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Amidst all the talk of FI/RE that we all enjoy doing to some extent around here and elsewhere, this assessment of future expected returns by asset class has gotten me thinking a lot about planning my finances for the future. In part because its far from the first article I've read to say that the economic returns the baby-boomers have enjoyed during their investing years should not in any way be planned on in the future. I know William Bernstein has recently been saying the same thing about expected returns going forward. And last year I read this book that basically laid out the case that the future of lower returns in some sense inevitable because its really the long-term historic norm.
And if you think that diversifying asset classes might help, I can't help but think that one of the asset classes hardest hit recently (and therefore expected by many to have higher than average returns in the future) is emerging markets. But then I read this article on the coming debt crisis in China. Just a mild bump downwards in China's stock market last year was enough to trash global market returns. What if this is accurate or even worse than expected?
I've also been thinking about this in relation to recent news reports about declining revenue in the financial and retail sectors in our economy. One of the hidden problems of the continued influence of technology and data utilization is that many businesses are becoming more efficient and differentiating themselves to consumers based on low costs and high efficiency (e.g. Amazon, Betterment). How many people whose jobs depend on systemic inefficiency do you think would be laid off if we really went to a flat tax or single-payer universal Medicare for all? But isn't this in part what the tech generation is wanting? As we trend towards efficiency and automation, how will this economy continue to grow enough to provide the returns we are all hoping for?
On top of that, within our own profession, declining reimbursements, increasing overhead expenditures, and a trend towards employment has resulted in lower salaries without even considering keeping pace with inflation, sort of resulting in 'negative returns' on our annual earnings.
The sky will be falling
But seriously, I do think some of the FIRE talk needs to be tempered by some cautious pessimism.
And if you think that diversifying asset classes might help, I can't help but think that one of the asset classes hardest hit recently (and therefore expected by many to have higher than average returns in the future) is emerging markets. But then I read this article on the coming debt crisis in China. Just a mild bump downwards in China's stock market last year was enough to trash global market returns. What if this is accurate or even worse than expected?
I've also been thinking about this in relation to recent news reports about declining revenue in the financial and retail sectors in our economy. One of the hidden problems of the continued influence of technology and data utilization is that many businesses are becoming more efficient and differentiating themselves to consumers based on low costs and high efficiency (e.g. Amazon, Betterment). How many people whose jobs depend on systemic inefficiency do you think would be laid off if we really went to a flat tax or single-payer universal Medicare for all? But isn't this in part what the tech generation is wanting? As we trend towards efficiency and automation, how will this economy continue to grow enough to provide the returns we are all hoping for?
On top of that, within our own profession, declining reimbursements, increasing overhead expenditures, and a trend towards employment has resulted in lower salaries without even considering keeping pace with inflation, sort of resulting in 'negative returns' on our annual earnings.
The sky will be falling
But seriously, I do think some of the FIRE talk needs to be tempered by some cautious pessimism.
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