Future U.S. Equity Returns

Philosophical Economics has this to say about the best-case upper limit for U.S. equity returns in the future:

In what follows, I”™m going to explain why I believe long-term future U.S. equity returns are almost guaranteed to fall substantially short of the 7.5% pension fund target. Unlike other naysayers, however, I”™m going to be careful not to overstate my case. I”™m going to acknowledge the uncertainty inherent in equity return forecasting, and manage that uncertainty by being maximally conservative in my premises, granting every optimistic assumption that a bullish investor could reasonably request. Even if every such assumption is granted, an expected 7.5% return will still be out of reach.

25% of my investment portfolio is in U.S. Equities. And they have done really well for me. Since 2008, the S&P 500 benchmark has delivered a 13.04% rate of return. My overall portfolio for the same duration? 12.34%. I am very happy with the performance even though I forecast much lower rates in my spreadsheets. Probably a good idea to remain conservative in my planning assumptions.

This extended bull run in the markets, since 2008, can create a sense of complacency in terms of future returns. After all, if a benchmark is delivering such an impressive rate of return, why pursue any particular investment style? Buy and hold the S&P 500 index.

My expectation in retirement is that the stocks I hold will produce sufficient dividend income and I won’t be focused on share price appreciation. In other words, I don’t need capital gain in retirement. It’s nice to see the total number grow but it is the passive income that is far more important to me.

Philosophical Economics. Always insightful even if the posts are too infrequent.

Financial Freedom

I worked for this company for about 10 years. The company had achieved a remarkable marketing objective: they branded financial freedom. Known as Freedom 55, London Life successfully brought to market a new way of thinking about financial security planning. Although James MacKinnon, Professor of Econometrics at Queen’s University here in Kingston, had this blunt assessment of Freedom 55:

Freedom 55 is just not going to be feasible, and I”™m not convinced it ever was.

Well, some people do get there.

I follow Financial Freedom is a Journey, a blog that highlights the approach that the author had taken to become financially free.

I retired in May 2016 at the age of 56 after a 34 year career in banking. My wife beat me. She retired in 2015 at the age of 52. Who said life is fair?

I have been a relatively conservative investor for over 30 years. While our passive income pales in comparison to that of Warren Buffett and Charlie Munger at Berkshire Hathaway, our annual dividend income and rental income far exceeds that reported in any other “investing” blog I have read to date; as at February 2017 we generate six figures in passive income.

My observations lead me to believe the lack of money creates unnecessary problems. I have, therefore, created this blog in the hopes of being able to impart some of my experiences over the course of my investment career.

What I love about his blog is that he posts his portfolio and provides a summary of his dividend income as well as his overall portfolio. You can find his current portfolio here.

His reported holdings total about 1 million which is a great outcome for someone who retired at 56. Although he claims to generate six figures in passive income, I only get to about $30k or so from his reported portfolio so he must have other holdings contributing the balance. Producing six figures in passive income requires a portfolio in the 2-3 million dollar range.

He shares some great investing ideas and really does some post some helpful research. His post on Enbridge is an example.

As always, I read these types of blogs to gain perspective. I do not use them to make my own investment decisions for me. That said, there is a lot of really good insight on this particular blog. I hope he continues to post!

Why You Suck At Investing


Bloomberg asks the question: are you as stupid as your financial advisor thinks?

Investors need to be saved from themselves. That”™s the conventional wisdom, and there”™s some truth to it. Individual investors can have comically bad timing. They buy when stock prices are high. They panic and sell when markets plunge. They invest with the hot mutual fund managers just as the managers’ luck runs out. And what’s their reward? They supposedly underperform the very mutual funds they invest in by some four percentage points a year, or more, according to an annual study by the research firm Dalbar.

Lance Roberts of Real Investments Advice provided his perspective in his post on Dalbar, 2016: Yes, You Still Suck At Investing (Tips For Advisors):

  • In 2015, the average equity mutual fund investor underperformed the S&P 500 by a margin of 3.66%. While the broader market made incremental gains of 1.38%, the average equity investor suffered a more-than-incremental loss of -2.28%.
  • In 2015, the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 3.66%. The broader bond market realized a slight return of 0.55% while the average fixed income fund investor lost -3.11%.
  • In 2015, the 20-year annualized S&P return was 8.19% while the 20-year annualized return for the average equity mutual fund investor was only 4.67%, a gap of 3.52%.

He also points out that:

The biggest reason for underperformance by investors who do participate in the financial markets over time is psychology. Behavioral biases that lead to poor investment decision-making is the single largest contributor to underperformance over time.

Too many investors follow the crowd and too many investors fear losing capital. What was a bit surprising to me is that there are not too many investors. Very few people participate in the stock market. Here’s why:

Unfortunately, between weak economic growth, stagnant incomes, rising costs of living and two major “bear” markets; nearly 80% of Americans simply are not able to participate as shown by numerous studies and statistical facts over the last few years:

  • According to the Pew Research Center, the median income of middle-class households declined by 4 percent from 2000 to 2014.
  • The Pew Research Center has also found that median wealth for middle-class households dropped by an astounding 28 percent between 2001 and 2013.
  • There are still 900,000 fewer middle-class jobs in America than there were when the last recession began, but the population has grown significantly larger since that time.
  • According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.
  • An astounding 48.8 percent of all 25-year-old Americans still live at home with their parents.
  • According to the U.S. Census Bureau, 49 percent of all Americans now live in a home that receives money from the government each month, and nearly 47 million Americans are living in poverty right now.
  • In 2007, about one out of every eight children in America was on food stamps. Today, that number is one out of every five.
  • The median net worth of families in the United States was $137, 955 in 2007. Today, it is just $82,756.

Pokemon Go


Nintendo”™s Pokemon Go-fueled stock rise just came to an abrupt halt.

A bubble? An abrupt halt? Say it isn’t so. I thought buying Nintendo would be as secure as buying Toronto real estate. The price has to keep going up.

Go, Pokemon, Go!