there are decade long periods where returns are 0. If you happen to retire at that point, tough luck. Berkshire recovers from crashes much faster. Usually, after a year or two after a crash, they are good to go. This is because they make large investments during the crash. I would argue that Berkshire is much more relyable. The S&P 500 has benefited from these artificially low interest rates but that won't go on forever.
Can I ask you a question???
I gave up on stocks, mutual funds quite a while ago. Being 6 years out of retirement my Gics since 2010 have out performed all mutual funds and etfs up to 2018. Go figure. Screw the market.. too dangerous for baby boomers.
Hi Mike, in the long-run I think that GICs alone are riskier than stocks and bonds. That may seem counter-intuitive, but GICs are not likely to keep pace with inflation or allow you to grow your assets enough to last until death.
I have to say I'm a bit skeptical that your GICs have outperformed all mutual funds and ETFs since 2010. From 2010 through November 2018 equity markets have been very good. Here are some index returns (in CAD) from 01/01/2010 through 11/30 2018:
MSCI EAFE IMI Index (net div.) (International stocks): 7.65%
S&P/TSX Capped Composite Index (Canadian stocks): 5.97%
S&P 500 Index (US stocks): 16.04%
There are low cost ETFs that track all of those indexes, so your GICs would have had to have spectacular returns to have done better than all ETFs.
The market is only dangerous if you pick stocks, time the market, or invest in high fee actively managed mutual funds. For a long-term investor (including a retiree) the market is a necessity.
Maybe not but at least I wont half my investments in the market like some people I know did in 09 and have over this past year. Baby boomers should be very very cautious no matter what they hear, see or read on the internet.
There is literally a 0% chance in the past 8 years of you holding only GICs, that you outperformed the market. The Canadian market is up 83% in that time. You did not do that with GICs, because if it was possible everyone would be doing it.
@@Cornuts1000 But here's the thing about the 2008/9 dip: it took about 2-3 years for a lot of funds to recover back to where they were. If you're younger than 65, you're not spending that money anyway, so you can afford to wait for a recovery. If ppl had stayed in during those years instead of pulling out from panic, they would've had their money back and then some in a couple years. I understand it depends on the funds held, but a lot of ppl who pulled out were expecting the apocalypse and the end of the world and that the markets would never recover in their lifetime. Sure they'd have to wait for the recovery, but they could stomach it if they didn't imminently need their money. Sadly, there were ppl who truly needed their retirement funds at the time, but most ppl (assuming they had less risky funds/indexes) would've come out ahead had they just waited.
Too many ads 🤢🤮
2:02
There are no normal stock returns!The past says nothing about the future!There are changes we never had befor like a fast ageing population!So yes its possibe that this time its diffrent!
Did you always talk like this or did you get the idea from Obama?
Slow him to 0.75 and sounds even more like Obama :D
Well quality over quantity right?
You sound exactly like Obama lol
Stock Market Returns Per Year are around 5% 😂above inflation ....this is a joke , I know somethings way better like 15% per month #fintech #returns #stockmarket #investment
What is it?
@@tiendoan1333 crypto, but it can fall just as fast as it goes up