Mr Vanguard forecasts lower returns

[Mr Pointy]

"Tim Buckley, the chief executive of the world’s second-largest asset manager, believes investors will face “muted returns” and more wild swings in stock prices after an extraordinary bull run.

Mr Buckley predicted that annual returns on global equities will plunge to between 4.5pc to 6.5pc over the next decade, half the 12.5pc yearly return of the MSCI World Index over the last 10 years."

https://www.telegraph.co.uk/business/2019/02/09/in...

Looks like I picked the wrong day to give up working.

[Derek Chevalier]

Mr Pointy said:

"Tim Buckley, the chief executive of the world’s second-largest asset manager, believes investors will face “muted returns” and more wild swings in stock prices after an extraordinary bull run.

Mr Buckley predicted that annual returns on global equities will plunge to between 4.5pc to 6.5pc over the next decade, half the 12.5pc yearly return of the MSCI World Index over the last 10 years."

https://www.telegraph.co.uk/business/2019/02/09/in...

Looks like I picked the wrong day to give up working.

What returns have you assumed in your plan to ensure you don't run out of money? The first decade is key, but if the markets do return what Vanguard are guessing (and assuming inflation remains benign) I don't see that as being a bad outcome.

https://finalytiq.co.uk/technically-buggered-histo...

[mikeiow]

Derek Chevalier said:

What returns have you assumed in your plan to ensure you don't run out of money? The first decade is key, but if the markets do return what Vanguard are guessing (and assuming inflation remains benign) I don't see that as being a bad outcome.

https://finalytiq.co.uk/technically-buggered-histo...

Hold on a moment!

"the first decade is key". Yup, I get that: read the fairly decent "Beyond The 4% Rule", goes into sequencing risk in some detail.

....but although the equities might drop 50% in the next 10 years, you don't see that as a bad outcome for someone retiring around now?

Isn't that rather contradictory? or are you saying there are better places to invest for the longer term that would stop the risk of sequencing from mattering?

[Derek Chevalier]

mikeiow said:

Derek Chevalier said:

What returns have you assumed in your plan to ensure you don't run out of money? The first decade is key, but if the markets do return what Vanguard are guessing (and assuming inflation remains benign) I don't see that as being a bad outcome.

https://finalytiq.co.uk/technically-buggered-histo...

Hold on a moment!

"the first decade is key". Yup, I get that: read the fairly decent "Beyond The 4% Rule", goes into sequencing risk in some detail.

....but although the equities might drop 50% in the next 10 years, you don't see that as a bad outcome for someone retiring around now?

Isn't that rather contradictory? or are you saying there are better places to invest for the longer term that would stop the risk of sequencing from mattering?

He's not guessing that equities will drop 50%, he's guessing YOY increases will halve.

[mikeiow]

Derek Chevalier said:

mikeiow said:

Derek Chevalier said:

What returns have you assumed in your plan to ensure you don't run out of money? The first decade is key, but if the markets do return what Vanguard are guessing (and assuming inflation remains benign) I don't see that as being a bad outcome.

https://finalytiq.co.uk/technically-buggered-histo...

Hold on a moment!

"the first decade is key". Yup, I get that: read the fairly decent "Beyond The 4% Rule", goes into sequencing risk in some detail.

....but although the equities might drop 50% in the next 10 years, you don't see that as a bad outcome for someone retiring around now?

Isn't that rather contradictory? or are you saying there are better places to invest for the longer term that would stop the risk of sequencing from mattering?

He's not guessing that equities will drop 50%, he's guessing YOY increases will halve.

Yes (I didn’t mean the value halved!).

So the returns on those equities drop 50%: how are you suggesting today’s retiree chooses to grow their returns over the ~30 years they might expect their pot to sustain them without a problem?

Would equities not play a fairly large role in your suggestions for where to store a DC pension pot?

His 12.5% yearly return over 10 years is impressive: I would guess a lot of funds might average out around 9-10%.
Take off inflation and fees (3-5% between them perhaps?) and you are left with 4-5%. I see this as the basic (very much simplified!) “4% rule”.
If that original % drops by 6-8%, as he suggests: how is that not “a bad outcome”?

I must be missing something here.

I do have a pal who is heading back into employment after retiring a year or so ago. I don’t know what his IFA charges for managing his main pot (we are not that close to discuss these things in detail!), but I do know he is concerned enough to want to get another year or two cash building back in.

[anonymous-user]

mikeiow said:

His 12.5% yearly return over 10 years is impressive: I would guess a lot of funds might average out around 9-10%.
Take off inflation and fees (3-5% between them perhaps?) and you are left with 4-5%. I see this as the basic “4% rule”.

Axing 12.5% back to 4-5% net is barmy. Axing 9-10% back to 4-5% net is almost as barmy.

Even if equity returns "reduce by 50%" the net return may still be in the 4% region for someone who's awake and paying attention.

IMO it's entirely feasible to run a decent portfolio for <1%, plus any advisor fees considered appropriate. Yes, there's inflation to take into account but to predict doubling would be mega-pessimistic.

If someone's been getting returns of >10% in a tax free environment for a decade there's no need to panic about a few years at half that level. And pessimists can always take the option of rebalancing their portfolio to reduce equity exposure if they wish, albeit that doesn't make inflation disappear. If someone's paying an "adviser" they could expect answers to their questions on this subject.

[DonkeyApple]

It seems a logical prediction after a decade of QE, ‘buy the dip’ and companies fudging growth via debt. Reality has to return at some point and it seems logical that as QE begins to be tapered and money gains in value that that time is about now.

The biggest risk has to be the number of reputable companies that are walking dead with little hope of escaping their debt piles. Those firms are going to weight heavy on the markets as they wane.

[GT03ROB]

rockin said:

If someone's been getting returns of >10% in a tax free environment for a decade there's no need to panic about a few years at half that level. And pessimists can always take the option of rebalancing their portfolio to reduce equity exposure if they wish, albeit that doesn't make inflation disappear. If someone's paying an "adviser" they could expect answers to their questions on this subject.

Anybody that's planning life events on the basis of a >10% return is bonkers. In the current inflation climate I'm assuming 4-5% & anything more is a bonus.

[DonkeyApple]

It would seem crazy but then Brits have shoved billions into non existent bamboo farms, ostrich farms, minibonds, penny shares, P2P lending etc etc and that would suggest that large numbers have exactly that expectation.

[anonymous-user]

GT03ROB said:

Anybody that's planning life events on the basis of a >10% return is bonkers. In the current inflation climate I'm assuming 4-5% & anything more is a bonus.

I think you, me and Derek Chevalier are all in the same territory with OP looking more pessimistic than is justified, largely due to the huge margin between his gross and net net figures.

Certainly the last 10 years have been remarkable. 10% gross - say 6 to 7% net real - for a decade has been a very good run and many would point to "quantitative easing" as providing at least part of that performance.

[Derek Chevalier]

mikeiow said:

how are you suggesting today’s retiree chooses to grow their returns over the ~30 years they might expect their pot to sustain them without a problem?

They don't necessarily need to grow their returns, they just need to avoid their pot running out. Taking a very rudimentary example, a £100,000 pot that has £4,000 taken out each year with no investment growth or withdrawals adjusted for inflation will last for 25 years. By taking risk the hope is that more can be taken out of the pot and/or it will last longer without running out. If equity returns are positive after inflation in no way will that be as bad a decade as some of those over the last century upon which Abraham's analysis was based on. (Obviously depends on bond performance as well)

mikeiow said:

I do have a pal who is heading back into employment after retiring a year or so ago. I don’t know what his IFA charges for managing his main pot (we are not that close to discuss these things in detail!), but I do know he is concerned enough to want to get another year or two cash building back in.

That's unfortunate to hear. One of the adviser's main roles IMO is to provide peace of mind. I'm also not sure whey he feels he has to go back to work - a decent retirement plan (based on conservative assumptions) would surely not have necessitated this, unless you friend's retirement expenditure was a lot higher than he was expecting?