[throw8383833jj]

There are several components that make up long term stock returns (from a macro level):

- Population growth

- Growth in productivity per capita

- Dividends

- Inflation

It used to be that populations were growing and productivity was increasing and dividends were high (becuase PEs were normal). Those days are all over. You can forget about seeing any return above inflation. Population growth has slown to 0.5% (down from about 1.5%+). Productivity per capita is almost 0 for the last 20 years (down from 2% per year for the last 200 years prior). Dividends which used to be 4.5% in the 60s+ and 6%+ at 1900-1950 are now down to about 1.3%.

So, the answer to your question, at least going forward from here is NO, it's mostly just going to be inflation plus 1.3% from dividends. Note, this was not the case for the last 100 years.

[MrPowers]

The biggest factor influencing long term stock returns in real growth in earnings.

Companies don't pay out all profits to shareholders as dividends. They can also reinvest in their own business (e.g. build a new factory) or buy back shares.

The go-forward nominal rate of return on stocks should be higher than the inflation rate + the dividend yield. The nominal rate of return could be closer to shareholder yield + inflation (shareholder yield is the dividend yield + share buybacks). I think the real earnings growth is the best predictor of long term returns. Earnings growth is correlated with population growth & productivity growth, but those aren't the only important variables.

[throw8383833jj]

Look at it this way. In the forever long term, stock valuation (without dividends) can't exceed the GDP growth curve. Otherwise the warren buffet ratio would be meaningless. So what is GDP growth? It's population growth plus productivity growth. everything else just is just productivity growth. Sure, stocks can increase their earnings as a larger percentage of gdp, but that is also finite and will in the long term still fit the GDP growth curve.

So if Pop growth and productivity growth are 0 in the long term (it might be higher i don't know), GDP is Inflation. if GDP is inflation then equity returns without dividends is inflation as well.

[ChrisLomont]

>You can forget about seeing any return above inflation.

That's not true. Here's a calculator you can play with that shows S&P 500 returns for any time period you like. Or you can go to FRED data and play around and get the same information.

https://dqydj.com/sp-500-return-calculator/

[throw8383833jj]

i meant, going forward from here.

in the past, we had great returns due to increasing population, plus productivity increases and in large part due to dividends. all three of those are severly decreased going forward for the next 100 years.

[slv77]

Returns are more correlated with working population growth then total population. The US experienced a generational dividend in the 70’s with a higher percentage of the population going to work as smaller families became the norm and women entered the workforce in large numbers.

[ChrisLomont]

If you can predict future market behavior, then you can get rich by taking shorts/longs on your position. There's always some investors willing to take the opposite position.

Good luck.

[slv77]

Some trends are hard to predict short term but easy to predict long term. The day weather forecasts are difficult to predict more then 10 days ahead but climate change forecasts have been very accurate. It is difficult to predict who will be diagnosed with cancer next year but relatively easy to predict cancer rates in the overall population in a given year.

In the long term however we’re all dead so being proven right in 80 years time is meaningless to any investor.

[ChrisLomont]

>Some trends are hard to predict short term but easy to predict long term. The day weather forecasts

Just because weather is a series with such prediction characteristics has no bearing on asset prices having such prediction characteristics. By this reasoning, I could claim since some series are completely predictable, thus stocks are too. Since this level of hand waviness is clearly wrong in the latter case, it is also wrong in the former.

The fact is that asset prices represent value of underlying items, and if those items gain in value, then asset prices likely do too. Since not all asset prices grow or fall in lockstep, then there is always growth in investments possible, if you have enough insight to pick more growing and less shrinking assets.

And the entire set of assets is also likely to grow in value, since people are still working at creating more value.

>being proven right in 80 years time is meaningless to any investor being proven right in 80 years time is meaningless to any investor

True, since they very rarely care about 80 year investments. If they can obtain growth in the near term, then that is pretty much all they need.

So are you now saying there is growth possible, just not in 80 years? Or that you really just don't know?

[slv77]

Over some time period if corporate earnings growth continues to exceed GDP growth then they will eventually consume all of GDP leaving nothing for taxes or labor. This creates a hard upper bound on returns.

GDP growth is tied to working age populations growth and productivity growth which are very long term, predicable trends.

Long term returns on stocks will need to return to GDP (or less) but that could be tomorrow or 100 years from now. While I can be certain that it will happen if it happens and I’m right in 100 years is matters little as I’m dead and it does me no good.

[throw8383833jj]

What I stated about future returns vs past returns is quite well known in the financial community hence it's already priced into all the assets. there's no advantage in knowing something most other financial pros already know.

[imtringued]

It is the same with money printing, when the commercial bank prints money, it also prints debt, or maybe it deprints money?

[ckardat123]

What metric are you using for productivity growth per capita? The data I'm looking at shows around a 25% increase (inflation-adjusted) over the past 2 decades in the US.

Source: https://ourworldindata.org/grapher/labor-productivity-per-ho...

Intuitively, it certainly seems like humans are a lot more productive now than we were two decades ago with wider adoption of the internet

[imtringued]

People don't seem to understand that an increase in productivity can result in a concentration of economic activity. Remember group assignments in school? It is often easier to just do the entire work yourself to avoid the cost of coordination. One guy is then doing 80% of the work. The problems start, when it is about paid work. If one very productive guy gets to do the work of five, the employer is going to fire the other four. The government borrows money, so that the unspent savings of the over productive saver are used (oversimplification, saved money is dead and newly borrowed money replenishes the loss) to create jobs for the other four. Our inability to share work forces us to grow the economy to keep everyone busy at work.

[throw8383833jj]

https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(real...

Look at North ameria: 2000 to 2010: 0.73% 2010 to 2018: 1.45% Eurozone is just under 0.7% to 1% for the last 20 years.

Keep in mind I'm projecting forward over the next 100 years. Developing countries have slightly higher growth rates of 1.5% but they will one day be a developed country too, if they keep "growing".

Also, keep in mind that the BLS CPI overstates CPI by 2% (according to shadowstats.org ~ and the BLS's own CPI from the 80s). So, this means that real producitivy is also overstated by 2% since.

[sleepdreamy]

So how should I go about investing/creating a portfolio? I'm 29 and finally making decent money. Not sure how to move forward

[dragontamer]

Two-portfolio theory is a good place to start.

VTI (Vanguard Total Stock Market) + BND (Vanguard Total Bond Market).

If you're saving for retirement, 30% BND + 70% VTI is a good starting point. Bonds grow slower than stocks, but stocks are riskier than bonds. Both grow over time.

VTI charges a 0.03% fee/year.

BND charges a 0.03% fee/year.

These are very low fees. The management style is hands-off (which is why its so low): VTI buys every stock in the stock market proportional to their size. BND buys every bond in the bond market proportional to their size (ie: mostly US Treasuries, but also some company-debts). Since these are broad and diversified, you should perform decidedly "average", which is fine.

--------

If you're saving for something near term (ex: new car, new house) that's within 5 years, you'll want to be more-bonds and fewer-stocks, 50/50 or maybe even 70% bonds / 30% stocks

Research bonds and stocks very closely. Learn their details, how companies work, dividends / profits are distributed (in particular, learn the theory between dividends vs capital expenditures vs stock buybacks).

For Bonds, learn about inflation risk, interest-rate risk, and more.

Once you understand the basics, feel free to branch out and put small amounts of money into specific stocks (or specific stock-sectors).

[throw8383833jj]

You've got some great advise that straight out of the investment handbook and has served investors very well for the last 100 years.

But, the mainstream investment handbook is a little out of date. With a 50 year Bond bubble brewing, bonds are close to an all time high right now, which means interest rates are close to all time lows. This means, you'll get very low returns from bonds, much lower than the last 50 years and almost certainly won't keep up with real inflation. Much of the bond returns from the last 50 yrs were from increasing bond prices/decreasing interest rates. those days are over. so, now we only have the yield left, which averages about 2% or so.

In a secular low rate world or ever low rates, risk assets, unfortunately are the only life boat available to rescue us from the onslaught of inflation. :(

this is Not financial advise.

[dragontamer]

I mean, that or TIPS / I-Bonds, if you really care about inflation.

There's a lot of instruments out there.

[chii]

The amount you can buy for I-bonds is too small for a retirement portfolio (which, i think needs to have a total asset of around $1million to make retirement self-sufficient).

[dragontamer]

So buy TIPS.

I-Bonds are super-safe since they have a minimum (currently a 0% minimum) rate. TIPS can go negative during periods of deflation. But if you actually want an inflation hedge, then TIPS exist for that reason.

[PopAlongKid]

>If you're saving for something near term (ex: new car, new house) that's within 5 years

A more conservative suggestion that I read once and have mostly adhered to says that any money you expect to need in the next five years should not be in the stock market at all.

>BND (Vanguard Total Bond Market)

Individual bonds and bond funds are two quite different types of investment and should not be considered equivalent.[0]

[0]https://www.fidelity.com/learning-center/investment-products...

[dragontamer]

> Individual bonds and bond funds are two quite different types of investment and should not be considered equivalent.[0]

Bond funds move based off of the sum of bonds that are inside of them.

Much like we programmers study assembly code to understand the machine, even though we write code in C++ or Javascript, any bond fund owner should study bonds to understand the underlying mechanics and risks of the overall fund.

[throw8383833jj]

the most important thing is diversification. First of all, max out your 401K immediately and then get an IRA if you're income is low enough. Within there buy the SPY and maybe VTI (you want as much diversification as possible). Outside, of the 401K and IRA, you also buy SPY, VTI (but remember, you won't be able to sell that in any year where you make income above 40K because of "capital gains", lolz "gains", history 100 years from now will call that a misnomer.)

If you invest in GOLD, do it in an IRA otherwise you will be hit with 28% collectibles tax, no matter how low your income is.

Get some bitcoin (or GBTC in an IRA), the two wrongest allocations for bitcoin are 0% and 100%, but many financial professionals today will recommend 3-5%.

Disclaimer: I know nothing and This is NOT financial advise.

Most importantly, try not to pick winners. that's a fools errand. Pros that know absolutely everything can't even beat the market, so just try and be average. If you can be average with the VTI, then you'll beat the returns of most people who try to pick winners.

[PopAlongKid]

>get an IRA if you're income is low enough.

There is no high-income restriction on contributing to a traditional IRA. Only the possible tax deduction is limited, however earnings on any contribution are still fully tax deferred.

>, you won't be able to sell that in any year where you make income above 40K because of "capital gains"

Let's clarify: for U.S. tax purposes, if your taxable income (which is much lower than gross income) as a single filer is below about $40K (double that if married filing jointly), your tax rate on long term capital gains is zero (for now). But even if you go over that, you still receive a highly favorable rate of only 15%, it doesn't go higher than that until taxable income gets up around $450K, so if you must sell with a gain, it's still quite tax-friendly. (Unfortunately, some states such as California have no special capital gains tax rate).

[ericmay]

> There is no high-income restriction on contributing to a traditional IRA. Only the possible tax deduction is limited, however earnings on any contribution are still fully tax deferred.

Yep. Which is why I think it's a great little bucket for REITs and perhaps dividend stocks where distributions would have counted toward your annual income but don't when you use the TRAD IRA.

Dividends are taxed at max 20% (AFAIK) but REIT dividends are taxed like income at your highest marginal rate, so if your marginal rate is high enough (above 20%) you may want to buy REITs in a traditional IRA.

This is not financial advice.

[throw8383833jj]

15%+ (CA has more added on) is not favorable when it's on your principle. If your $$ go up by x10 but your purchasing power remains the same, then 90% of your principle is being taxed at 15%. The term "capital gains" is becoming antiquated, going forward. Sure, the last 50 years have been great but no one is expecting the future to look anywhere near as rosy as the last 50 yrs. and so, the pizza keeps getting sliced into more pieces but you still have the same amount. The dollars in your retirement account may increase drastically but if the purchasing power is exactly the same, then you haven't actually gained anything. It's only in terms of accounting, that it's said to have made a capital gain: it's not a real gain.

[nick__m]

  Most importantly, try not to pick winners. that's a fools errand. 

Trying to pick winner is fun tought and it's a great way to learn. I don't think that there is something wrong with having a few percentage (<10%) allocated to play the market like it's a casino.

But start with index and etf because if you start with individual stock you are already over 10% ;)

This series of articles https://www.investopedia.com/articles/basics/11/3-s-simple-i... gives a good overview of how to start investing. However, it don't cover country specific things like taxes and 401k.

Edit: Disclaimer: I know probablay less than throw8383833jj about finance so This is NOT financial advise.

[imtringued]

The problem is that uncontrolled emotions can lead to far worse losses than you could possibly gain so most people should just keep their urges in check and follow a boring strategy.

[ericmay]

There's no great answer here. Even those advocating for something like a two or three-fund portfolio have to contend with great arguments for 100% equity allocations (https://www.gocurrycracker.com/path-100-equities/ for example - haven't vetted numbers myself).

But I do think I have some 100% guaranteed "advice" (this isn't financial advice and you would be stupid to listen to anything I write here) which is that you should always max out tax-advantaged accounts. It will depend on your income level and specifics, but you should basically max out your 401k and any IRA vehicles you have access too (depending on income level) with whatever you do. While the regulatory environment can and will change, based on what you know today and can predict, these accounts are huge up-front 0 risk ways to save even more money.

With all of that being said, generally it's advised to follow something like a 2 or 3 bucket portfolio with a mix of total US stock market (or S&P500) making up something like 90% at your age and then reducing by 10%/decade + emerging market funds + bonds. Allocations depend on goals/ideas.

Speaking of goals, the #1 thing to do is figure out your goals. Want to be financially independent at 35? Well you will want to put money into different accounts and probably different assets. Want to "work" until you are 50? That's a different strategy. Etc.

When it comes to investing, you don't get rich and then all of a sudden you are rich.

[abakker]

If it were easy, everyone would be doing it. Since it is easy to do what everyone is doing, your investments will not do better that the market. Therefore, if you want to beat the market, it is difficult. Consider the most efficient easy strategy to be minimizing fees.

[mupuff1234]

That might be true for the US market but most listed companies are global.