the general advice that i hear all the time is that if you put money in a US based index fund and leave it there for the long term, meaning 30+ years, that you will be guaranteed between 5-8% annual growth on your investment, although you will experience fluctuations in the short term.

my question is doesnt a lot of this thinking assume the US economy will continue to grow at the same rate over the next 75 years(or whatever # you want to use for "long term") as it did in the past 75 years? in the past 75 years the US economy got a huge boost from WWII, which helped it go from where it was to become the #1 world superpower, the US had a huge advantage over the rest of the world in areas like manufacturing while other countries were still reeling from WWII. With globalization on the rise today, why is it still safe to assume that a $100,000 investment in a US based index fund will be worth >= $1 million in 40 years time, which would be 6% annual growth?

Nothing is guaranteed. All of the data people are using is from the longest/best stretch of economic growth in human history. This isn't to say that it's going to stop, after all the reason for it was technology which doesn't appear to be slowing down at all.

None of that means that anyone is guaranteed a single solitary thing. I'm sure equities will be profitable for the next 50 years, but I really doubt it will be as good as the last 100.

~10 years ago the "common wisdom" (using that term loosely) was that the "guaranteed" long term return was between 8-10%. That you (and others) are now using figures like "between 5-8%" somewhat reflects (among other things) such tempered expectations.

Whether or not they're tempered enough is anyone's guess. We could also be wrong in the other direction and the next 50 years will see ~5% real GDP growth and ~12% S&P500 returns.

P/E of Vanguard's U.S. Total Market fund is currently 24.0, which means an earnings yield of just over 4%. Add in modest growth of 2% a year and you're right in the middle of that 5-8% range.

Assuming you are a US based investor, most passive portfolios would recommend something like 50% US, 20% foreign, 10% emerging markets, and the rest bonds. Of course you can modify these percentages, not include bonds, etc, but these would be in the ballpark of trying to maximize your chance of generating the best return with the least risk.
I will say that investors with 100% US stocks the last 8 or 9 years have out performed anyone with a portfolio like the one above.

Here is a link to some of the more popular passive portfolios, you can expand each portfolio by clicking on it. Some of these are bond heavy, 40% or so, but some are more 80/20.

http://www.marketwatch.com/lazyportfolio

just an estimate bro
not guaranteed
probably will be less

Buffett has always said over the longterm expect stock returns to match GDP growth roughly.https://www.washingtonpost.com/archi...=.97313250157e

You typed three paragraphs disagreeing about WWII. Nowhere did the other person say building munitions was good for the economy. Re-read what he/she wrote. The key words were conveniently located right where you cutoff the quote.

well knock me over with a feather, a goldbug is a pessimist/miserable.

Not exactly.

He says:
long term stock returns = real GDP growth + inflation + dividends

What did he actually say? The article says:

But that's not a direct quote and it's pretty stupid because it implies that companies would trade at a P/E of 50 to 100 in the long run. I'm also pretty sure Buffett isn't an idiot, so whoever wrote that has to have misinterpreted what he said.

US companies don't just sell products and do business in the US. Global economic growth potential is probably just as relevant to US stock market performance potential as US economic growth. It's all pretty integrated now (although who knows what the political trends will do to globalization in the coming years).

But if you build a financial plan around investing in equities that will grow by 5% to 8% over time, that's a pretty reasonable plan. As always, if you pick the 8% end of the range you have to be more prepared to be disappointed than if you pick the 5% end of the range.

The other thing to remember is that you've got to invest in something. You may not be wildly optimistic about US stock market return potential, but you don't have to be in order to invest in the US stock market. You just need to prefer the risk/return potential of US stocks compared to what you might otherwise get. If you want to buy long term bonds and lock in 3% returns then you can do that, but most people are taking their shots with equities.

Seems like most experts are pessimistic and feel future returns (next 30 years or so) will be lower than the past 50. Therefore, I am anticipating about 12% real gains annually.

Depends what the hell you invest in and I have guesses like everyone else. Even Buffett likes to buy some companies I think aren't good investments, but what do I know. I think a fair # of the supposed safe investments are actually some of the riskiest but what do I know.

America isn't gonna be the dominant country in the world in 100 years but at least I'll be dead by then.

Those #'s posted are pure guesses, none of them got this year even close to right.

If you bought stocks during the 2000 peak and held you still haven't made 5%, I think it's 1-2 or something which you would've been better off doing anything else, and at that time I doubt any of those "experts" said to sell so who knows.

Yeah, he said that section you highlighted. It says he said that. I doubt the company he owned(The Washington Post) is going to misquote him. Im sure he has written about it in other places. I'd imagine its in berkshires annual reports to.

I hate this argument. Who goes "all in" like that? Like under what scenario do you amass great wealth in cash or maybe real estate and then just shove it all at one point in time?

Ok maybe some small % of the population walked into an inheritance and went "all in" just before the 2000 tech bubble. I'm sure some other small % did the same in early 2009 and hit the jackpot.

Most people are continually buying into the market, sometimes at highs and sometimes at lows, either through a workplace retirement plan, or as they build up a bit of cash in their bank account and transfer it over to their investment account.

because USA#1

it's not a quote, it's paraphrased, and it's obviously not what he said. unless he's a moron, but i'm pretty sure he's not.

Here are some sources mentioned. He went from 6% in 2000 to 7% in 01. I remember the gdp +div+ inflation also from his famous Fortune article in 99 when he called the top of the tech bubble. I could be mistaken on the exacts from that one bc its been awhile but i will look that fortune one up here again...so we have 6% and 7% on record atleast w solid primary sources. Berkshire 99 annual report chapter 2 and 2001 annual report.

OP read this.
http://archive.fortune.com/magazines...9071/index.htm

http://https://books.google.com/books?id=wUjB4OWlnU0C&pg=PT135&lpg=PT135&dq=buffet t+long+term+stock+returns+gdp+growth+berkshire+ann ual+report&source=bl&ots=OZufnLeLyU&sig=2yVN3X5RsT _Ri3OmBlq84J0Rd4c&hl=en&sa=X&ved=0ahUKEwiD8tby68LR AhVGz2MKHa9NBVcQ6AEIMDAG#v=onepage&q=buffett%20lon g%20term%20stock%20returns%20gdp%20growth%20berksh ire%20annual%20report&f=false

Seems crazy that Buffett would ever estimate the long term earnings yield to be 1%.

I'd still rather believe that these people are paraphrasing him incorrectly than that he doesn't understand the most basic valuation concepts.

Idk. I'm no Buffett fanboy by any means but god this guy knows his macro. He's probably hugely underated on the US macro and equity markets. I added a link to that Fortune article above. He goes into way more depth. Its a great read for anybody interested in this topic.
http://archive.fortune.com/magazines...9071/index.htm