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The best indicators of market returns are earnings and dividends. Today - SP500 earnings are down 14% YOY - while the SP500 is only down 2% YOY. Dividends are a little more than 2%. Do the math. I can't predict the future - but only expect more stomach churning volatility when it comes to equities - especially now that computers are doing most of the trading volume. Robyn
with dividends at 2% and dividends typically representing 1/3 of the s&p's gains a guess is stocks should return about 6% over the near term until earnings and dividends pick up .
a balanced portfolio is looking at about 3-4% as a projected guess. anything better is certainly a pleasent upside surprise . better to plan lower and be pleasently surprised then plan to high .
but unlike being locked in to the interest on fixed income only , once dividends and earnings pick up returns should follow .
all we need is a replay of 1965/1966 and those living on fixed income investments will be eaten alive .
in just a matter of a few years inflation went from 1% to double digits . no one could have predicted anything like that happening when inflation ,like now was so low as to not even be on the radar .
Last edited by mathjak107; 02-01-2016 at 03:58 AM..
So all I need is a decent income and the ability to live on 70% of that income. Does that take into account getting laid off? Or sick? Or have a new baby? Or have a parent that gets sick? Or take into account the company I work for having a 401k but does not match? Or even more likely a company that don't have one at all? How about this you work for yourself selling cakes? You're business has 2 employees and one of them is you. Do you get that there are a lot of us that do not make over 40k per year. In fact I bet there are more that make less than 40k per year then those that do.
Yes I am being sharp here. It is just that everyone here seems to think money grows on trees. That people can just reach into their pocket and take a $100.00 bill out. I promise you most can't. Yes some are self inflicted but the vast majority of struggling people out there would not ever reach half a million in savings let alone 1 million or even 2 million. Not because they don't try but because life happens and it won't let them.
By "a decent income" I mean something well north of $100K between two earners. It now takes $122K to be in the top third of U.S. households. I don't know how anyone can save on $40,000. Fortunately we have Social Security which is biased toward low earners; they will get a decent return on their contributions and higher earners will not.
Also, most people can do something to increase their income, but I realize that some cannot.
By "a decent income" I mean something well north of $100K between two earners. It now takes $122K to be in the top third of U.S. households. I don't know how anyone can save on $40,000. Fortunately we have Social Security which is biased toward low earners; they will get a decent return on their contributions and higher earners will not.
Also, most people can do something to increase their income, but I realize that some cannot.
You prove my point. The top third make decent income. The rest still struggle day to day. They will never be able to make that lofty goal of 1 million.
Let's understand all going on here. This site is colored by the group experience. Most of us here and I am included in this have decent income and are contemplating what retirement should look like for themselves. By most I mean at least 50%. A great many come here for answers on how to make it on less than 3k a month income in retirement. You can scan the threads here. How many in the last 4 days have been started with SS as a base?
The point here is the vast majority will not make that. There are too many variables. Too many twists and turns with pits and vipers along the way. A good many people make it though. Enough to make it seem like the American Dream is alive and well. I am sorry to say that it isn't as rosey as that. There are a lot of people just struggling.
...Your resoluteness is commendable, but I hasten to add that you DO have a spouse (and an understanding one, at that) and evidently a small but tight circle of friends. Not all of us are so blessed.
I don't talk with friends about investments. Most of my friends are - at best - casual golf/tennis buddies who are inclined to boast about their "killings" and remain silent about their losses. Used to be in the late 90's that no one could talk enough about his/her latest ".com" killing. For a lot of years - these people have been very silent. In recent years - I have seen some couples our age who have had to sell their houses because of large equity market losses post-2008 - losses from which they never recovered. My father has seen the same thing when it comes to some people he knew in his retirement facility.
When it comes to my husband - well he is very much like his late father in terms of investing - very conservative. He would be entirely happy with 5% passbook savings if such a thing existed now (I think a lot of us would). I have tailored most of our portfolio to make him happy - best I can in this challenging interest rate environment. I have also set things up so that if I go to sleep and don't wake up - he won't be under pressure to do something yesterday so he can pay the bills. I trade a relatively small equities portfolio. That is my "baby" . I have showed my husband how to sell whatever I might be holding if something happens to me (and given him legal authority to do so - all of the equities are in my IRA). We also have a friend who's a good fixed income portfolio manager - and I have suggested to my husband that he might use this friend's services to help with things like our municipal bond portfolio if something happens to me. But that is pretty much it.
I basically do everything myself. All the research - all the trades. I figure my opinions/ideas - especially when it comes to bonds - are better and more informed than those other people have. Why shouldn't they be? I've been investing since the 70's - and am pretty diligent about keeping on top of things. Perhaps the most important thing I've learned over the course of many decades and many different markets is what my personal risk tolerance is. I think that is a lesson that we all have to learn for ourselves - and personal mileage can and does vary.
Note I was also a very early adopter when it came to on-line bond trading. And I learned how to shop intelligently when it comes to buying individual bond issues and brokered CDs. Prices can be a lot more important when it comes to bonds than equities. You can get killed by bid/ask spreads if you don't know what you're doing. OTOH - when it comes to equities - basically ETFs for me - I am almost always looking at penny spreads. So price isn't as important. I wind up scratching my head when an ETF - like the IBB (biotech) - has more than a penny spread (have never found a good explanation for that).
Overall - in the end - we have to decide personally what makes sense for us. And we have to live with the consequences of our decisions. Does it make anyone here feel better if he/she makes a stupid investment move because there was a consensus among friends/relatives/investment advisers/etc. that it was the right thing to do? Wouldn't make me feel better. Robyn
No, it's not easy at all, but it is attainable, and there is a big difference. Even just working towards it can change your life. 3 of my brothers and sisters think that saving a million is ampipe dream and don't even try. They all "know"'or "hope" it will all work out, because to them, it has to. I may never have a million invested, but I might. Close is good enough, and beats the heck out of nowhere near. I'm not at all worried about my retirement, they sure are.
with dividends at 2% and dividends typically representing 1/3 of the s&p's gains a guess is stocks should return about 6% over the near term until earnings and dividends pick up .
a balanced portfolio is looking at about 3-4% as a projected guess. anything better is certainly a pleasent upside surprise . better to plan lower and be pleasently surprised then plan to high .
but unlike being locked in to the interest on fixed income only , once dividends and earnings pick up returns should follow .
all we need is a replay of 1965/1966 and those living on fixed income investments will be eaten alive .
in just a matter of a few years inflation went from 1% to double digits . no one could have predicted anything like that happening when inflation ,like now was so low as to not even be on the radar .
FWIW - dividends have been going up ok (about 8.5% YOY on the SP500). It's the earnings that are a drag. And they seem to be canceling one another out.
I always look at long term trends - and the probabilities that they will continue - or change. The odds are often very far from 50-50. The current trend today is disinflation - if not downright deflation. And this despite massive efforts on the part of central bankers to pump air into the tires and get at least some inflation (the fed has a 2% target). So - although a large jump in inflation is possible - it is not likely IMO. And it would certainly not happen overnight. It would play out over a period of years - like it did last time around:
Note that I am talking about "official" inflation rates - not anyone's personal inflation rate based on what a particular individual buys. Last time around - a major factor in the increase in the official CPI was the price of oil/gas. It's possible that this will happen next time around too. But what would the catalyst(s) be? Perhaps a political event in Saudi Arabia?
Seems to me that too many people spend too much time fighting/reliving the last war - as opposed to tackling the current one - or thinking what the next one might be. Robyn
it isn't as much as fighting the last war as learning to improve things from the mistakes of the last war . no different then trying to build a house to survive the hurricanes .
odds are if your construction failed in the past over and over there is a good chance it will still fail over and over . but if i constructed to sandy standards there is always something that can blow me away in the future but at least i would have survived anything in history to date and if i build in a bit more defensive construction i just may weather something even worse .
that is the idea behind modern retirement planning . it is already based on things being the absolute worst case that can likely happen or did happen .
what i found interesting is fidelity revised their retirement income planner . if you use the worst case which is default , first year it knocks 15% off your balance .
when i saw that i am like how did it know ha ha ha . then it goes on to assume the worst outcomes their monte carlo scenario's can configure .
these planners like fidelity rip and firecalc are not interested in market outcomes of the past or what average returns were . since history never repeats the same that would be useless info . .
they only are interested in the math behind the time frame's that ran out of money before it ran out of time and what the math shows as to why , that is it . that is all they do ..
once you look at all the failures and identify mathematically what the common denominator is as to why they failed the calculators did their job.
does it give you a 100% chance of not running out of money ? absolutely not . but it plans for such poor outcomes that a slight income adjustment by 1/2% or so stands a pretty good chance of getting you right back on track if we have something worse then the great depression or 1965/1966 . .
but you should be monitoring your path all along the way regardless as well as should have an allocation in place that meets both your pucker factor and realistic income expectations for that allocation .
you also have to allocate that income like you did your pay check . some is for spending , some for emergency's and some for long term spending needs .
what you can safely draw only pertains to a pensionized income coming in like a pay check . what you do with that money or how much of your portfolio you devote to income generation is a different thing . you may not want to count a portion of your portfolio in to the income generating mix since income generation assumes principal will be used too unless you need very low draw rates like 2% or less inflation adjusted .
you may want a portion for funding long term care or health needs down the road .
folks do not understand where or why these calculators give them the numbers that they do . they question what the past has to do with the future and why the numbers show such small returns compared to the amounts saved .
the answer is because they are so conservative they are based on the worst outcomes happening . even average scenario's playing out would be a big upside change from these worst case and that would cut down on what you need to save .
planning around average returns and inflation based on the past cuts demand for savings by 40% to achieve the same income . but you have a lot less margin if things play out worse .
you need discretionary spending in the budget to be able to cut back on if needed . a budget that is all needs and has no where to cut back has to really be evaluated as to how it is allocated and the income draw level they are pulling .
the numbers thrown out are big because they are conservative numbers and to only address the worst cases takes a lot in savings ,
Last edited by mathjak107; 02-01-2016 at 07:45 AM..
FWIW - dividends have been going up ok (about 8.5% YOY on the SP500). It's the earnings that are a drag. And they seem to be canceling one another out.
I always look at long term trends - and the probabilities that they will continue - or change. The odds are often very far from 50-50. The current trend today is disinflation - if not downright deflation. And this despite massive efforts on the part of central bankers to pump air into the tires and get at least some inflation (the fed has a 2% target). So - although a large jump in inflation is possible - it is not likely IMO. And it would certainly not happen overnight. It would play out over a period of years - like it did last time around:
Note that I am talking about "official" inflation rates - not anyone's personal inflation rate based on what a particular individual buys. Last time around - a major factor in the increase in the official CPI was the price of oil/gas. It's possible that this will happen next time around too. But what would the catalyst(s) be? Perhaps a political event in Saudi Arabia?
Seems to me that too many people spend too much time fighting/reliving the last war - as opposed to tackling the current one - or thinking what the next one might be. Robyn
Robyn awesome links. The information there puts some of what we are experiencing today into perspective. It is understanding that relationship between how the stock markets did in comparison to how wages and how all of that affected the CPI. I remember those times as a young man. I was starting to make my way through life with no clear goal in mind. In fact I thought I was going to live forever since I made it out of my teens in one piece.
I did take an interesting note looking at inflation for 2009 where we actually had a deflation and it seems the same has happened in 2015 to almost the same extent.Maybe that is good news for 2016 since 2010 was a very good year for stocks and inflation/deflation was checked.
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. I have showed my husband how to sell whatever I might be holding if something happens to me (and given him legal authority to do so - all of the equities are in my IRA). We also have a friend who's a good fixed income portfolio manager - and I have suggested to my husband that he might use this friend's services to help with things like our municipal bond portfolio if something happens to me. But that is pretty much it.
