I initially went through a ton of research and effort to verify what he was saying. I now take 'Ben Felix said it' as evidence enough to a things correctness.
Ben! I love your content and your outlook. It helps me sift through financial news and buzz and feel overall more informed. Your rent vs. buy videos were instrumental in my family making our decision. I think you do a great job balancing research and more advanced concepts, but still breaking it down for the average person. All that said, a bit of feedback! Your content is fairly dense (that's why we like it), but for that reason it really would benefit from more visualization. It can be hard for the average person to digest a lot of figure-heavy content without a visual aid. Cheers
So, if I understood correctly, stocks in general should be expected to provide average annual real returns of ~5%, even though US stocks have been outliers for the past ~70 years, providing average annual real returns of ~7%.
@@BenFelixCSI great video! Do you mind sharing the research you found that reflects that current valuations correlate with future returns? I’ve just come across mixed to no evidence but always looking to learn! Thanks
@@darkorodic638 idk about bubble, but implies US equities are priced for perfection (ie; not risk adjusted for market affecting events which might happen)
As always , Ben delivering high quality material for free. And thanks for explaining very well the rear view mirror bias about rising valuation and expected return
That's why my portfolio tracks an All World Index. I use VT as a basis. Keep fees low but buy the biggest haystack you can. Not the QQQs, not the sp500, not the US TSM, THE ENTIRE WOOOORLD😂🎉
Sorry but in 1900 there was no such thing as quantitive easing and other monetary policy that boosts the stock market. No way am I using data from 1900 to predict what will happen for the next 30 years
Excellent vídeo! Underrated channel! I am from Brazil, but have global assets. Focus on buying VT (80%) and irish EMVL (20%) ETF, cause it is so cheap. I use ACWI as benchmark. Best channel on finances.
Thank you for posting this video. A lot of people who keep referring to S&P 500 returns of "12% on average" as an argument to throw every dollar you save in the SPY need to watch this video. As mega caps continue dominating, it will be harder and harder for them to continue valuation trends and expecting those types of returns on a real basis is just totally unrealistic and borderline insane.
@@jackf3619 well any new additions will need to catch up quick if the top 10 holdings suddenly slow down returns or even decline in value. You can see that right? Imagine MSFT and Apple lose 500BN each in a year in marketcap. Suddenly we need 1TN to be gained elsewhere in the index just to break even
For last 15 years our average returns are 14% across our portfolio (including dividends) - and the last 12 months on 26% real return.. So having just retired will be enjoying!
Favorite financial scientist and I always look forward to your content bud. So when can we expect a PWL global equity or global factor ETF managed by Ben Felix and available to the US? I don't think AUM would be a problem for you guys if you did. I would scoop up some shares to support if available on the US market.
@@WensGamingExperiencereally depends where you are located. I checked out the etfs available in my country on justetfs and took it from there. They have pretty good filters, even for banks. Good Luck, it is really not so bad. Just gotta search a little bit.
It's a tale as old as time, unfortunately all this great info requires attention, skepticism, willingness to accept "but"s, whereas on the other hand it's so much simpler for anyone to just go out there and say" invest in the stock market and make 12% a year". Keep up the good work Ben, hopefully this great content will reach more and more people!
@BenFelixCSI please do a video on “Does size matter (in value investing)?” Avantis has too many options with AVLV, AVMV, AVUV (first world problems). Thank you!
Ben, in the US markets today the S&P has forward projected earnings growth of 8%-9% with a 1.5% dividend yield. Assuming no multiple expansion F-F would say the expected return for at least next year is about 10%, nominally. Agree that lower discount rates have pushed up valuations, but doesn’t it seem impractical to suggest the higher margin and more productive business of today should fall back to pricing structures of 1900-1950? I believe French also acknowledged the limitation of the model given it did not account for stock repurchase as dividends, nor does it account for profit margin expansion. Appreciate the work you do on your channel
Super insightful 👌 I am investing in ETFs giving me a globally diversified portfolio, while managing my expectations for the returns. Thanks for sharing. 🙏
Ben, another virtuosic video, and offering perspective on my own pattern of being "overweight" US in the portfolios I manage for family and friends. Thanks for putting eloquence, analysis and data to work for those who follow your work avidly. I'd love to see you speak to the question of bonds, be they government or corporate, and whether they are "broken." That is, do they negatively correlate with stocks anymore, reduce the volatility in portfolios, and the other usual claims about bonds, or are they no longer and less likely to perform as they have historically? I know it's usually a bad idea to claim anything is "different" now where market behaviour is concerned, since anomalies usually wash out as long-term patterns reassert themselves. That said, please consider addressing the state of bonds and fixed income in general as a feature of portfolio design.
A further item to consider in returns is the effect of taxes, which will also reduce the net return. However this is difficult to factor in due investor profile differences
Yes a many varied thing. But it really should be considered and talked about more. It can make a huge difference over the terms we're talking about for retirement. Property investing over the long term is one area you need to account for the tax scenarios that can become real advantages when compared to stock or equity investing.
I run my own expected return estimates, I first run a regression on historical CAPE and it's forward 10 year real return then add up inflation to find Nominal expected return, then I average estimates by vanguard and state street with my own estimate to get a more realistic sense of how much return is to be expected (in case I'm biased). I then add up factor premium based on historical portfolio loadings and a discount of the premium by 40% to account for post-publication factor decay. I then account for fees and taxes in order to get a net expected return estimate. Using this to help plan my retirement portfolio and my dad's.
This is frightening TBH. As a person investing something along the lines of 1/3rd of my income after employer paid benefits, this puts my usual projections from way over what I might need, to basically just meeting what I will need. And I know I’m in a better position than most others. It seems like our expectations of retirement are doomed to be thwarted. It would be interesting to hear your thoughts on the potential of retirement crises due to the shortfall of retirement savings spurred in part by absurd growth expectations. Or maybe that’s more in in How Money Works’ wheelhouse. 😢
That's true, and it's even scarier to think what happens if another conflict like Taiwan or war in Europe happens just before your planned retirement. But given the information available I don't think there's anything better you can do. Investing and hoping for the best is the only viable plan I can think of at this point.
@@streettrialsandstuff I agree at the individual level. No one person has much agency in this situation (unless your last name is Bezos, Musk, Gates, Buffet, etc.). My course of action doesn’t change. I don’t see a statistically viable path forward. That said, I don’t think setting the discussion aside is wise either. Either through collective political action (not advocating totally eschewing capitalism, but some major modifications might not hurt) or a grassroots movement (individual steps we can all to better our financial futures, outside of buying various ETFs) could help us hedge the tide in our favor.
A question I've had for a long time is whether US stocks are themselves being pushed up because an endless influx of money via worldwide pension schemes. My British workplace pension is 70% US equities. There is nowhere else to put money in (from a layman's perspective) with remotely good returns to actually aim for a sustainable retirement. At breakeven investments, gilts or t bills, the average person will run out of money 10 years into retirement (napkin math). There is a whole generation whose retirement depends stocks returning 10%. Whoever figures out how this story ends will go down in history books.
lol I'm from Lithuania and it's basically 100% USA stocks and mostly just like 50 top stocks that track S&P500 index returns. You can get 100% MSCI World based pension, but it's secondary and unpopular. And a huge irony here is that Lithuanian stocks have actually outperformed US stocks and yet their prices are dirt low. Their P/E ratio is mostly 5-10.
Greetings from UK. Valuations certainly matter. The UK market has been decimated by this being stuffed with old world companies even if they have lots of nonUk exposure. Interesting that MCSI USA Small cap value index contains 25% financial companies. MSCI All Country World Index is 25% technology companies. Think about your personal situation carefully before choosing your ETF mix
Hey Ben. Could you please do a video of the advantages and disadvantages of paying up a mortgage. And when would it be a good idea to actually have a mortgage depending on a level of income. I think there are a lot of confusing videos online about paying up mortgages, or closing them entirely. I have watched on the rational reminder podcast a similar video, but it would be interesting to see one it on your channel too. Thanks Ben for insightful videos, been watching then for YEARS. 😊
Great video as always ! Can you please make a comparison with real estate expected returns. It seems almost all the workd real estate markets are running high everywhere. It seems the baby boomers experience a real estate buy low in their youth and sell high at old age despite really bad demographics ... in the west at least. I would really like to hear your opinion on this
Everything is 100% true. The problem is that people are irrational and the math and research Ben references is rational. I wouldn't be surprised if stock returns continue to be "irrationally, exuberantly high" for the next 50 years due to people continuing to pile money into a "sure thing" at 10% per year, but I can't predict the future. Companies outside the US are just as good at making profits, but I wouldn't be surprised if US company valuations continue to skyrocket as people irrationally invest exclusively in the US winning equity team. The "home country bias" is partially responsible for high US equity valuations as the USA has a lot of the world's wealth to invest. I think investing in seemingly guaranteed continued home country bias isn't a bad strategy. At least until the US inevitably defaults on its debt. Cheers to the roaring 20's 2.0!
There’s a strong argument that the US outperformance is baked into our amazing geography and (relatively) stable democracy. I think us will continue to outperform global markets and geopolitics experts tend to agree. Still technically a “speculation” though.
@parisyaffe7651 Ben Felix brought up an important point in this video that future returns are largely a result of luck. If we were to have another world war or an all out trade war the markets would suffer. The success of the US economy is largely due to historical luck (the world wars destroyed Europe entirely and WWII kickstarted the American economy infact which I believe you correctly attribute to geography with North America being separate from most problems in the world) and also pro-profitability policy at the expense of pretty much everything else e.g. most countries decided they wanted a functional, cost-effective healthcare system. The United States decided they wanted it as profitable as possible at the expense of consumers and employees. Most countries have labor boards paid by taxpayers to prevent companies from torturing and firing employees for ridiculous reasons. The United States does not have such an extent of policies in favor of corporate profit. Democracy is no more stable than facism. In fact, strong leaders generally emerge when there is instability (e.g. make Germany great again, make America great again, make Russia great again campaigns). Socrates hated democracy because stupid masses have destroyed the world countless times in history. But stupid leaders have destroyed their own society an equal number of times. It's WHO is in charge that matters whether it be a person or voters. Often times it's unfortunately a choice between incompetent masses and incompetent leaders. And incompetent masses vote for incompetent leaders. Maybe a Harvard professor with a PhD in economics and an MBA should run for president rather than the typical political lawyers.
can you confirm that globally, at the end of the day, stocks(globally diversified) are the best cagr giving asset class, considering all others(obviously those too taking global diversification into account), if not, a video about it would be great!
That's a difficult question to answer. Stocks broadly speaking have higher expected returns than bonds, but certain types of stocks have higher expected returns than others. There are many other asset classes like venture capital which may have higher expected average returns than public stocks, but these returns are typically not attainable to most people.
Too much diversification will take you nowhere. The reason is that some assets will go up and some will go down, hence nullifying the gains and losses. It's like betting on every horse in the race. It won't do you any good. Invest in assets that you believe will hold or increase in value over time. Don't gamble.
I think the US dollar standard gives the US a huge advantage. They are also built in away that strongly encourages entrepreneurship and innovation which leads to them being outliers globally. They also have a global Hegemony which allows them constant access to resources at good prices. That said this could all be waning.
Comparing the USA from 1900-1950 to 2024 is insane. How can you say with a straight face that the USA is even remotely similar from over 120 years ago. USA has had big returns because it is a powerhouse of innovation and execution and friendly government regulation and monetary policy
I honestly disagree. I mean, your statement is mostly correct, but also don't forget the huge shift to globalization and allowing foreigners to invest in things like S&P 500. That's a lot of money injected from outside of US into US companies. IMO that's the biggest reason why US market typically has higher P/E ratio, because it's somewhat overpriced. At the same time you can argue that it's due to superior trust that USA ensured compared to anyone else and investor-friendly market and politics.
I was looking for that comment 😁. When looking at the S&P500 you can even tell that the market behavior in 1996-2016 and post 2016 is completely different. Specifically cov 2019 is a milestone which impacted the markets and the changes are lasting to this day but IMO, the divide has its slow origin around 2016. I never understood people who try to make claims about future market behavior, using data from the long gone past. My takeway is that the practical ramifications of the information era have only recently settled in the financial markets consciousness, marking a point of no return. What if the game we're playing has fundamentally changed?
@@dandan-gf4jk Even if market has changed, this is still likely to be the best long term strategy that doesn't require micromanagement. Also it's not like US is especially more affected by C19 than other countries. It's probably the least affected market by it.
Hey Ben can you do a video about if the average person needs a Financial Planner? What are the advantages (if any) what are the disadvantages. Do those with CFP designation add any value or should we only use advisors with CFA designation only.
It would be most helpful if there was a link to the webpage where the current expected returns that PWL calculates can be found. Looking on the website, I could only find a document from the end of 2020... a white paper. Thank you so much for the work you do! Excellence in action. :)
"While historical returns have been high, that doesn't mean they will continue." "You should instead use this estimated return, which is based on historical data"
You almost got it. So close. Historical returns in one market for one recent period have been high. Instead you should use all available historical returns for the global market, with adjustments for current valuations.
What I found interesting is that I’ve come across many Europeans and Asians commenting on TH-cam videos that they are investing in the S&P 500. Meanwhile, many here tout investing in international funds. Maybe, they know more about the international markets than we do🤔
basically a handful of stocks is holding up the entire market. Similar to 2008, when they slip free up some cash. As far as why US market is better 401ks, smart people will always take the match and props up the market since the inception.
Should have broken it down to returns from 1950 to the early 1980s and returns from early 80s to today. To get an idea of the extent to which the lower lower lower interest rates of the last 40 years may have played a primary role
1900 to 1950 is a terrible sample size for average returns because the great depression sunk stocks until the 50's. For the rate of return that low again over that period, we'd need another similar incident. Not impossible but definitely a worst case scenario.
Hi Ben, Would love your perspective on the change in the Japanese CB policy and its potential impacts ex. on international cross currency carry trades.
Hi from France Ben and thanks for your video , top as usual. You talk about total return expectation on the US market which is lower due to the current market valuation compared to history. But as far as I know this is specific to US large value ? If we talk about Us small caps, or even better US value small caps it is not the case, right ? Even if we talk about US Value big caps I think it is also different ? Could you please confirm this point ? Thanks !
Agreed but in dilemma whether to hold cash or invest in stocks, it seems that stocks is the preferred option as it helps to tackle inflation , whereas if cash, you will lose money in real terms
At the very least you want to use your excess money to buy assets that hold their value against inflation. If they grow beyond inflation then that's awesome.
Hey Ben, another great video. What do you think of the idea that the risk premium is declining because we have now had a global financial crisis and a pandemic that both resulted in governments dumping tonnes of money into the financial system? I'm an investor and that definitely makes me feel that markets are less risky than they once were (hence I'm happy with a lower risk premium, because there's also just less risk)
The U.S. market is a gigantic bubble, one which started inflating in earnest in 1982. The only thing keeping it on its current trend is the common expectation that it will do so. Unfortunately, it's more or less impossible to say when the market will snap back to reality.
The world economy is tied to inflation. Buy assets that hold or increase in value. One of the most popular assets in a business. Whether you run the business or own a business that grows in value, it's a great investment. Other assets include real estate, precious metals and stones, art, etc.
haven't watched the video yet, but if you mean I put in 100% that looses 90% of it's value, then yes stocks always return 10% in my experience, never fails!
Hey can you do a video on the alternative inflation measures and give proper analysis of those including pros and cons and how that affects the average person in the real world (i.e. how we actually experience things). The US BLS uses things such as 'hedonic price adjustments' and such which I think drastically and unfairly reduces the official CPI measure.
Find this channel very informative, thank you so much for spending the time and energy ! Would be interested in learning more about the following: Future valuation is a major driver of future returns, are valuation multiples like p/e, ev/ebitda,… mean reverting and/or is there a structural upward drift of equity valuations due to - for example - lower transaction costs which implies lower cost of diversification making equities more attractive than bonds today vs. the past ? Many return prediction models I see often imply steady valuations or a return to a long term mean, but is that a sensible assumption to make ? Happy to discuss ….
I use a 5.5% real expected return in my planning calculations with a 50/50 US/Intl portfolio with 10% treasuries. Might still be a little rosy, but I also have a pension to fall back on.
Hi Ben Thank you for the excellent video and comprehensive analysis! I was particularly interested in the section where you discuss the returns of US stocks between 1950-2023 and 1970-1985. Unfortunately, I couldn't find the return figures you mentioned in the sources I checked. Could you kindly share the source from which you obtained this information? I would greatly appreciate a more detailed reference or source material to review it further. Thank you in advance for your assistance, and keep up the great work! And greetings from an active follower of yours from Finland.
What do you factor in to calculate the 4.62% real vs 7.24% nominal expected return? Is it just inflation, or any other things like managing fees, taxes, etc?
What about any premium for the USD being the world reserve currency? If I recall, it was in 1944 at Breton Woods that it was agreed that the USD should be the referenced currency. Seems like a mighty big coincidence that US stocks post 1950 did markedly better than they did pre 1950. How much that is worth I have no clue but it must be worth something no?
Possibly. Strengthening USD would increase US stock returns for foreign investors but not directly for USD denominated returns. It could contribute to the overall safety of the U.S. market.
@@BenFelixCSI Methinks Original Poster is onto something. Any other countries where, that country causes a giant worldwide financial crisis, and the rest of the world rushes to buy that country's bonds hand over fist (2007-8)?
The only constant is change - I see rumblings of Russia, China and India moving away from USD. And didn't KSA do so also? Are they still petrol 'dollars'?
I started investing in 2018. In 2021, the USD cost roughly 8.5 NOK. Now, it costs 10.5 NOK. We can opt to "currency secure" our investments here, but me and my wife have not done it. It means that we have had around 23% gain from just the currency fluctuation alone for that period (on the US stocks, which make up most of the global index we buy here). As you say, there might be some kind of premium.
It doesn't make sense to look at data from the 1800s to try and figure out what the market might return in the 2020s. We live in a completely different world. Perhaps it's naïve but I essentially disregard market data from pre-1950 similar.
Thanks for the great content Ben 👍🏾. When you say “nominal expected 7.42% assuming 2.5% expected inflation” if inflation stays higher for a longer period could that result in a higher nominal return and vice versa?
There is a hypothesis that i am testing. To which extent is stock return for the main indices explained by capital inflows from pensions and to which from foreigner inflows. With rapidly changing demographics, where younger generations have to expend more on their housing and generally save and earn less compared to the cost of living to older gens, should we expect lower inflows of money in the public equity markets, and how this change will impact the return long term. Also in a fragmented world, to which extend do we expect foreigner inflows to slow down, and how this could hinder the long term growth.
Nominal returns make it easy to compare relative to other rates, such as interest, does it not? While it's interesting to look at inflation-adjusted real returns, it only adds to the math you have to do without any other benefit. 10% nominal stock return compares easily to e.g. 3.3% savings accounts. Adjusting both figures for inflation doesn't provide much in terms of information, but just adds and extra level of anxiety (when you see the negative real return of savings accounts)
Great video. For my understanding, could you please highlight what has been the real return for S&P 500? As I think the returns you quoted didn't mention S&P 500 returns. I agree that for future predictions, it makes sense to take into account stock markets worldwide and broad indices. But I'm just curious about S&P 500.
@@BenFelixCSI Can you please update your Financial Planning Assumptions website links? They are now broken or something and can't be viewed. Does this mean you're set to update them again soon with new expected return numbers (for both normal and factor-tilted Market Cap Weight porftolios)?
Hey Ben, What do you think about Canadian stock potential going forward? With the massive labour market productivity differential between Canada and US, could it be argued that further returns in the US could be diminishing returns, as easy efficiencies are harder to come by; while chronic underinvestment in Canadian businesses have created opportunities for capital investment to achieve greater real productivity among Canadian companies?
I think these comments make sense. We know empirically that high per capita GDP growth is unrelated to stock returns, plus Canadian stocks are very cheap relative to US stocks.
Ben Felix doesn't need investments to promise high returns, he just stares them down until they give him the return he wants
Is he the new Chuck Norris?
😂😂😂😂😂😂
Ben Felix, my best personal advisor, for free. You re doing a great job!
Thanks!
Right! What a gift this man is.
I initially went through a ton of research and effort to verify what he was saying.
I now take 'Ben Felix said it' as evidence enough to a things correctness.
@@BenFelixCSI the advisor, doctor, plumber....
No, Dave Ramsey says to use 12% instead!! 😂😂
😂
Hahahaha. Dave Ramsey: "Pick the funds that beat the market average. It's not a rocket science." :)
His mutual funds beat the market, just pick those!!!! Lol
Dave Ramsey has fully harnessed the power of hindsight.
@@krdxz Not rocket science, but virtually impossible to pick the winning active funds in advance
Thanks for being a "no flash" informative toutuber. Sight for sore eyes
I think I'm too "no flash." I'd like to get back to having animations at some point.
@@BenFelixCSI The animation were cool, but your content is still A-tier. You're one of the few finance experts I trust implicitly.
@@BenFelixCSIyour videos are great regardless, but I do enjoy the animations
@@BenFelixCSIanimations can add to understanding, especially when trying to convey pretty complex relationships or numbers
Ben Felix returns over 10% on average, so the market must catch up
Ok, I had to pause his video to read these top tier comments ✨👍
I just copy and paste what Ben Felix says to my friends and they think I'm a genius.
😂
Ahahahahaha me too but to my dad and he thinks I am a financial genius
That’s very funny. You’re welcome.
people believe Elon Musk is a genius lol, doesn't take much
Have you copy and pasted his steely, yet embracing, gaze? Are your friends ready for that?
Always excited to see when you upload!
Thanks!
Yes, please if would consider do it more often for us still learning invesments😅🙏❤
Ben! I love your content and your outlook. It helps me sift through financial news and buzz and feel overall more informed. Your rent vs. buy videos were instrumental in my family making our decision. I think you do a great job balancing research and more advanced concepts, but still breaking it down for the average person. All that said, a bit of feedback! Your content is fairly dense (that's why we like it), but for that reason it really would benefit from more visualization. It can be hard for the average person to digest a lot of figure-heavy content without a visual aid. Cheers
I hear you. Right now I do all the editing myself, and I don’t have any animation skills. We are looking for a new editor. Thanks for the feedback.
Oh-oh. There goes another channel where a knowledgeable person says interesting things. Flashy memes, stock imagery, and clickbait titles incoming...
@@BenFelixCSI Have you tried to outsource the graphing to chatgpt? you might be able to give the bot the data and ask it to produce graphs...
@@BenFelixCSIthat’s great news Ben. Now if all my friends and family could understand English, it would make my work so much easier!
So, if I understood correctly, stocks in general should be expected to provide average annual real returns of ~5%, even though US stocks have been outliers for the past ~70 years, providing average annual real returns of ~7%.
Good summary. Agreed.
@@BenFelixCSI Would this make entire US economy as a something of a bubble?
@@BenFelixCSI great video! Do you mind sharing the research you found that reflects that current valuations correlate with future returns? I’ve just come across mixed to no evidence but always looking to learn! Thanks
@@darkorodic638 Or the most profitable?
@@darkorodic638 idk about bubble, but implies US equities are priced for perfection (ie; not risk adjusted for market affecting events which might happen)
As always , Ben delivering high quality material for free.
And thanks for explaining very well the rear view mirror bias about rising valuation and expected return
Geez if there were ever an episode that deserves to be the face of Rational Reminder
We covered this over there too! th-cam.com/video/3uRZ7OggSAw/w-d-xo.htmlsi=ZYEY83EXgEXBy45N
Mr. Felix: from Brazil, congratulations for a job well done for the years I am following your channel! Thank you very much, indeed!
Always stoked to see a Ben Felix vid ❤
Come on Ben, let a man dream 🥲
Nope! Once again crushing any remaining optimism for our portfolios :(
Ahhh the daily reminder that I will retire 5-10 years later than I hoped
😬
You’re gonna get to retire? Some people have all the luck. 😅 🍀
😂😂🤔😮😢
50. 50 tears later 😭
It's possible,
Ben Felix is protecting me from doing stupid things and chasing unrealistic returns. Thank you for your priceless contribution to the community 🙏🏼
You can make more than 10%. It's not unrealistic, but you need to practice a ton.
@@theforce5191Like how? Is timing the market easy?
That's why my portfolio tracks an All World Index. I use VT as a basis. Keep fees low but buy the biggest haystack you can. Not the QQQs, not the sp500, not the US TSM, THE ENTIRE WOOOORLD😂🎉
what's the Canadian equivalent? I use VVL but I'm not sure that's the right choice
@@InfinityDz there are plenty of good options, xgro I remember is a good one from blackrock
@@InfinityDz Google "Canadian couch potato" they have good model portfolios with low fees.
@@InfinityDzassuming OP means equity, then probably something like XEQT/VEQT
@@irishboy664 Oh! I do have VEQT, I thought it was only Canadian stocks. I suppose I'll have to review some choices then, thanks.
Sorry but in 1900 there was no such thing as quantitive easing and other monetary policy that boosts the stock market. No way am I using data from 1900 to predict what will happen for the next 30 years
I like these videos. They are like a short summary of the corresponding rational reminder podcast episode.
If Dave Ramsey watched this I'm pretty sure his head would explode, if he could listen.
Nah don't worry, he would have muted and then talked over Ben after a minute or so. Ranting is his head pressure release mechanism.
I see Ben. I like and comment before even playing the video.
Excellent vídeo! Underrated channel! I am from Brazil, but have global assets. Focus on buying VT (80%) and irish EMVL (20%) ETF, cause it is so cheap. I use ACWI as benchmark. Best channel on finances.
A nice precis of your recent Rational Reminder show.
Thank you for posting this video. A lot of people who keep referring to S&P 500 returns of "12% on average" as an argument to throw every dollar you save in the SPY need to watch this video. As mega caps continue dominating, it will be harder and harder for them to continue valuation trends and expecting those types of returns on a real basis is just totally unrealistic and borderline insane.
You’re assuming those companies that make up the sp500 won’t change
But it's been insane for the last 20 years. Why stop now?
As of today, Thursday, March 28, 2024, over the last 10 years the S&P 500 has returned more than 18.2%.
@@jackf3619 well any new additions will need to catch up quick if the top 10 holdings suddenly slow down returns or even decline in value. You can see that right?
Imagine MSFT and Apple lose 500BN each in a year in marketcap. Suddenly we need 1TN to be gained elsewhere in the index just to break even
@@stevenbrady440 just look back at the decade 2000-2010, S&P 500 was flat no gain for 10 years, history likes to repeat itself.
Thank you once again for the great work brother!
I feel rationally reminded
Thanks, this is a great resource to point people who spread bad info about expected returns to
For last 15 years our average returns are 14% across our portfolio (including dividends) - and the last 12 months on 26% real return..
So having just retired will be enjoying!
I see a Ben Felix New Video, I click
Just watched this one again. Ben is such a boss.
Favorite financial scientist and I always look forward to your content bud. So when can we expect a PWL global equity or global factor ETF managed by Ben Felix and available to the US? I don't think AUM would be a problem for you guys if you did. I would scoop up some shares to support if available on the US market.
I continue to have a globally diversified portfolio, with a heavy tilt toward small cap value.
What is the best fund that tracks this, may I know?
@@WensGamingExperience VTI, VXUS, AVUV, AVDV
@@WensGamingExperiencereally depends where you are located. I checked out the etfs available in my country on justetfs and took it from there. They have pretty good filters, even for banks. Good Luck, it is really not so bad. Just gotta search a little bit.
It's a tale as old as time, unfortunately all this great info requires attention, skepticism, willingness to accept "but"s, whereas on the other hand it's so much simpler for anyone to just go out there and say" invest in the stock market and make 12% a year". Keep up the good work Ben, hopefully this great content will reach more and more people!
Looking at 3,4,5,6 percent (real) returns gives a nice range of longterm outcomes for me when i am planning
At last! Ben the ONLY honest finance influencer.
There are others
@BenFelixCSI please do a video on “Does size matter (in value investing)?”
Avantis has too many options with AVLV, AVMV, AVUV (first world problems). Thank you!
Ben, in the US markets today the S&P has forward projected earnings growth of 8%-9% with a 1.5% dividend yield. Assuming no multiple expansion F-F would say the expected return for at least next year is about 10%, nominally. Agree that lower discount rates have pushed up valuations, but doesn’t it seem impractical to suggest the higher margin and more productive business of today should fall back to pricing structures of 1900-1950? I believe French also acknowledged the limitation of the model given it did not account for stock repurchase as dividends, nor does it account for profit margin expansion. Appreciate the work you do on your channel
Super insightful 👌 I am investing in ETFs giving me a globally diversified portfolio, while managing my expectations for the returns. Thanks for sharing. 🙏
What is the more reasonable expected return for small cap value stocks? (i.e AVUV, AVDV)?
Ben, another virtuosic video, and offering perspective on my own pattern of being "overweight" US in the portfolios I manage for family and friends. Thanks for putting eloquence, analysis and data to work for those who follow your work avidly.
I'd love to see you speak to the question of bonds, be they government or corporate, and whether they are "broken." That is, do they negatively correlate with stocks anymore, reduce the volatility in portfolios, and the other usual claims about bonds, or are they no longer and less likely to perform as they have historically?
I know it's usually a bad idea to claim anything is "different" now where market behaviour is concerned, since anomalies usually wash out as long-term patterns reassert themselves. That said, please consider addressing the state of bonds and fixed income in general as a feature of portfolio design.
A further item to consider in returns is the effect of taxes, which will also reduce the net return.
However this is difficult to factor in due investor profile differences
Yes a many varied thing. But it really should be considered and talked about more. It can make a huge difference over the terms we're talking about for retirement. Property investing over the long term is one area you need to account for the tax scenarios that can become real advantages when compared to stock or equity investing.
Also dividends, ETF TER and many other things.
I love ecomony - what ever outcome you want you can cherrypick your arguments into it the outcome.
I run my own expected return estimates, I first run a regression on historical CAPE and it's forward 10 year real return then add up inflation to find Nominal expected return, then I average estimates by vanguard and state street with my own estimate to get a more realistic sense of how much return is to be expected (in case I'm biased). I then add up factor premium based on historical portfolio loadings and a discount of the premium by 40% to account for post-publication factor decay. I then account for fees and taxes in order to get a net expected return estimate. Using this to help plan my retirement portfolio and my dad's.
This is frightening TBH. As a person investing something along the lines of 1/3rd of my income after employer paid benefits, this puts my usual projections from way over what I might need, to basically just meeting what I will need. And I know I’m in a better position than most others. It seems like our expectations of retirement are doomed to be thwarted.
It would be interesting to hear your thoughts on the potential of retirement crises due to the shortfall of retirement savings spurred in part by absurd growth expectations. Or maybe that’s more in in How Money Works’ wheelhouse. 😢
That's true, and it's even scarier to think what happens if another conflict like Taiwan or war in Europe happens just before your planned retirement. But given the information available I don't think there's anything better you can do. Investing and hoping for the best is the only viable plan I can think of at this point.
@@streettrialsandstuff I agree at the individual level. No one person has much agency in this situation (unless your last name is Bezos, Musk, Gates, Buffet, etc.). My course of action doesn’t change. I don’t see a statistically viable path forward.
That said, I don’t think setting the discussion aside is wise either. Either through collective political action (not advocating totally eschewing capitalism, but some major modifications might not hurt) or a grassroots movement (individual steps we can all to better our financial futures, outside of buying various ETFs) could help us hedge the tide in our favor.
Nobody knows what the future holds for the stock market
Dear Ben Felix, you are the best!!!
Solid content!. Thanks Ben!
Excellent analysis and very reassuring, thanks
A question I've had for a long time is whether US stocks are themselves being pushed up because an endless influx of money via worldwide pension schemes. My British workplace pension is 70% US equities.
There is nowhere else to put money in (from a layman's perspective) with remotely good returns to actually aim for a sustainable retirement. At breakeven investments, gilts or t bills, the average person will run out of money 10 years into retirement (napkin math). There is a whole generation whose retirement depends stocks returning 10%. Whoever figures out how this story ends will go down in history books.
lol I'm from Lithuania and it's basically 100% USA stocks and mostly just like 50 top stocks that track S&P500 index returns. You can get 100% MSCI World based pension, but it's secondary and unpopular. And a huge irony here is that Lithuanian stocks have actually outperformed US stocks and yet their prices are dirt low. Their P/E ratio is mostly 5-10.
Greetings from UK. Valuations certainly matter. The UK market has been decimated by this being stuffed with old world companies even if they have lots of nonUk exposure. Interesting that MCSI USA Small cap value index contains 25% financial companies. MSCI All Country World Index is 25% technology companies. Think about your personal situation carefully before choosing your ETF mix
Hey Ben. Could you please do a video of the advantages and disadvantages of paying up a mortgage. And when would it be a good idea to actually have a mortgage depending on a level of income.
I think there are a lot of confusing videos online about paying up mortgages, or closing them entirely. I have watched on the rational reminder podcast a similar video, but it would be interesting to see one it on your channel too. Thanks Ben for insightful videos, been watching then for YEARS. 😊
Never trust anyone that does not blink.
I'm learning a lot from your videos. Hugs from Brazil
Great video as always ! Can you please make a comparison with real estate expected returns. It seems almost all the workd real estate markets are running high everywhere. It seems the baby boomers experience a real estate buy low in their youth and sell high at old age despite really bad demographics ... in the west at least. I would really like to hear your opinion on this
Everything is 100% true. The problem is that people are irrational and the math and research Ben references is rational. I wouldn't be surprised if stock returns continue to be "irrationally, exuberantly high" for the next 50 years due to people continuing to pile money into a "sure thing" at 10% per year, but I can't predict the future. Companies outside the US are just as good at making profits, but I wouldn't be surprised if US company valuations continue to skyrocket as people irrationally invest exclusively in the US winning equity team. The "home country bias" is partially responsible for high US equity valuations as the USA has a lot of the world's wealth to invest. I think investing in seemingly guaranteed continued home country bias isn't a bad strategy. At least until the US inevitably defaults on its debt. Cheers to the roaring 20's 2.0!
There’s a strong argument that the US outperformance is baked into our amazing geography and (relatively) stable democracy. I think us will continue to outperform global markets and geopolitics experts tend to agree. Still technically a “speculation” though.
@parisyaffe7651 Ben Felix brought up an important point in this video that future returns are largely a result of luck. If we were to have another world war or an all out trade war the markets would suffer. The success of the US economy is largely due to historical luck (the world wars destroyed Europe entirely and WWII kickstarted the American economy infact which I believe you correctly attribute to geography with North America being separate from most problems in the world) and also pro-profitability policy at the expense of pretty much everything else e.g. most countries decided they wanted a functional, cost-effective healthcare system. The United States decided they wanted it as profitable as possible at the expense of consumers and employees. Most countries have labor boards paid by taxpayers to prevent companies from torturing and firing employees for ridiculous reasons. The United States does not have such an extent of policies in favor of corporate profit.
Democracy is no more stable than facism. In fact, strong leaders generally emerge when there is instability (e.g. make Germany great again, make America great again, make Russia great again campaigns). Socrates hated democracy because stupid masses have destroyed the world countless times in history. But stupid leaders have destroyed their own society an equal number of times. It's WHO is in charge that matters whether it be a person or voters. Often times it's unfortunately a choice between incompetent masses and incompetent leaders. And incompetent masses vote for incompetent leaders. Maybe a Harvard professor with a PhD in economics and an MBA should run for president rather than the typical political lawyers.
can you confirm that globally, at the end of the day, stocks(globally diversified) are the best cagr giving asset class, considering all others(obviously those too taking global diversification into account), if not, a video about it would be great!
That's a difficult question to answer. Stocks broadly speaking have higher expected returns than bonds, but certain types of stocks have higher expected returns than others. There are many other asset classes like venture capital which may have higher expected average returns than public stocks, but these returns are typically not attainable to most people.
Too much diversification will take you nowhere. The reason is that some assets will go up and some will go down, hence nullifying the gains and losses. It's like betting on every horse in the race. It won't do you any good.
Invest in assets that you believe will hold or increase in value over time. Don't gamble.
Wow, my new investing guru.
I think the US dollar standard gives the US a huge advantage. They are also built in away that strongly encourages entrepreneurship and innovation which leads to them being outliers globally. They also have a global Hegemony which allows them constant access to resources at good prices. That said this could all be waning.
Ya gotta admit he has nice hair. Do appreciate clear concise insights of the financial markets.
I have hair?!
Comparing the USA from 1900-1950 to 2024 is insane. How can you say with a straight face that the USA is even remotely similar from over 120 years ago. USA has had big returns because it is a powerhouse of innovation and execution and friendly government regulation and monetary policy
I honestly disagree. I mean, your statement is mostly correct, but also don't forget the huge shift to globalization and allowing foreigners to invest in things like S&P 500. That's a lot of money injected from outside of US into US companies. IMO that's the biggest reason why US market typically has higher P/E ratio, because it's somewhat overpriced. At the same time you can argue that it's due to superior trust that USA ensured compared to anyone else and investor-friendly market and politics.
I was looking for that comment 😁. When looking at the S&P500 you can even tell that the market behavior in 1996-2016 and post 2016 is completely different.
Specifically cov 2019 is a milestone which impacted the markets and the changes are lasting to this day but IMO, the divide has its slow origin around 2016.
I never understood people who try to make claims about future market behavior, using data from the long gone past. My takeway is that the practical ramifications of the information era have only recently settled in the financial markets consciousness, marking a point of no return. What if the game we're playing has fundamentally changed?
@@dandan-gf4jk Even if market has changed, this is still likely to be the best long term strategy that doesn't require micromanagement. Also it's not like US is especially more affected by C19 than other countries. It's probably the least affected market by it.
Hey Ben can you do a video about if the average person needs a Financial Planner? What are the advantages (if any) what are the disadvantages. Do those with CFP designation add any value or should we only use advisors with CFA designation only.
Thank you Ben!
It would be most helpful if there was a link to the webpage where the current expected returns that PWL calculates can be found. Looking on the website, I could only find a document from the end of 2020... a white paper. Thank you so much for the work you do! Excellence in action. :)
Thank you Sensei 🙏
"While historical returns have been high, that doesn't mean they will continue."
"You should instead use this estimated return, which is based on historical data"
You almost got it. So close.
Historical returns in one market for one recent period have been high. Instead you should use all available historical returns for the global market, with adjustments for current valuations.
I have the entire historical dataset of every company listed and the mean return since 2018 is 25.43%
What I found interesting is that I’ve come across many Europeans and Asians commenting on TH-cam videos that they are investing in the S&P 500. Meanwhile, many here tout investing in international funds. Maybe, they know more about the international markets than we do🤔
basically a handful of stocks is holding up the entire market. Similar to 2008, when they slip free up some cash. As far as why US market is better 401ks, smart people will always take the match and props up the market since the inception.
Should have broken it down to returns from 1950 to the early 1980s and returns from early 80s to today. To get an idea of the extent to which the lower lower lower interest rates of the last 40 years may have played a primary role
That could be interesting, though the causality may be noisier than it looks.
1900 to 1950 is a terrible sample size for average returns because the great depression sunk stocks until the 50's. For the rate of return that low again over that period, we'd need another similar incident. Not impossible but definitely a worst case scenario.
Thanks, Ben, for another video
This man should get lead gen kickback from PWL. It’s a firm I am strongly considering solely because of this content.
I don't get a kickback, but I am a shareholder.
Hi Ben, Would love your perspective on the change in the Japanese CB policy and its potential impacts ex. on international cross currency carry trades.
Hi from France Ben and thanks for your video , top as usual. You talk about total return expectation on the US market which is lower due to the current market valuation compared to history. But as far as I know this is specific to US large value ? If we talk about Us small caps, or even better US value small caps it is not the case, right ? Even if we talk about US Value big caps I think it is also different ? Could you please confirm this point ? Thanks !
Agreed but in dilemma whether to hold cash or invest in stocks, it seems that stocks is the preferred option as it helps to tackle inflation , whereas if cash, you will lose money in real terms
At the very least you want to use your excess money to buy assets that hold their value against inflation. If they grow beyond inflation then that's awesome.
great video, learned a lot, thanks!
Hey Ben, another great video. What do you think of the idea that the risk premium is declining because we have now had a global financial crisis and a pandemic that both resulted in governments dumping tonnes of money into the financial system? I'm an investor and that definitely makes me feel that markets are less risky than they once were (hence I'm happy with a lower risk premium, because there's also just less risk)
I agree with all that. It’s related to the points about discount rates in the video.
The U.S. market is a gigantic bubble, one which started inflating in earnest in 1982. The only thing keeping it on its current trend is the common expectation that it will do so. Unfortunately, it's more or less impossible to say when the market will snap back to reality.
The world economy is tied to inflation. Buy assets that hold or increase in value. One of the most popular assets in a business. Whether you run the business or own a business that grows in value, it's a great investment. Other assets include real estate, precious metals and stones, art, etc.
haven't watched the video yet, but if you mean I put in 100% that looses 90% of it's value, then yes stocks always return 10% in my experience, never fails!
Hey can you do a video on the alternative inflation measures and give proper analysis of those including pros and cons and how that affects the average person in the real world (i.e. how we actually experience things). The US BLS uses things such as 'hedonic price adjustments' and such which I think drastically and unfairly reduces the official CPI measure.
Always when I want to enter the stock market the valuations are too high...! 😞
Don't time the market. Do dollar cost averaging.
Find this channel very informative, thank you so much for spending the time and energy ! Would be interested in learning more about the following: Future valuation is a major driver of future returns, are valuation multiples like p/e, ev/ebitda,… mean reverting and/or is there a structural upward drift of equity valuations due to - for example - lower transaction costs which implies lower cost of diversification making equities more attractive than bonds today vs. the past ? Many return prediction models I see often imply steady valuations or a return to a long term mean, but is that a sensible assumption to make ? Happy to discuss ….
3:45 - I mean they didn't have Robin Hood in 1900-1950. 16 year olds weren't stock trading 24/7.
I use a 5.5% real expected return in my planning calculations with a 50/50 US/Intl portfolio with 10% treasuries. Might still be a little rosy, but I also have a pension to fall back on.
Having a pension and eventually social security benefits will definitely give you a safety net.
Fair to plan conservatively and be pleasantly surprised at unexpected extra returns?
Hi Ben
Thank you for the excellent video and comprehensive analysis! I was particularly interested in the section where you discuss the returns of US stocks between 1950-2023 and 1970-1985.
Unfortunately, I couldn't find the return figures you mentioned in the sources I checked. Could you kindly share the source from which you obtained this information? I would greatly appreciate a more detailed reference or source material to review it further.
Thank you in advance for your assistance, and keep up the great work! And greetings from an active follower of yours from Finland.
What do you factor in to calculate the 4.62% real vs 7.24% nominal expected return? Is it just inflation, or any other things like managing fees, taxes, etc?
That is just the nominal return after inflation, but you can't use regular arithmetic. The real return = (1 + nominal return)/(1 + inflation).
@@BenFelixCSI🤯Thanks! I had a feeling my math was wrong on this.
@@BenFelixCSI Awesome, thanks Ben. Love your videos & advice!
What about any premium for the USD being the world reserve currency? If I recall, it was in 1944 at Breton Woods that it was agreed that the USD should be the referenced currency. Seems like a mighty big coincidence that US stocks post 1950 did markedly better than they did pre 1950. How much that is worth I have no clue but it must be worth something no?
Possibly. Strengthening USD would increase US stock returns for foreign investors but not directly for USD denominated returns. It could contribute to the overall safety of the U.S. market.
@@BenFelixCSI Methinks Original Poster is onto something. Any other countries where, that country causes a giant worldwide financial crisis, and the rest of the world rushes to buy that country's bonds hand over fist (2007-8)?
The only constant is change - I see rumblings of Russia, China and India moving away from USD. And didn't KSA do so also? Are they still petrol 'dollars'?
I started investing in 2018. In 2021, the USD cost roughly 8.5 NOK. Now, it costs 10.5 NOK. We can opt to "currency secure" our investments here, but me and my wife have not done it. It means that we have had around 23% gain from just the currency fluctuation alone for that period (on the US stocks, which make up most of the global index we buy here). As you say, there might be some kind of premium.
Very interesting 👌
It doesn't make sense to look at data from the 1800s to try and figure out what the market might return in the 2020s. We live in a completely different world. Perhaps it's naïve but I essentially disregard market data from pre-1950 similar.
So basically, YES, they do have a 10% return. You have to apply inflation to any other investment as well.
I think you missed the point, or didn’t watch the video.
@@BenFelixCSI I’m coming back here to say I think you’re right. I just don’t want to believe it.
Thanks for the great content Ben 👍🏾. When you say “nominal expected 7.42% assuming 2.5% expected inflation” if inflation stays higher for a longer period could that result in a higher nominal return and vice versa?
Please evaluate Australian real estate vs stocks.
There is a hypothesis that i am testing.
To which extent is stock return for the main indices explained by capital inflows from pensions and to which from foreigner inflows.
With rapidly changing demographics, where younger generations have to expend more on their housing and generally save and earn less compared to the cost of living to older gens, should we expect lower inflows of money in the public equity markets, and how this change will impact the return long term.
Also in a fragmented world, to which extend do we expect foreigner inflows to slow down, and how this could hinder the long term growth.
Real Estate returned after inflation a minimum of 4-6% which to me is good without counting rental income
Fantastic video
Does PWL publish the methodology of how they estimate expected returns? I wish to use the same for my country (which is not the US or Canada)
Nominal returns make it easy to compare relative to other rates, such as interest, does it not?
While it's interesting to look at inflation-adjusted real returns, it only adds to the math you have to do without any other benefit. 10% nominal stock return compares easily to e.g. 3.3% savings accounts. Adjusting both figures for inflation doesn't provide much in terms of information, but just adds and extra level of anxiety (when you see the negative real return of savings accounts)
Great video. For my understanding, could you please highlight what has been the real return for S&P 500? As I think the returns you quoted didn't mention S&P 500 returns. I agree that for future predictions, it makes sense to take into account stock markets worldwide and broad indices. But I'm just curious about S&P 500.
This was for a U.S. total market index, but the numbers would be very close if I had used S&P 500 instead.
@@BenFelixCSI Can you please update your Financial Planning Assumptions website links? They are now broken or something and can't be viewed. Does this mean you're set to update them again soon with new expected return numbers (for both normal and factor-tilted Market Cap Weight porftolios)?
Hi Ben, is an equal weighted S&P 500 a better approach with the current high valuations of the market cap index?
I’d personally prefer intentional tilts toward smaller and cheaper comp ones than equal weights.
Hey Ben,
What do you think about Canadian stock potential going forward? With the massive labour market productivity differential between Canada and US, could it be argued that further returns in the US could be diminishing returns, as easy efficiencies are harder to come by; while chronic underinvestment in Canadian businesses have created opportunities for capital investment to achieve greater real productivity among Canadian companies?
I think these comments make sense. We know empirically that high per capita GDP growth is unrelated to stock returns, plus Canadian stocks are very cheap relative to US stocks.