Saving – Curious Cat Investing and Economics Blog

Continuing to Nurture the Too-Big-To-Fail Eco-system

John Hunter — Thu, 19 Sep 2013 11:03:47 +0000

Fed Continues Adding to Massive Quantitative Easing

In fact, while the Fed has pumped about $2.8 trillion into the financial system through nearly five years of asset buying.

Bank excess reserves deposited with the New York Fed have mushroomed from less than $2 billion before the financial crisis to $2.17 trillion today. In essence, roughly two-thirds of the money the Fed pumped into the banking system never left the building.

The Fed now pays banks for their deposits. These payment reduce the Fed’s profits (the Fed send profits to the treasury) by paying those profits to banks so they can lavish funds on extremely overpaid executives that when things go wrong explain that they really have no clue what their organization does. It seems very lame to transfer money from taxpayers to too-big-to-fail executives but that is what we are doing.

Quantitative easing is an extraordinary measure, made necessary to bailout the too-big-to-fail institutions and the economies they threatened to destroy if they were not bailed out. It is a huge transfer payment from society to banks. It also end up benefiting anyone taking out huge amounts of new loads at massively reduced rates. And it massively penalizes those with savings that are making loans (so retirees etc. planing on living on the income from their savings). It encourages massively speculation (with super cheap money) and is creating big speculative bubbles globally.

This massive intervention is a very bad policy. The bought and paid for executive and legislative branches that created, supported and continue to nurture the too-big-to-fail eco-system may have made the choice – ruin the economy for a decade (or who knows how long) or bail out those that caused the too-big-to-fail situation (though only massively bought and paid for executive branch could decline to prosecute those that committed such criminally economically catastrophic acts).

The government is saving tens of billions a year (maybe even hundred of billions) due to artificially low interest rates. To the extent the government is paying artificially low rates to foreign holders of debt the USA makes out very well. To the extent they are robbing retirees of market returns it is just a transfer from savers to debtors, the too-big-to-fail banks and the federal government. It is a very bad policy that should have been eliminated as soon as the too-big-to-fail caused threat to the economy was over. Or if it was obvious the bought and paid for leadership was just going to continue to nurture the too-big-to-fail structure in order to get more cash from the too-big-to-fail donors it should have been stopped as enabling critically damaging behavior.

It has created a wild west investing climate where those that create economic calamity type risks are likely to continue to be rewarded. And average investors have very challenging investing options to consider. I really think the best option for someone that has knowledge, risk tolerance and capital is to jump into the bubble created markets and try to build up cash reserves for the likely very bad future economic conditions. This is tricky, risky and not an option for most everyone. But those that can do it can get huge Fed created bubble returns that if there are smart and lucky enough to pull off the table at the right time can be used to survive the popping of the bubble.

Maybe I will be proved wrong but it seems they are leaning so far into bubble inflation policies that the only way to get competitive returns is to accept the bubble nature of the economic structure and attempt to ride that wave. It is risky but the supposedly “safe” options have been turned dangerous by too-big-to-fail accommodations.

Berkshire’s Munger Says ‘Venal’ Banks May Evade Needed Reform (2009)

Munger said the financial companies spent $500 million on political contributions and lobbying efforts over the last decade. They have a “vested interest” in protecting the system as it exists because of the high levels of pay they were earning, he said. The five biggest U.S. securities firms, only two of which still exist as independent companies, paid their employees about $39 billion in bonuses in 2007.

Investment Options Are Much Less Comforting Than Normal These Days

John Hunter — Tue, 18 Jun 2013 13:12:27 +0000

I think the current investing climate worldwide continues to be very uncertain. Historically I believe in the long term success of investing in successful businesses and real estate in economically vibrant areas. I think you can do fairly well investing in various sold long term businesses or mutual funds looking at things like dividend aristocrates or even the S&P 500. And investing in real estate in most areas, over the long term, is usually fine.

When markets hit extremes it is better to get out, but it is very hard to know in advance when that is. So just staying pretty much fully invested (which to me includes a safety margin of cash and very safe investments as part of a portfolio).

I really don’t know of a time more disconcerting than the last 5 years (other than during the great depression, World War II and right after World War II). Looking back it is easy to take the long term view and say post World War II was a great time for long term investors. I doubt it was so easy then (especially outside the USA).

Even at times like the oil crisis (1973-74…, stagflation…, 1986 stock market crash) I can see being confident just investing in good businesses and good real estate would work out in the long term. I am much less certain now.

I really don’t see a decent option to investing in good companies and real estate (I never really like bonds, though I understand they can have a role in a portfolio, and certainly don’t know). Normally I am perfectly comfortable with the long term soundness of such a plan and realizing there would be plenty of volatility along the way. The last few years I am much less comfortable and much more nervous (but I don’t see many decent options that don’t make me nervous).

One of the many huge worries today is the extreme financial instruments; complex securities; complex and highly leveraged financial institution (that are also too big to fail); high leverage by companies (though many many companies are one of the more sound parts of the economy – Apple, Google, Toyota, Intel…), high debt for governments, high debt for consumers, inability for regulators to understand the risks they allow too big to fail institutions to take, the disregard for risking economic calamity by those in too big to fail institutions, climate change (huge insurance risks and many other problems), decades of health care crisis in the USA…

A recent Bloomberg article examines differing analyst opinions on the Chinese banking system. It is just one of many things I find worrying. I am not certain the current state of Chinese banking is extremely dangerous to global economic investments but I am worried it may well be.

China Credit-Bubble Call Pits Fitch’s Chu Against S&P

“There is just no way to grow out of a debt problem when credit is already twice as large as GDP and growing nearly twice as fast,” Chu, 41, said in an interview.
Chu’s view puts her in a minority among those charting the future of the world’s biggest nation. She questions how long China can maintain the model of growth driven by bank lending that has allowed its economy to sidestep the global financial crisis.
…
Chu has been one of the most vocal analysts to warn about regulatory loopholes and weaknesses in China’s banking system, saying they make official lending data unreliable. Fitch in 2011 started calculating its own measure of total credit in the economy.
…
“Given that China’s credit is mostly funded by its internally generated deposits, I don’t think a real financial crisis, which is normally manifested in a liquidity shortage, will happen anytime soon,” S&P’s Liao said by phone. Local-currency savings stood at 92 trillion yuan at the end of 2012, according to the National Bureau of Statistics.

There’s no basis for concluding that China’s debt is unsustainable, said Xu Gao, chief China economist at Beijing-based Everbright Securities, a unit of state-owned China Everbright Group. A public debt level of about 50 percent of GDP, including borrowing at the central and local levels and by policy banks, leaves room for the government to borrow more, he wrote in an April 16 note.

For the last several years it has seemed to me one of the better long term investments was USA real estate. Sure I wasn’t confident how well it would due in the short term but in the long term it seemed very good. Lots of people have seemed to reach the same conclusion. I still think it is true but it is becoming less safe (as prices rise) and will be less attractive if interest rates rise too much. There are problems with how to invest in it best (REIT can be good but have some issues – expense rates… and owning personally can be annoying).

About the only thing I am fairly confident in for investing these days is to be much more focused on quality. I think it will pay off to invest in assest that are able to cope with extreme chaos in the markets and economies. Other than that I have never had less confidence in knowing what investment moves are wise than I have had the last several years. I do still believe it is wise to invest globally and take part in what I believe will be very strong growth in at least some “emerging markets” over the next 30 years – but I also think some will get completely clobbered.

Solar Direct Investing Bonds

John Hunter — Wed, 12 Jun 2013 15:47:34 +0000

Mosaic offers a new investment option to easily invest in solar energy projects. Mosaic connects investors seeking steady, reliable returns to high quality solar projects. To date, over $2.1 million has been invested through Mosaic and investors have received 100% on-time repayments.

The site provides full prospectives on each project. The yields have been between 4.5% and 5% for 8 to 10 year projects. The funds pay for solar installation and then the locations that take the loans pay them back with the saving on their electricity bill (sometimes selling power to the utility based on the organizations electricity needs and amount generated at any specific time).

The bonds have risks, of course. And I am pretty sure they are very illiquid. But for those looking for some decent yield alternatives they may offer a good choice. They also provide the benefit of supporting green energy

The current bond being offered, 657 kW on Pinnacle Charter School in Federal Heights, Colorado offers a yield of 5.4%. The public offerings have only been available for a few months and they have sold out quickly so far.

Mosaic has done a good job creating a simple process to invest online. You create your account and if you chose to invest and are allocated a portion of an offering it is funded from your bank account. You can invest as little as $25.

Top Nations for Retirement Security of Their Citizens

John Hunter — Fri, 08 Mar 2013 06:42:35 +0000

Across the globe, saving for retirement is a challenge. Longer lives and expensive health care create challenge to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for example.

The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.

Top Countries for Retirees

1 – Norway
2 – Switzerland
3 – Luxembourg
6 – Finland
9 – Germany
10 – France
11 – Australia
13 – Canada
15 – Japan
19 – USA
20 – United Kingdom

Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.

Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).

The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.

On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).

See the full press release.

How Much of Current Income to Save for Retirement

John Hunter — Tue, 19 Feb 2013 15:52:01 +0000

Determining exactly what needs to be saved for retirement is tricky. Basically it is something that needs to be adjusted based on how things go (savings accumulated, saving rate, planned retirement date, investing returns, predicted investing returns, government policy, tax rates, etc.). The simple idea is start by saving 15% of salary by the time you are 30. Then adjust over time. If you start earlier maybe you can get by with 12%…

How Much to Save for Retirement is a very good report by the Boston College center for retirement research. They look at the percent of income replacement social security (for those in the USA) provides. This amount varies greatly depending on your income and retirement (date you start drawing social security payments).

Low earners ($20,000) that retire at 65 have 49% of income replaced by social security. Waiting only 2 years, to 67, the replacement amount increases to 55%. For medium earners ($50,000) 36% and 41% of income is replaced. And for high earners ($90,000) 30% an 34%.

Starting savings early make a huge difference. Starting retirement savings at age 25 requires about 1/3 the percentage of income be saved as starting at 45. So you can save for example 7% from age 25 to 70 or 18% from age 45 to 70. Retiring at 62 versus 70 also carries a cost of about 3 times as great savings required each year. So retiring at 62 would require an impossible 65% if you didn’t start saving until 45. But these numbers are affected by many things (the higher your income the less social security helps so the higher percentages you need to save and many other factors play a role).

Starting to save early is a huge key. Delaying retirement makes a big difference but it is not nearly as much in your control. You can plan on doing that but need to understand that you cannot assume you will get to set the date (either because finding a job you can do and pays what you wish is not easy or you are not healthy enough to work full time).

If you don’t have social security (those outside the USA – some countries have their versions but some don’t offer anything) you need to save more. A good strategy is to start saving for retirement in your twenties. As you get raises increase your percentage. So if you started at 6% (maybe 4% from you and a 2% match, but in any event 6% total) each time you get a raise increase your percentage 100 basis points (1 percentage point).

If you started at 27 at 6% and got a raise each year for 9 years you would then be at 15% by age 36. Then you could start looking at how you were going and make some guesstimates about the future. Maybe you could stabilize at 15% or maybe you could keep increasing the amount. If you can save more early (start at 8% or increase by 150 or 200% basis points a year) that is even better. Building up savings early provides a cushion for coping with negative shocks (being unemployed for a year, losing your job and having to take a new job earning 25% less, very bad decade of investing returns, etc.).

Investing wisely makes a big difference also. The key for retirement savings is safety first, especially as you move closer to retirement. But you need to think of investment safety as an overall portfolio. The safest portfolio is well balanced not a portfolio consisting of just an investment people think of as safe by itself.

Save What You Can, Increase Savings as You Can Do So

John Hunter — Mon, 19 Nov 2012 14:30:02 +0000

Building your saving is largely about not very sexy actions. The point where most people fail is just not saving. It isn’t really about learning some tricky secret.

You can find yourself with pile of money without saving; if you win the lottery or inherit a few million from your rich relative via some tax dodge scheme like generation skipping trusts or charitable remainder trusts.

But the rest of us just have to do a pretty simple thing: save money. Then, keep saving money and invest that money sensibly. The key is saving money. The next key is not taking foolish risks. Getting fantastic returns is exciting but is not likely and the focus should be on lowering risk until you have enough savings to take risks with a portion of the portfolio.

My favorite tips along these lines are:

spend less than you make
save some of every raise you get
save 10-15% of income for retirement
add to any retirement account with employer matching (where say they add $500 for every $1,000 you put into your 401(k)

Spending less than you make and building up your long term savings puts you in the strongest personal finance position. These things matter much more than making a huge salary or getting fantastic investing returns some year. Avoiding risky investments is wise, and sure making great returns helps a great deal, but really just saving and investing in a boring manner puts you in great shape in the long run. Many of those making huge salaries are in atrocious personal financial shape.

Another way you can boost savings is to do so when you pay off a monthly bill. So when I paid off my car loan I just kept saving the old payment. Then I was able to buy my new car with the cash I saved in advance when I was ready for a new car.

Many people seem to fret about how to get great returns or figuring out exactly what they need to save when they should be fretting about saving money. Yes exactly how much you need to save for retirement is hard to judge. Start saving 10-15% and when you are 45, having saved for 20 years, you can get an idea of what adjustments to make. If you don’t want to save 10-15% of your income for retirement at age 25, fine save what you can and just increase that amount with each raise you get.

Jim Blankenship’s post, Let’s Increase America’s Savings Rate in November!, asks for recomendations for increasing the saving rate by 100 basis points (for example, increasing your savings from 8% of your income to 9%). Saving some of your next raise is my favorite practice to succeed in this area.

Investing in the Poorest of the Poor

John Hunter — Wed, 11 Apr 2012 14:49:15 +0000

I have donated more to Tricke Up than any other charity for about 20 years now. There is a great deal of hardship in the world. It can seem like what you do doesn’t make a big dent in the hardship. But effective help makes a huge difference to those involved.

My personality is to think systemically. To help put a band aid on the current visible issue just doesn’t excite me. Lots of people are most excited to help whoever happens to be in their view right now. I care much more about creating systems that will produce benefits over and over into the future. This view is very helpful for an investor.

Trickle Up invests in helping people create better lives for themselves. It provides some assistance and “teaches people to fish” rather than just giving them some fish to help them today.

The stories in this video show examples of the largest potential for entrepreneurship. While creating a few huge visible successes (like Google, Apple…) is exciting the benefits of hundreds of millions of people having small financial success (compared to others) but hugely personally transforming success is more important. Capitalism is visible in these successes. What people often think of as capitalism (Wall Street) has much more resonance with royalty based economic systems than free market (free of market dominating anti-competitive and anti-market behavior) capitalism.

Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually

John Hunter — Mon, 09 Apr 2012 08:50:26 +0000

Pitfalls in Retirement (pdf) is quite a good white paper from Meril Lynch, I strongly recommend it.

A survey asked investors at least 41 years of age how much of their retirement savings they can safely spend each year without running the risk of exhausting their assets. Forty percent had no idea; an additional 29% said they
could safely spend 10% or more of their savings each year.

But, as explained below, the respondents most on target were the one in 10 who estimated sustainable spending rates to be 5% or less. This is significantly impacted by life expectancy; if you have a much lower life expectancy due to retiring later or significant health issues perhaps you can spend more. But counting on this is very risky.

This is likely one of the top 5 most important things to know about saving for retirement (and just 10% of the population got the answer right). You need to know that you can safely spend 5%, or likely less, of your investment assets safely in retirement (without dramatically eating into your principle.

Chart showing retirement assets over time based on various spending levels, from the Merill Lynch paper.

The chart is actually quite good, the paper also includes another good example (which is helpful in showing how much things can be affected by somewhat small changes*). One piece of good news is they assume much larger expense rates than you need to experience if you choose well. They assume 1.3% in fees. You can reduce that by 100 basis points using Vanguard. They also have the portfolio split 50% in stocks (S&P 500) and 50% in bonds.

Several interesting points can be drawn from this data. One the real investment returns matter a great deal. A 4% withdrawal rate worked until the global credit crisis killed investment returns at which time the sustainability of that rate disappeared. A 5% withdrawal rate lasted nearly 30 years (but you can’t count on that at all, it depends on what happens with you investment returns).

An interesting tidbit from the paper: A 65-year-old woman has a 62% chance of living past 85; for a 65-year-old couple, the chance of at least one spouse living past 95 is 31%.

When planning for retirement there are many unknowns. One thing to remember is you can’t count on working until your planned retirement date. Health complications can force you to retire early. Also economic or business conditions may force you to do so. Perhaps you can find another job, maybe not. Even if you do, it may be at a much lower salary.

Three decades of 5% inflation will reduce purchasing power by 77%. Moreover, retirees typically experience higher inflation than the headline CPI-U figure reported in the media. This is because retirees consume a different basket of goods and services than the general populace does. Notably, medical care expenditures have twice the relative importance for a retiree as for a preretiree. From 2000 through 2010, medical care inflation averaged 4.1%, as opposed to 2.4% for CPI-U. Aside from inflation, as people grow older, their health care expenses tend to rise.

Another paper: New World, New Rules (pdf) also has some interesting material. They do push some high revenue items (hedge funds, private equity…) for them, but as long as you can sensibly separate advice from sales pitches it is worth reading.

Another interesting tidbit from the paper: in 2011, 40% of the profits for the companies in the S&P 500 came from outside the USA. The idea of allocating portions of your portfolio to USA stock and foreign stocks is fairly largely confused by this. Much of your USA stock portfolio is very global already.

Another thing to consider is it is very wise to adjust your withdrawal rate based on investment conditions. So while you can’t expect to withdrawal over 4% every year if you have several good investing years that would allow you to take some extra money as long as you willing to take under 4% if you have a couple bad years.

* I do have a quibble with the way they discuss retiring 2 years later having such an impact. And they are not the only ones that do this, it happens all the time. They assume both people retire with the same investment value. But that is an unreasonable assumption. The whole reason why retiring just before a huge market slump is so bad is your assets take a huge hit. Well if you are just 2 years from retirement when that huge decline takes place you are not going to be able to make up for it and retire with that same amount.

You would basically have the same big loss the person that retired 2 years earlier did, you just experience it before you retire. You may be able to pick up an extra $10,000 or something by saving more since you see the decline just before you retire but basically the comparison is not accurate (in the way they claim). The biggest thing that having the huge decline just before you retire would allow is delaying retirement a few years (that way you can save up more money but just as important you can reduce the expected years in retirement because you work a few more years).

60% of Workers in the USA Have Less Than $25,000 in Retirement Savings

John Hunter — Tue, 13 Mar 2012 23:31:57 +0000

2012 Retirement Confidence Survey

(60 percent) report they and/or their spouses have less than $25,000 in total savings and investments (excluding their home and defined benefit plans), including 30 percent who have less than $1,000

The data would be better if some value were placed on defined benefit plans; currently it is a bit confusing how much they may help. But the $25,000 threshold is so low that no matter what being under that value is extremely bad news for anyone over 40. And failing to have saved over just $25,000 toward retirement is bad news for anyone over 30 without a defined benefit plan.

The large majority of workers who have not saved for retirement have little in savings. Almost two-thirds (63 percent) report they have less than $1,000 in savings and investments, and another quarter (25 percent) have $1,000–$9,999.

Thirty-four percent of workers report they had to dip into savings to pay for basic expenses in the past 12 months.
…
Thirty-five percent of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Eighteen percent feel they need between $250,000 and $499,999, while 34 percent think they need to save less than $250,000 for a comfortable retirement.

Workers who have performed a retirement needs calculation are more than twice as likely as those who have not (23 percent vs. 10 percent) to expect they will need to accumulate at least $1 million before retiring.

66% of workers say their family has retirement savings and 58% say they are currently saving for retirement. These results are fairly consistent over the last few decades (the current values are in the lower ranges of results).

Nearly everyone wishes they had more money. One way to act as though you have more than you do is to borrow and spend (which is normally unwise – it can make sense for a house and in limited amounts when you are first going out on your own). Another is to ignore long term needs and just live it up today. That is a very bad personal finance strategy but one many people follow. Saving for retirement is a personal finance requirement. If you can’t save for retirement given your current income and lifestyle you need to reduce your current spending to save or increase your income and then save for retirement.

A year or two of failing to do so is acceptable. Longer stretches add more and more risk to your personal financial situation. It may not be fun to accept the responsibilities of adulthood and plan for the long term. But failing to do so is a big mistake. Determining the perfect amount to save for retirement is complicated. A reasonable retirement saving plan is not.

Saving 10% of your gross income from the time you are 25 until 65 gives you a decent ballpark estimate. Then you can adjust even 5 or 10 years as you can look at your situation. It will likely take over 10% to put you in a lifestyle similar to the one you enjoy while working. But many factors are at play. To be safer saving at 12% could be wise. If you know you want to work less than 40 years saving more could be wise. If you have a defined benefit plan (rare now, but, for example police or fire personnel often still do you can save less but you must work until you gain those benefits or you will be in extremely bad shape.

IRAs, 401(k) and 403(b) plans are a great way to save for retirement (giving you tax deferral and Roth versions of those plans are even better – assuming tax rates rise).

Investing Return Guesses While Planning for Retirement

John Hunter — Mon, 10 Oct 2011 17:12:17 +0000

In my opinion is has never been more difficult to plan for retirement. It is extremely difficult to guess what rates of return should be expected in the next 10-30 years. It might have actually been as difficult 10 years ago, but it seemed that it wasn’t. Estimating a 7-8% return for your portfolio seemed a pretty reasonable thing to do, and evening considering 10% wasn’t unthinkable, if you wanted to be optimistic and took more risk.

Today it is very hard to guess, going forward, what is reasonable. It is also hard to find any very safe decent yields. Is 4% a good estimate for your portfolio? 6%? 8%? What about inflation? I know inflation isn’t a huge concern of people right now, but I still think it is a very real risk. I think trying to project is helpful (even with all the uncertainty). But it is more important than ever to look at various scenarios and consider the risks if things don’t go as well as you hope. The best way to deal with that is to save more.

In the USA save at least 10% of your income for retirement in your own savings (in addition to social security) and it would be better to save 12% and you might even need to be saving 15%. And if you waited beyond 30 to start doing this you have to save substantially more, to have a comfortable retirement plan (obviously if you are willing to live at a much lower standard of living in retirement than before, you can save less).

Other factors matter too. If you don’t own your house with no more mortgage payments you will need to save more. Ideally you will have not debts at retirement, if you do, again you need to save more.

That Retirement Calculator May Be Lying to You

According to Ibbotson data, the long-term annualized gain for the Standard & Poor’s 500-stock index dating back to 1926 is 9.9 percent. For bonds, it’s 5.4 percent. (From 1970 to 2010, the Barclays Capital Aggregate Bond index average was 8.3 percent.) Plug those numbers into a portfolio of 60 percent stocks and 40 percent bonds and the return is about 8 percent, which is precisely the number most financial planners — and retirement calculators — were using up until recently.
…
Vanguard founder Jack Bogle has a slightly more upbeat assessment. He expects stock returns of 7 percent to 7.5 percent over the next decade. He assumes no expansion in the market’s price-earnings ratio, dividend yields of 2.2 percent, and earnings growth of at least 5 percent. Bogle expects bond returns to be about 3 percent. For a balanced portfolio, that produces a net nominal return of slightly more than 6 percent. A higher forecast is T. Rowe Price’s estimate of 7 percent; until this year it had used 8 percent.

I also suggest using high quality high yield dividend stocks for more of the bond portfolio. I wouldn’t hold bonds with maturities over 5 years at these yields (or if I did, they would be an extremely small portion of the portfolio). I would also have a fair amount of the bond portfolio in inflation protected bonds.

I also invest in emerging economies like China, Brazil, India, Malaysia, Indonesia, Thailand, the continent of Africa… To some extent you get that with large companies like Google, Intel, Tesco, Toyota, Apple… that are making lots of money in emerging economies and continuing to invest more in emerging markets. VWO (.22% expense ratio) is a good exchange traded fund (ETF) for emerging markets. I also believe investing in real estate is wise as part of a retirement portfolio.