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I like to crunch numbers especially when it comes to planning the future value of my investment portfolio. However the returns the last 3 or 4 years have been so unusual that I am no longer sure what is a safe number to use.

My wife and I moved from Canada to the US in 2002 so we have investments in two countries. Despite the recent volatility what rate or return should I estimate for the next 10 to 15 years. I am 52 years young at present. Any thoughts on this matter?

Andy
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Fletch52 asks,

Despite the recent volatility what rate or return should I estimate for the next 10 to 15 years. I am 52 years young at present. Any thoughts on this matter?

The long-term average for the S&P500 is about 10% per annum.

Warren Buffett counsels that one shouldn't plan on more than 6% per annum for the next 10 years or so.

Others fear the country and its markets will continue to circle the drain -- even a 0% return is too optimistic for this camp.

Personally, I think Buffett's number is a reasonable estimate for planning purposes. The lower your number, the greater the chance that any surprises will be pleasant ones.

intercst



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Andy, I'm 52, as well. I'm using the 8%-10% range, but understanding that the market goes up a bunch in some years, and goes down a bunch in others. I've worked out what would be a reasonable total return in 15 years, and if we were to have another 90s style bubble that matched that figure, I'd probably get out of stocks completely. At some point, you and I have to eliminate or at least drastically reduce our risk. I don't know if my idea is the best, but it's something to think about. In any case, in about 8-10 years, I'm going to be looking real hard at a reason to stay in stocks.

Hedgehog
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"However the returns the last 3 or 4 years have been so unusual that I am no longer sure what is a safe number to use."

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Actually the returns for the last 10 years have been unusual. Unusually high until 2000, unusually low through early 2003, then unusually high again until early 2004.

For thirty years I used 8% in my planning. That was based on 10% from equities and 6% from fixed income. Right now it looks like both numbers may be a bit too high for the next 5 to 10 years. We may well be stuck in a market like the mid 70's when stocks did nothing.

BTW, just to show how the last few years have impacted yields, my portfolio's compound return from 1973 through 1999 was over 14%, and I never owned a dotcom stock. From 1973 through 2003 the compound return was less than 11%.
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I am no longer sure what is a safe number to use...Any thoughts on this matter?

Hi Andy,

I'm 54, and only seriously started my retirement saving in 1994 when my company finally got a 401K. As of 7/31 my portfolio, including all accounts, is still underwater about 1%. For my estimates I'm using a return rate of 6.83%, and an inflation rate of 4.37%, and given the current environment, I'm still keeping my fingers crossed.

As Intercst pointed out, there are those who think the market will just tread water for the next 10 years--we can only hope their predictions won't be accurate.

2old




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"As Intercst pointed out, there are those who think the market will just tread water for the next 10 years--we can only hope their predictions won't be accurate.

Hi 2old,

While we may well be in for a long period of little overall returns in the market I think some of us are looking to the MF newsletters to help us pick some stocks that will, on an individual basis do better than the overall market returns. It would be hard to believe that there will be 10,000 stocks that do nothing, up or down... so to offset the ones that go down there must be some that go up for the overal return to be zero... Now if they do all go down I may be using the Neptune Society services sooner than I'd like ;-/

The outlook does tend to be rather grim for right now and that is one reason I don't have a higher percentage of my portfolio in stocks.

Interesting times we live in...

Regards, Ken

"Spend like there's no tomorrow, because there may not be, but save some just in case there is..."
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...some of us are looking to the MF newsletters to help us pick some stocks that will, on an individual basis do better than the overall market returns.

Hi Ken,

If there is one thing that I have learned, it's that I don't have the inclination to investigate individual stocks--I have sufficiently proven to myself that I'm extremely inept in that area. But I do keep a certain percentage of my portfolio in non-index, less-diversified funds whose fund managers, I believe, are better stock researchers and pickers than I am, and I follow these funds pretty closely.

In the event that equities go nowhere, I am currently buying both I and E bonds--"I"s because inflation might well return for a prolonged period, as it did from 1968 through 1984, and "E"s because their rate is tied to the 5 year treasury. These bonds have a lot of advantages (mainly tax) for me over CDs or MMs for my efund, and if I never have to use them before I retire, and equities are still flat, I will use them after I retire and keep the major portion of my portfolio in equities, waiting for the boom years (if they ever come). At least that's the plan...

Good luck,

2old
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I think some of us are looking to the MF newsletters to help us pick some stocks that will, on an individual basis do better than the overall market returns

In my opinion, just the opposite will happen- by wasting money on newsletters and trying to hop in and out of stocks to beat the market, you'll likely underperform it (as well as waste a lot of productive hours) over the long term.

The outlook does tend to be rather grim for right now and that is one reason I don't have a higher percentage of my portfolio in stocks.

Ditto trying to time you asset allocation. No one knows how these asset classes will perform over the long term, though you can waste a lot of time and money guessing.

Nick


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I think no one knows and we're all lost in the dark here.
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We can look to newsletters all we like, a century of study has proven that the newsletters are no better at picking stock than a monkey with a dartboard.
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"In my opinion, just the opposite will happen- by wasting money on newsletters and trying to hop in and out of stocks to beat the market, you'll likely underperform it (as well as waste a lot of productive hours) over the long term.

Hi Nick,

First off neither Stock Advisor or Hidden Gems advocates jumping in and out of stocks. Buffett, Lynch and Graham amongst other lousy investors provide inspiration, don't know why anyone would think there might be something to be learned from listening to Tom & David either. Most picks are based on a 3-5 year hold. I did not advocate hoping in or out either so I don't know why you threw that remark in. In fact I did not even recommend that anyone do what I'm doing, everyone gets to do it their way.

"Ditto trying to time you asset allocation. No one knows how these asset classes will perform over the long term, though you can waste a lot of time and money guessing.

No doubt you're correct here too even though there are some who would disagree with you. As we face rising interest rates should we ignore this and buy bonds right now based on some arbitrary age formula? I think Bill Gross pays attention to such things... I could be wrong though.

pekinrobin wrote: "We can look to newsletters all we like, a century of study has proven that the newsletters are no better at picking stock than a monkey with a dartboard.

Can't argue with studies... after all HG has not been around for a decade yet.

Right now the HG scorecard has it Tom +26.1%, S&P -.44%, Guests +4.87%;
SA scorecard David +29.2%, S&P +7.46%, Tom +29.75%

Past performance no guarantee of future performance, but then that's said of mutual funds also and indexes can go nowhere for many years. There are folks who buy a couple of picks and get clobbered in this market. As Tom said buy as many as you can to diversify.

You don't want to subscibe, okay by me. There are many approaches to investing. Are small caps volitile, oh yes. But they can do very well compared to the overall market, still it's recommended that no more than 10% of a portfolio should be invested in them.

Regards, Ken

"Spend like there's no tomorrow, because there may not be, but save some just in case there is..."

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I think that some of us have seen TMF fall on its face often enough that we're not too eager to pony up for the Kool-Aid. Drink up!
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I think that some of us have seen TMF fall on its face often enough that we're not too eager to pony up for the Kool-Aid. Drink up!

Rumor has it that their next newsletter is tentatively titled "The Dartboard Advisor." ;-)
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Any thoughts on this matter?

FWIW, here is what I plan on doing. By the time I retire in about 10 more years, I'll have about 17 years of personal investment return data. I plan on using what I've personally done over that time frame and then fudge up/down a little based upon what I've done over the previous 5 years.

Why? My lifetime data will reflect MY tolerance for volitilaty and investment style. Why fudge with 5 years? Takes into account recent trends.

JLC
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First off neither Stock Advisor or Hidden Gems advocates jumping in and out of stocks

Ok, I'm just going by what I read on TM. For instance last year TG wrote a two day, two part feature piece boldly titled "The next telecom double"...the double in question was Talk America, ticker TALK. Then a few months later he said in another piece he'd dumped the stock. Didn't sound like buy and hold investing to me.

Buffett, Lynch and Graham amongst other lousy investors provide inspiration

I see you've fallen for the old "Buffett beat the market, so my newsletter can, too" routine. What about the other 100,000,000 that tried to beat the market and failed? What about, for example, Tiger Management, America's largest hedge fund in 90s? Only the very best and brightest worked there (my friend, top of his class a Princeton, was chosen over 300 candidates for their single open fresh grad position in 1994). They went out of business a few years ago after a few bad stock picks. Do I think you and the Gardners are smarter than the guys at Tiger? Nope.

For the record, Buffett has beaten the market primarily through being a business owner, and Lynch's performance was dismal in the 90s (until he gave up trying), and Graham never made a fortune using the techniques he claimed could make him rich.

And how did Buffett recently recommend you and I invest? Through Vanguard mutual funds.

As we face rising interest rates...

a) Any news or opinions about future interest rate moves are already priced into the market. Unless, that is, you have some piece of information the rest of the world doesn't...

b) Nobody has any idea if interest rates are rising. For example, recently the economy hit a "soft patch" and rates declined. Who predicted that in advance?

Nick
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Some of the prior posts generally leaned towards the prediction that the overall market may be generally “yucky” (for the lack of a better term) in the next few years.

I just wanted to point out that the information that they are basing their prognosis on is generally available and already more or less priced into the market. Because of that the best forecast for the broad market returns over the next ten years is “average”.

The bad new though is, I recall a prior post or article that analyzes just how rarely the market has a year with average return for a set period. It was usually much higher or lower.(if someone knows has a link to this, please fee free to post it)

The good news though is that if you are still contributing money towards your retirement then you will bet the benefits of “dollar cost averaging” that will really help your overall performance.

Greg
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Andy:

Despite the recent volatility what rate or return should I estimate for the next 10 to 15 years.

If anyone can answer that, for real, he or she should be VERY wealthy!

Diversify -- wisely -- and hope for the best.

Vermonter
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