Living In Multiple Timeframes

Stocks always have a positive expected return. With the passage of time however, these expected returns turn into realized returns and obviously they’re not always positive.

We just can’t know what the market will deliver, so it’s best to plan and prepare for a wide range of outcomes. This range is determined by a number of factors, including but not limited to the business cycle, valuations, interest rates, inflation, and  the collective mood of millions of investors.

Yesterday, Research Affiliates put out a piece saying the chance of a 60/40 portfolio returning 5% a year for the next ten years is zero. Yikes.  One of the reasons they, and others, have cited to lower your expectations is because of the high returns we’ve experienced in the past.

“One message that John West, head of client strategies at Research Affiliates and a co-author of the report, hopes people will take away is that the high returns of the past came with a price: lower returns in the future.”

They’re not wrong, since the bottom in 2009, stocks have outperformed risk free bills by 17.5% a year, the largest spread over a 7.5 year period since 1958!

7-5

But for longer-term investors, it hasn’t been all rainbows and butterflys. Since the top in March 2000, the S&P 500 has outperformed risk-free assets by just 2.7% a year, well below the long-term average of 7%.

6-5

Part of what makes investing interesting is you can anchor to any point you’d like and craft your own narrative or choose your own adventure. I try not to focus too much on historic highs and lows and I certainly don’t spend much time thinking, “what will stocks do over the next decade.” But If we do experience low returns, behavior will matter more than ever, so  I’m trying to anchor not to the bottom in 2008, or the top in 2000, but to what really matters, my future.

Investors live in multiple time-frames. I have another thirty working years, so I have to keep my eye on the ball while putting myself in a position to survive multiple one, three, five and ten-year periods. The most important thing I can do to maximize my chances for a financially comfortable future are to continue to invest, control my behavior, and let compounding work its magic.

Finally, I think this idea from a recent Jason Zweig article is a great way to think about your relationship with the market.

“Investing is always a partnership between you and the markets,” says Mr. Kinniry. In the 1980s and 1990s, when stocks and bonds alike racked up double-digit average returns, the markets did most of the work. “But now you are going to have to be the majority partner,” he says.

The Next 10 Years Will Be Ugly for Your 401(K)

Source: Sorry, You’re Just Going to Have to Save More Money

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.