Re:Puerto Rico files for biggest ever U.S. local government ...
by EternalData on Thursday May 04, 2017 @01:41AM
(#14262700)
You're overfitting. This is exactly the problem I'm describing. Case in point, you've omitted 2000-2010.
Real (CPI as inflation) averaged annualized return on the DJIA 2000-2010: -2.219%
This is with relatively mild inflation.
Of course, 1960-2000 looks better when you literally put in the apex of the software bubble when P/E ratios shot skywards...part of which corrected over the decade following.
Expecting a 8% nominal or real return is simply nuts in my opinion because you are staking yourself on a really small sample size with crazy inflation to boot. Nominal or real is a nuanced distinction to what is plainly just bad overfit thinking. The introduction of just one decade with low inflation and bad returns can wreck you -- case in point: Dallas Firefighters/Puerto Rico ($43bn + of unfunded pension obligations)/Detroit etc. etc. etc.
Re:Puerto Rico files for biggest ever U.S. local government ...
by EternalData on Thursday May 04, 2017 @01:45AM
(#14262711)
Also, to add another wrinkle to this discussion, most pension funds won't weight themselves 100% in stocks (corresponding positions in cash/bonds average much lower real or nominal return), and most pay significant management/consulting fees on top...
If we instead look at time periods during which the industry average was considered to be 8%...
https://dqydj.com/dow-jones-return-calculator/
1960-1990 = 9.5% average return.
1960-2000 = 11.5% average return.
It's largely pointless to talk about inflation-unadjusted average-rate-of-return for long time periods. A 12% YoY return when inflation is at 15% is terrible. A 5% YoY return when inflation is at 0% is amazing.