I found a good source of historical real return averages: www.cfainstitute.org
1926-2020 Average Returns (I read these from a bar graph so the #'s are approximate)
Long term Corp Bonds - 6.5%
Long term Gov't Bonds - 6.0%
Inter-term Gov't Bonds - 5.0%
US Treasury Bills - 3.5%
Inflation - 3%
@pizzaman According to your YCharts source, long-term healthcare inflation is 5.2%. No indication if real or nominal
@nc-cpl I may have confused you with my 10 year comment. I use 10 year ROR expected returns, but I plan up to age 100 for me and my spouse. I also look at what the plan looks like if me or my spouse dies within the next 5 years. It is good to see the impact of only one social security benefit, single vs married tax brackets, and roth conversions etc..
Financial planning and financial markets are some of my hobbies (sick), so I like this stuff. I took the Financial Planning Certificate program prior to retiring thinking I was going to help others pro bono. It turned out that I did not like doing it as much as I thought and pro bono makes it feel like a job with no pay. I enjoy doing my own, but now that I have been doing this for about 5 years, I don't get into as many of the details. I have a better understanding of the impacts of various alternative on my decisions. I also realized that I don't want to die with the most money and that secure income is important to me. So, for now, my plan is to take both mine and my spouse's pensions in the form of monthly payments. This income with social security all but eliminates the reliance on market returns to fund my spending and it gives me more freedom to spend than I might otherwise do when markets are in a downturn. Although the average drawdown and recovery periods last about 3-4 years on average, we have had some that last 7+ years. I believe in the flaw of averages. I am reminded that a 6' tall man can drown when he falls in a hole crossing a river that is on average only 4' deep.
Found this site: https://www.usinflationcalculator.com/inflation/health-care-inflation-in-the-united-states/
First sentence states that healthcare inflation for the last 12 months was 3.1%. So I assume that is a real number since general inflation was a lot higher. If so, average healthcare real inflation from 1948 to present was 5.07%. From 1990 to present is was 3.95%. This web site brings up a question, it states: "The cost of health care is a major component — one of eight major groups — in the BLS’s Consumer Price Index (CPI). Described in their monthly reports as the "medical care index," it is split in two sub-categories titled "medical care commodities" and "medical care services." CPI is different than general inflation but they correlate very closely. Question, does general inflation include healthcare inflation, and if so would that result in double counting healthcare inflation??
Found the Credit Suisse report as well as another from the same authors...enjoy!
@nc-cpl Thanks for sharing. I have read some of their work but have not seen this report. I also looked at the single chart you provided from? It points out that over longer periods international has done better than just U.S. alone but most recently it has lagged. Some of this is due to the fact that the U.S. valuations based on various measures have increased relative to international. I am not convinced that trend will continue so I still allocate to international. Note sure if this is what you were pointing out? Thanks again for sharing.
@pizzaman Are those long term govt and corporate bond returns correct? That would suggest that they have performed better than stocks and an almost 10% spread over intermediate?
The last article referenced represents 1900 - 2000 rather than 1900 - 2021 (to avoid any confusion)
@patton525 See p. 38 of the first report to get the timeframe I think you're looking for
@golich428 That's not what I got out of the Credit-Suisse 2022 Summary report concerning international stocks????. Look at page 18 through 26. "Over the last 50 years, US investors would have been better off staying at home, rather than investing globally." The only time global stocks did better was if you averaged from 1900 to 2021. "Second, over this period, (1974-2021) global diversification failed to lower volatility for US investors. The US equity market was among the world’s least volatile as its size, scope and breadth ensured that it was highly diversified." "Global diversification also involves exposure to currency risk. For each country in the world index, the global investor is taking a stake in two assets, the country’s equity market and its currency." "Many smaller countries have highly concentrated stock markets. Even some larger markets, such as Japan, the UK, Germany and France have limited domestic exposure to key sectors such as technology. These countries have potentially more to gain from international diversification than US investors as the US market is already very large, broad and highly diversified."
Even after presenting all this information, the authors say this "The USA was thus an outlier, albeit a very important one. However, we are observing these results with hindsight. Ex ante, it is hard to predict which countries will perform best or where domestic investment might beat global. There is no obvious reason to expect continued American exceptionalism. Surely, US corporate superiority should by now be priced in?". They don't present any evidence for that statement. "Prospectively, therefore, the advice to investors from all countries, including the USA–despite its historical record–is that they should invest globally. This is very likely to reduce risk and increase the Sharpe ratio, although this is not guaranteed." Do I smell a little anti-USA bias??
@golich428 The bonds results are from Exhibit 1.3 page 15 from the SBBI Summary report (see attached). This site shows the history of returns by year: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
Some years had huge Treasury and bond returns.
@golich428 Yes, I messed up the bond returns biggly ???? . Exhibit 1.3 does not state it is real returns and I did not use the 1926-2020 time frame. Thanks for checking on my work ????. I went back and fixed my March 2nd post.
Attached is a comparison of the Pralana Survey results (user predictions summarized by @nc-cpi in Feb 2023) to the Vanguard 10-year nominal predictions (as of May 2023) as presented by the Visual Capitalist website:
https://www.visualcapitalist.com/10-year-annualized-forecasts-for-major-asset-classes/
I converted the Pralana "Real" return survey values to the "Nominal" returns assuming a 3.0% inflation rate in order to plot them on the graphic (which presents 10-year nominal return predictions). Note that Pralana users appear to be predicting returns over roughly a 30 year time horizon, according to the survey.
The survey popular (nominal) prediction appears to be optimistic relative to (most) Vanguard stock and bond nominal return predictions. The Vanguard predictions for global and emerging market nominal returns appears to overlap with the Pralana survey popular response, although asset class details in the survey are not defined.
See the thread above of the summary and the discussions of the survey results noting that the graphic here only attempts to show the higher survey response counts to get a sense of the survey range. The google docs file in the post by @nc-cpi presents the actual survey response details.
Seems useful to see the difference between the predictions in a graphical form...
