The long-term returns from 2000 when valuations were at the highest in exUS history were 3.75%. That's still a 1% real return, but I don't think anyone investing in equities would be happy with that outcome given the volatility.Here's the thing....It’s cool for new buyers but a headwind for current owners (see: Homer’s post on exUS returns vs US starting in 2000)
The long-term returns from 2000 when valuations were at the highest in US history have still been in the 6%-7% range.
When the WORST long-term case in recent history is 6%-7% a year (every other year you invested returned more), it makes it pretty easy to not care about valuations.
The money one has in stocks should be long-term money. Put the short-term money in TIPs and bonds and money-markets, and then you don't care about what stocks do in short-term.
So, there's a counterpoint to your example. High valuations, even in optimistic scenarios like the US, do meaningfully reduce returns and were able to sustain still decent returns overall because they did not have significant valuation contraction over the period (valuations at the endpoints remained high).
In worse outcomes like the exUS scenario, they were extremely poor since they did not maintain high valuations. It's not a reason to NOT invest. But I would be more comfortable not having extremely high exposure to the most expensive markets only, personally.
This. 4% withdrawals only require a minimal positive real return. 1% real actually works.I'm actually not in the accumulation phase anymore (I edited my previous post to add that). The numbers you mentioned are within the range of what I can deal with. So I'm mentally prepared for it.There's a wide range of possible scenarios and it's unpredictable. Over the long term, that could mean a nominal 4% return for 24 years (like exUS), with a real return of only 1%.I actually have a suspicion that the US market is overvalued. So I accept the potential for what you're talking about. And if "overvalued" means higher than a theoretical "fair value", and if we go back to fair value, then it just means I'll wind up with what I should've gotten.
In other words, not a problem.
No one here is counting on 7% real a year. So, even if future returns are bad, we're already prepared for bad, and will be fine.
And after 10 years, seriously 10 years, of Nathan telling us that returns will be bad, and instead they have been EXCELLENT (not just okay or good), it's pretty easy to ignore Nathan's warnings of doom.
(1) He has been wrong forever
(2) Even if he is right starting today, it won't matter to Bogleheads planning on 3%-4% SWRs for retirement.
(3) And it probably won't matter for young Bogleheads either, because a 10 or 15 year period of bad returns will actually be good for accumulators, and in the long-run, they will probably get decent returns, just like we did even investing in 2000.
It works most of the time. But you could be the unlucky person that retires at the worst possible time and where it doesn't.
The US example from year 2000 is not the worst outcome. Valuations were also quite high in the 1960s, and that led to the absolute worst potential outcome because there was significant valuation contraction.
BTW - Do not put words in my mouth. I never suggested returns would be "bad". If that were the case, why was I invested in the US market throughout this period? I suspected that the returns had a higher probability of being lower than normal, and obviously the lower probability scenario ended up prevailing since returns were higher than normal. Saying that the possibility is higher for a lower outcome is not the same thing as claiming it will absolutely happen. So you can't claim I was "wrong", just like you can't claim someone flipping a coin was wrong because he suspected heads would be the outcome about half the time a coin is flipped 10 times and it ended up on tails on 7 of those flips.
Statistics: Posted by Nathan Drake — Wed May 08, 2024 9:32 pm — Replies 5968 — Views 1410654