Weekend Reading – Long-Term Stock Forecasts

Weekend Reading – Long-Term Stock Forecasts

Hello and welcome to a new Weekend Reading edition highlighting what might be in store for us as part of some long-term stock forecasts and our portfolio returns… 

Before some information and my take on that, a few recent reads to check out just in case you missed them!

Last weekend I wondered:

Weekend Reading – Where do U.S. stocks go from here?

And just a few days ago, since I own a few U.S. stocks still in our portfolio, I wrote about my holding period with this stock:

Then and Now – Walmart

Weekend Reading – Long-Term Stock Forecasts

On any given day, let alone any given month or year, I think it’s prudent to be very skeptical about listening to and following any predictions…because nobody really knows where things are headed. 

That said, we all need to make some assumptions about the future now and then. Just like planning around the weather forecast. Otherwise, we would never leave the house. Right? 🙂

If you don’t want to assume any long-term asset class or portfolio rates of return forecasts then I believe it’s very tough to figure out how much you need to save for your financial future, what sort of potential withdrawal rate you might have in retirement, and how long your financial nest egg might last.

Here are some recent assumptions I’ve found both interesting and somewhat relevant to my own financial planning. Again, just a few examples since there are literally thousands of stock market forecasts being made all the time by a host of experts trying to predict things because they are paid to do so. They need to put food on the table too! 

FP Canada – Institute of Financial Planning

Designed to look beyond the current day rate environment, every year, guidelines are published to help the financial planning community make long-term projections (of 10 years or more) for clients. That said, some judgement is also encouraged by this community (with any client) since these are simply assumptions about the future after all. This is a great resource for Canadian DIY investors too. 

For 2024, this has been published:

Resource: https://www.fpcanada.ca

Morningstar

The fine work of financial journalist Christine Benz usually looks at any long-term return expectations from a U.S. perspective. Earlier this year, that was no different looking into 2024 and beyond:

Source: https://www.morningstar.com/portfolios/experts-forecast-stock-bond-returns-2024-edition

Schwab

Wealth management firms are pretty famous for making predictions both short-term and longer-term as a means to retain and attract clients to their products and services. There is certainly a conflict of interest when it comes to any assets under management (AUM) model but that’s a conversation for another day. I consistently find that Schwab in the U.S. does a reasonable job at explaining their reasoning and providing some decent graphics to go with their assumptions to help all investors:

Source: https://www.schwab.com/learn/story/schwabs-long-term-capital-market-expectations

Again, interesting stuff.

We probably all know by now that the U.S. market over the last 10-years has been largely fueled by tech stock growth. Tech stocks are now well over 30% of the S&P 500 index (at the time of this post). The good news is, ex-U.S., non-U.S. stock market indexes feature a heavier emphasis on traditional value sectors, including energy, basic materials, and financials. You see that here in Canada, we own some of those. So, by investing at home and internationally it seems we get more of what we need beyond tech. I’ll link to my previous post on international stocks below. 

As part of my/our Financial Independence Plan and ongoing planning, we might be a bit too conservative with our future returns but I feel better using them to be honest as we consider some semi-retirement plans in the coming years. We project 5% total return from our portfolio of stocks, ETFs, cash-alternative ETFs and money market funds along with 3% inflation.

We feel those values are both conservative but also doable but we’ll certainly adjust those values along the way too…via our process of planning and re-planning. 

Source: Financial Independence Update – My Own Advisor – Cashflow April 2024

Image: from Cashflows & Portfolios projections work. 

Our portfolio returns have certainly been higher than 5% annualized over the last 15-years as My Own Advisor with a bias to dividend paying stocks and ETFs but again, who really knows what the future holds when it comes to returns… 

In a comment on this very site this week I mentioned this:

“The S&P 500 is up about 15% annualized over the last 5-years and closer to 12% over the last 10-years. The historical returns are closer to 9-10%. So….the U.S. market is frothy and things will turn. Eventually when I just don’t know. 🙂”

At the end of the day I come back this: while plans and assumptions and forecasts are all interesting and fun things I believe it’s the process of planning that is key. While the financial past provides us with some data for thoughtful reflection and for forecasting purposes, I’m not sure it helps us with any accuracy about the future. Often what we think will happen, doesn’t and what won’t happen, does. 

More Weekend Reading – Long-Term Stock Forecasts

Last year, this Weekend Reading edition was about owning international stocks. Yes, I/we own some via a low-cost ETF and likely to add more over time too.

Related reading: should you have 100% of your portfolio in stocks? I think that depends on your time horizon and risk managment. From that post I still feel this way:

My thinking is that as you age, you should at least consider easing up on 100% stocks in your portfolio for the same reasons younger investors should go all-in on equities. Time.

Or lack thereof, less time to recover. 

“Established investors may want to consider shifting from asset accumulation towards income generation and asset preservation.”

This way, assets so carefully accumulated over the preceeding years need not be sold off at inappropriate times such as a stock market corrections, crashes or prolonged bear markets.

And finally, when should you sell your stocks?

When should you sell your stocks?

Now for some lighter stuff… 🙂

“If you’re bad at spending money, just remember that NYC paid McKinsey $4 million for a study on whether trash bags should go in trash cans.” – Source: (https://x.com/dougboneparth/status/1810665256693232074?t=08ebeRn3bw-j7WX9VOcvGg&s=03) 

Congrats to some fellow mind you very successful DIY and dividend investors – they are killing it!

Dividend Hawk: “My Total dividends in June are €3,586.43 ($3,877.92). After taxes, my net dividend income is €2,664.86 ($2,852.77).”

Dividend Earner via this Q&A: “I generate just under $40K in dividend income right now and it will probably go down as I make adjustments to double my portfolio in the next 5 years.”

Who also mentioned in his Q&A related to his TFSA investments:

“Since then, I started adding US dividend stocks in my TFSA. They are dividend growth US stocks with a 1% yield so the 15% withholding tax is negligible.”

My friend Dan Kent Stocktrades looked at some of the best TSX ETFs.

My bias is XIU for tax-efficiency, income and growth for your Canadian stocks – that ETF was in his list. 

Some words of financial wisdom shared from 80-something passionte DIY investor Henry Mah recently: things will work out for you if…

–         You must have a goal

–         You must have reasonable assumptions.

–         You must monitor your income, expenses, assets and liabilities.

–         It’s not about recent investment performance.

–         It takes a leap of faith that things are going to average out.

–         Make your plan durable, it’s not something you do once.

Original Source: How do you know if your financial plan is working? (Questions and Suggestions        from Ben Carlson’s site). 

Well put!

Reader question of the week:

In my Financial Independence Update, Mordko asked:

“Wonder how this mix performed vs XAW.”

Thanks for your question!

Not sure what mix you are referring to but I replied to Mordko in that post and for fun, I actually looked at my CDN RRSP holdings vs. XAW. (My basket of U.S. stocks has done better than XAW since 2016 = BRK.B, QQQ, WMT, etc.) Here are the approximate results for the CDN portion of my RRSP given the weights and stocks I own there at this time (blue line is my portfolio of stocks vs. red line of XAW):

Source: Portfolio Visualizer.

Have a great, safe, weekend!

Mark

More FREE My Own Advisor content:

How I invest in dividend paying stocks is always found here.

Why I invest in low-cost ETFs as a hybrid investor is found here. 

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A reminder you can Hire Me! to run any retirement projections for you.

I also run a site with my partner called Cashflows & Portfolios, a site dedicated to free content for any age but also low-cost projection services about how to drawdown your retirement portfolio and provide personalized answers to these time-tested questions regardless of how you invest – since I embrace that your path to wealth-building may be very personal and therefore must be tailored to you:

• How much can I safely spend in retirement?
• Will I run out of money?
• What accounts should I drawdown first?
• What is the best drawdown order for tax efficiency?
• When should I take CPP or OAS?
• How much will my estate be taxed?
• And more!

You will always get a discount off those services as a My Own Advisor reader. Just ask. 🙂

Mark