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Sharing of Inflation Rates, Rates of Return

Last Post by Bill Hines, Advice-Only Flat-F... 3 years ago

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Pizza Man

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Topic starter June 11, 2023 1:23 pm

@nc-cpl You're funny 😆. That table has 530 data points. That's it 🤪?? What I didn't see was the 10 year prediction of the grow of the company that make Pez dispensers: https://en.wikipedia.org/wiki/Pez

Now that's information I can use!!

Seriously, to answer your question, no. Since I only invest in US total or mostly total index funds (for my stock allocation), the %ages add nothing to what I enter into PRC. The various bond predictions may be of some use in a few years when I transition from US Treasuries & brokered CDs to bonds, but not yet.

What about you?

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(@nc-cpl)

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June 11, 2023 2:26 pm

We are presently (and will likely stay) at a 60/35/5 mix, so I was going to hang my hat on

Equities (US Large) (4.9%; 2%)

Bonds (US Aggregate) (4.6%; 1.7%)

Cash (2.9%; 0%)

This post was modified 3 years ago by NC

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Pizza Man

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Topic starter June 12, 2023 10:46 am

@nc-cpl That's fairly conservative. I assume your inflation is 2.9%? That's fairly low considering the historic average is something like 3.3%. Will you increase ROR of your stock holdings after 10 years in PRC?

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(@nc-cpl)

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June 12, 2023 10:51 am

@pizzaman I was merely going by what 's in the table, so yes, they must have inflation at 2.9

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Pizza Man

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Topic starter June 12, 2023 10:58 am

@nc-cpl Just curious, why are you going with that companies predictions and not one of the big boy's predictions?

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(@nc-cpl)

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June 12, 2023 11:04 am

@pizzaman GMO is always gloom and doom. The big houses don;t show their track record. Show me who has the best track record of predicting and I'll go with them.

This post was modified 3 years ago by NC

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Pizza Man

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Topic starter June 12, 2023 11:06 am

Where can I find GMO's track record?

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(@nc-cpl)

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June 12, 2023 11:08 am

@pizzaman I'm going by memory on them.

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Pizza Man

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Topic starter June 12, 2023 11:47 am

Their methodology is attached. They have only been doing these predictions for the past 8 years, so not much of a track record, unless you are looking at something different.

Attachment : aai-methodology-0523.pdf

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Pizza Man

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Topic starter June 12, 2023 12:23 pm

@wallace471 How familiar are you with Research Affiliates?? Just curious.

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Robert Wallace

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June 12, 2023 2:21 pm

@pizzaman and @NC: Research Affiliates (RA) is among the firms covered by that Horizon Survey we discussed some time ago as well as in Morningstar (Benz) in their Capital Market Assumptions (CMA) reviews. These are where I first learned about such firms.

The RA page (you can sign up for free) has a nice visualizer for the various return data associated with asset allocations (and many other parameters - including various countries). Attached is a screenshot from their page.

As one can see, they have various asset allocations modeled, real + nominal returns, volatility, etc. etc. Hovering over a data point reveals some of these values. You can explore the chart as well as the details and views. Downloads are also possible -even in Excel format.

They appear to market some of their portfolio ideas: https://www.researchaffiliates.com/how-to-invest/mutual-funds-etfs#g=family It looks like they partner with PIMCO, Schwab, Blackrock, Invesco, as well as others which offer 64 funds (mutual and etf) based on Research Affiliates methodology.

Their interactive chart presents their work in a sort of "efficient frontier" style. I see the values provided for a particular asset allocation (product) as another opinion to consider and compare with my personal inputs to PRC on real returns, inflation, etc. (which, of course, are implicitly "my model" anyway).

According to their methodology summary paper, RA made their CMAs publicly available since 2014. Perhaps they were doing this earlier as well - just not providing the results to the public?

Yes...for the US, a 10 year projected inflation of 2.9% is provided in their CMA (also in the attached).

Attachment : Research-Affiliates-Asset-Allocation-Interactive-Data-Growth-and-Inflation-2023-05-31.pdf

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Pizza Man

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Topic starter June 12, 2023 2:29 pm

Thanks @wallace471

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Pizza Man

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Topic starter June 20, 2023 12:41 pm

I predict that this will be my last posting on economic forecasting/predictions 😋. Take a look at this article titled "Economic Forecasting is a Waste of Time"

https://www.advisorperspectives.com/articles/2023/06/16/tax-equity-stock-economic-forecasting-swedroe?hsid=28216572&_hsmi=262817182

If economic forecasts are nonproductive, what about the forecasts of the market? Songrun He, Jiaen Li and Guofu Zhou, authors of the March 2023 study, “How Accurate Are Survey Forecasts on the Market?,” sought to answer that question. They examined three sets of survey forecasts on the market return:

The Livingston Survey (LIV), a biannual survey (June and December every year) about the U.S. economy, and the S&P Index in particular, conducted by the Federal Reserve Bank of Philadelphia. The surveys are drawn from practitioners and economists (professional forecasters) from industry and academic institutions. About 90 participants are on the mailing list, of which 55 to 65 respond to the survey each time.

The CFO Survey, a quarterly survey of U.S. financial professionals about the financial outlook of their firms, sampling approximately 4,500 CFOs of which about 400 respond. The data prior to April 2020 can be accessed at Duke’s Fuqua School of Business, and after that at the Federal Reserve Bank of Richmond.

The Nagel and Xu (NX) survey, which consolidates various data sources, including the UBS/Gallup survey, the Conference Board survey and the University of Michigan Surveys of Consumers, to form a representative survey of a typical U.S. household.

Here is the summary of their key findings:

None of the survey forecasts beat a simple random walk forecast that predicted the future returns by using their past sample mean.

For a mean-variance investor with typical risk aversion who allocated between the market and risk-free asset, the investor would have been substantially worse off (losing 1% to 18% per year) switching from a random walk belief to using one of the survey forecasts.

While both professionals and individuals failed to outperform the naive prediction of the historical average, the professional-forecaster survey expectations produced even worse results (R-squared ranging from -51.69% to -12.47%) than individual investors (R-squared = -0.42%).

One of the most interesting, and perhaps surprising, results is that despite their greater financial literacy, the professional forecasters produced significantly worse forecasts than the average household. Market forecasts should be ignored, whomever they come from – professional economists or market gurus. That’s the warning Warren Buffett offered in his 2013 letter to Berkshire shareholders: “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.”

So, Show me who has the best track record of predicting and I'll go with them. Answer - nobody does 😞.

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(@nc-cpl)

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June 20, 2023 1:33 pm

@pizzaman Intereststudies here, but it begs the question...since PRC requires you input something for various asset class growth in order to work - what do you put in?

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Pizza Man

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Topic starter June 20, 2023 3:57 pm

The two hardest things for me to figure out for my (our) retirement plan is asset allocation, and determining if my retirement plan will still be working after 30+ years, which is where inputting numbers into PRC comes into play. There's no getting around it, it's hard to figure out, hence the 10,000's of "financial pundits" out there selling their wares. I start with historical averages and then modify based on my risk tolerance. I have a high risk tolerance so I chose a very high stock allocation (all US) because over a 30 year time frame it has the best return. For rate of return on my stock allocation, I used PRC to model the time from from 1965 to present (worst case) to come up with my lower than historical average ROR that I input into PRC. ROR for my bond allocation (now in short term CD's and US Treasuries) and cash allocation doesn't matter that much because it is a small percentage of my overall retirement funds and they don't have big swings in value, so I use the results of your PRC users survey for those ROR values.

Since PRC lets you compare 3 scenarios, scenarios 2 & 3 include progressively worse conditions such as higher inflation, lower ROR and social security reductions to name a few. If these condition do come to the fore, I will already have an idea of how much less I can spend based on the PRC simulations, so it won't come as a surprise. You just need to be flexible and take advantage of rare opportunities as they inevitably happen.

Only one cup of coffee today.

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