William J. Bernstein, in a recent interview, projects modest market gains (2% net expenses) over next two decades. That does not bode well for the 45 to 55 age generation. Here is a quote from the Bernstein interview.
“The way you’re going to get rich is by working hard; not spending a lot of money and saving. The name of the game is not to get rich. The name of the game is to not die poor. And the way you avoid dying poor is just by adhering to your strategy.”
Bernstein is not the only one casting a gloom and doom shadow over the future of U.S. Equities. Be sure to read all the links found in this post.
If global markets produce modest returns over the next two decades, it behooves investors to reduce spending and increase savings. This is nothing more than The Golden Rule of Investing. We know investors are ill-prepared for retirement. Check out this site and here is one quote.
“According to the Federal Reserve’s Survey of Consumer Finances, the typical working family at about 55 to 64 years old only has about $104,000 in retirement savings, reports Eduardo Porter for the New York Times.” This is an excellent article.
How should ITA investors approach decades of 2% returns?
- Remember that most predictions end up in the trash.
- Stick with your investment plan. Make changes slowly.
- Reduce portfolio volatility by avoiding ETFs that under-perform SHY. This model will prevent getting caught in the draw-down of a major bear market.
- Hang on to the better performing ETFs.
- Keep it simple and use a few low correlated ETFs to populate the portfolio.
Robert Jones says
Pardon my ignorance on this point, but when you refer to ETFs that perform below SHY, what period of time do you use for the comparison? 195 days, as with EMA, or some other period?
Lowell Herr says
The information comes from the SAS 7.1.3 spreadsheet and I use the three standard settings. 91 calendar days for the most recent performance is set to 50% of the weight, 30% is allocated to the performance over the past 182 calendar days and 20% is assigned to volatility. Those are the “default” settings and I still use them.
Ask again if this does not answer your question.