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Comment by keltex | Hacker News Reader

That's pretty accurate. Vanguard estimates US equities 10 year returns in the range of 2.3%-4.3%. And inflation is at 7% right now.

https://advisors.vanguard.com/insights/article/marketperspec...

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It seems pretty unreasonable to take Vanguard’s equities return projections over the next 10 years and simultaneously ignore their inflation projection from that same source.

Equity returns and inflation are not independent and the assumptions that led to their equities prediction are embodied in their inflation prediction.

> 10 year returns in the range of 2.3%-4.3%. And inflation is at 7% right now.

Usually those sorts of estimates are on real returns, so factor in inflation (i.e. 2.3%-4.3% above inflation). That is about right in historical data over most 10 year periods.

That said there have been periods of negative real return, but are you sure this is what Vanguard is predicting?

Vanguard's estimate of returns is not independent of their estimate of inflation.

Vanguard estimates returns will be higher than inflation.

That estimate seems wildly low given that the S&P 500 has returned about 10% a year since its inception 65 years ago.

Also from your link, Vanguard estimates about 2% annualized inflation over the next 10 years.

Annualized returns for the S&P from 2013-2021 was ~15% per year. For 2019-2021 the average was 24% per year.

The idea is that future returns will be lower because those some of those expected future "real" gains (i.e. gains from growth and dividends) are already reflected in the current price (i.e. speculative gains). That these recent years of high returns are due to speculation is clear from the abnormally high PE ratio.

Of course, Bogle has been saying stuff like this for awhile, so who knows. He was saying that future gains would be lower back in '17, and look where we are now.

If I cast the slide ruler over these numbers it suggests the period of time is decreasing, while the returns for said period are increasing. Thus the next values in the series are as follows;

Full year 2022 +33%, H1 2023 +42%, Q3 2023 +51%, August 2023 +60%, first 10 days of Sep 2023 +69%

It’s only accurate if 7% inflation also persists for 10 years, which seems unlikely.

High inflation persisted in America in the 1970s. Why wouldn’t it happen again?

Because we have different Federal Reserve policy than we did in the 1970s, for one thing.

The fed in the 70s slowed inflation by raising interest rates to 20%. The current fed will never do that.

Correct. And there is a reason, at 10% interest rate, the federal government is bankrupt.

It could happen again, but equity returns wouldn't be sub-inflation for 10 years, because the real economy isn't shrinking by 4% a year.

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