What's your equity split?

thegentleway

Alexland said:

Bobziz said:

Credit Suisse forecasting a risk premium for equities of just 3.5% for generation z.

Worse it's 3.0% before fees but at least that's a real return after inflation.

I am more pessimistic expecting a long term return of only 2% above fees and inflation.

Thank you for sharing the figure but I’m confused as to how an 70:30 blend returns more than either equities or bonds for Gen X?

Thrugelmir

thegentleway said:

Alexland said:

Bobziz said:

Credit Suisse forecasting a risk premium for equities of just 3.5% for generation z.

Worse it's 3.0% before fees but at least that's a real return after inflation.

I am more pessimistic expecting a long term return of only 2% above fees and inflation.

Thank you for sharing the figure but I’m confused as to how an 70:30 blend returns more than either equities or bonds for Gen X?

40-50 year bull market in Government bonds. Real rates of return from bonds in periods when equities failed to perform. From which the 60:40 portfolio concept was born. 

itwasntme001

thegentleway said:

Alexland said:

Bobziz said:

Credit Suisse forecasting a risk premium for equities of just 3.5% for generation z.

Worse it's 3.0% before fees but at least that's a real return after inflation.

I am more pessimistic expecting a long term return of only 2% above fees and inflation.

Thank you for sharing the figure but I’m confused as to how an 70:30 blend returns more than either equities or bonds for Gen X?

This is a good question.  Well spotted.  I imagine it is due to rebalancing assuming 70:30 is kept constant throughout the respective investment horizon.  But obviously can not be sure without the methodology to calculate the returns.

thegentleway

Thrugelmir said:

thegentleway said:

Alexland said:

Bobziz said:

Credit Suisse forecasting a risk premium for equities of just 3.5% for generation z.

Worse it's 3.0% before fees but at least that's a real return after inflation.

I am more pessimistic expecting a long term return of only 2% above fees and inflation.

Thank you for sharing the figure but I’m confused as to how an 70:30 blend returns more than either equities or bonds for Gen X?

40-50 year bull market in Government bonds. Real rates of return from bonds in periods when equities failed to perform. From which the 60:40 portfolio concept was born. 

Thanks but the annualised rate of return is 5.0% for bonds (and 5.7% for equities) so how does one get 5.9% for 70:30 blend?

masonic

thegentleway said:

Thrugelmir said:

thegentleway said:

Alexland said:

Bobziz said:

Credit Suisse forecasting a risk premium for equities of just 3.5% for generation z.

Worse it's 3.0% before fees but at least that's a real return after inflation.

I am more pessimistic expecting a long term return of only 2% above fees and inflation.

Thank you for sharing the figure but I’m confused as to how an 70:30 blend returns more than either equities or bonds for Gen X?

40-50 year bull market in Government bonds. Real rates of return from bonds in periods when equities failed to perform. From which the 60:40 portfolio concept was born. 

Thanks but the annualised rate of return is 5.0% for bonds (and 5.7% for equities) so how does one get 5.9% for 70:30 blend?

The 1973-74 crash would have resulted in a significant rebalance from bonds to equities, the rebalance would have bought equities well below the 1970 price. Then a rebalance back to bonds before they started outperforming equities. The average acquisition cost of the equities in the portfolio would have ended up below the price used to determine the performance of equities, while a proportion of the bonds were held for a shorter period, so their annualised returns would have been closer to the figure for 1990. In other words, market timing vs the static components.

See this classic thread for a longer explanation of this effect: https://forums.moneysavingexpert.com/discussion/5208032/the-power-of-the-rebalance/

Thrugelmir

thegentleway said:

Thrugelmir said:

thegentleway said:

Alexland said:

Bobziz said:

Credit Suisse forecasting a risk premium for equities of just 3.5% for generation z.

Worse it's 3.0% before fees but at least that's a real return after inflation.

I am more pessimistic expecting a long term return of only 2% above fees and inflation.

Thank you for sharing the figure but I’m confused as to how an 70:30 blend returns more than either equities or bonds for Gen X?

40-50 year bull market in Government bonds. Real rates of return from bonds in periods when equities failed to perform. From which the 60:40 portfolio concept was born. 

Thanks but the annualised rate of return is 5.0% for bonds (and 5.7% for equities) so how does one get 5.9% for 70:30 blend?

Rebalancing.  Annualised rates smooth the peak and troughs. Plenty of financial crisis's since the early 70's that impacted equities. Long dated gilt yields hit 15% in the 70's. Taken nearly 50 years to hit nearly zero. 

thegentleway

Makes sense, thank you for explaining