Bloomberg story on McKinsey study ("Diminishing Returns: Why Investors May Need to Lower Their Expectations") that looks even longer term - 20 years, comparing it with the past 30. Bottom line - expect 1.5% to 4% lower returns in US/Western Europe stocks and 3% to 5% lower returns in bonds going forward than in the past 30, depending on whether we have slow growth or return to 2.9% growth.
Bloomberg story: https://www.bloomberg.com/news/articles/2016-04-27/be-afraid-be-very-afraid-if-you-re-investing-for-the-long-run
McKinsey summary (containing link to full report pdf):
http://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/why-investors-may-need-to-lower-their-sights
The study is about 40 pages, excluding intro and technical appendices. Haven't read yet, but looks interesting and informative.
Bloomberg video (2 min) summarizing study and presenting investment alternative (go global, esp. EM):

I follow the breath of the S&P 500 Index at market close today (April 26th) the Index had 78.4% of its member stocks above the 200 day moving average line. On March 1st when the Index reached a new all time high about 82% of the stocks were above the 200 day moving average line. In compairing an equal weighted Index 500 fund to the cap weighted 500 fund the cap weighted fund leads because of the performace of the heavest weighted companies are the better performing. I guess this is where they are coming from in stating that the top five compnies are doing the heavy lifting. However, from my perspective this is a pretty broad rally by better than 75% of the Index's 500 member companies since they are above the 200 day moving average while 62.4% are above the 50 day moving average.
For me the breath is not the concern it is the forward earnings estimates that have been place on the Index by analyist of about $132.00 for a rolling twelve month period and about $145.00 for all of 2018. In reality, the Index produced reported earnings for the past twelve month period ending March 31, 2017 back of $100.00 at $99.70 which is up from a year ago at $86.92. So, earnings are improving but I'm thinking they will fall short of these forward projections. From my perspective, if I buy stocks off of current forward earnings estimates I will pay too much; and, I believe currently stocks prices are extended based upon their TTM (reported) earnings.
So ... How much are you willing the pay for stocks based upon forward estimates because often times these estimates get revised downward just before companies report earnings and revenues.
There is an old saying ... Don't tell me what your going to do ... Show me! The show me number is $99.70.
And, so it goes @$132.00 ... and goes ... and it just keeps going @$145.00 (2018) ... and, now its gone @$99.70! Hey, we analyst spoofed you again.
Skeet

The only question that matters is will they beat the market over the next 15? How do you answer that? You have to ask are the conditions the same or at least similar to the ones that allowed the funds to beat the market the first time? Some of those condition questions can be answered and some can't. For instance, is the manager the same and is that manager as able bodied as he/she once was or has time dulled their edge somehow? Does the fund still invest in the same kinds of stocks as it once did or has asset boat caused style drift? Was it a certain style or strategy that was once in favor when this manager outperformed that is out of favor now and may never be in favor again? Was the outperformance just due to a few years of strong performance or to a consistent edge because if it was just a handful of banner years, that ourperformance may not come again? Is there a suitable succession plan in place for when this manager retires?
Those are the sorts of questions one must ask before choosing such a fund instead of an index fund.

Is there a way to find out when M* made these funds "medalists"? I thought in their fund table they would have said how long the funds have been medalists.
Asking because I can look at the top funds for last 15 years year after year, make them ANALists, and then say I won!
Also, who will remember to wait 15 more years to see how these funds fared? No one. Unless of course they fare well, in which case M* surely will. But, wait. In another 15 years there would be more medalists. Nice gig, eh?

I'm still concerned about market valuations here, and May is around the corner. Examples of high current price to historical TTM free cash flow ratios (data from Morningstar): MCD 28.7; AMZN 45.2; CSX 52.3; FB 36.9. I'm whittling away at my equity allocation, being up to about 66% bonds/cash now. Although I'm 64, I'll weight back into equites when valuations are more reasonable. I've been on this train ride before when derailments can happen quickly. And so it goes...

Market Valuations were higher 1 month back. They may be higher 1 month in future.
Every prediction is based on hindsight. Based on what happened in the past. I'm the last one to ask anyone to ignore history. They do so at their own peril. However it is not about identifying market tops or market bottoms. It is about gradually buying in and gradually fading out. There was a time when you could just plonk money into balanced fund. Not sure that will work any more, and *this* is not about past history, but about future. Past history says invest in balanced funds if you are wimp because it was predicated on interest rates going lower and lower. So it is important for one to be able to manage his/her cash position.
I'm not 25 years old. I can't keep DCAing into VFINX. Between 2000 and 2013 index went nowhere. I'm not going to waste my time figuring out how DCA worked because each situation is different. Maybe someone can calculate $100 invested each month in that interval and find out how much money they had in 2013, then we can discuss. In 13 years I might be dead, so I will not bother making that calculation.

FYI: U.S. equities struggled to hold gains on Wednesday as investors digested President Donald Trump's outline for tax reform, while earnings season continued.
The Dow Jones industrial average turned lower about 20 minutes before the close, with United Technologies contributing the most gains and Procter & Gamble the most losses. The 30-stock index was about 1 percent away from its all-time high of 21,169.11, however.
Regards,
Ted
Bloomberg:
https://www.bloomberg.com/news/articles/2017-04-25/global-stock-rally-lives-on-as-u-s-earnings-climb-markets-wrap
Reuters:
http://www.reuters.com/article/us-usa-stocks-idUSKBN17S1FK
MarketWatch:
http://www.marketwatch.com/story/us-stock-rally-poised-to-stall-as-investors-wait-for-trumps-big-tax-plan-2017-04-26/print
IBD:
http://www.investors.com/market-trend/stock-market-today/stocks-at-highs-of-day-ahead-of-tax-cut-plan-details-chipotle-jumps/
CNBC:
http://www.cnbc.com/2017/04/26/us-markets.html
AP:
http://hosted.ap.org/dynamic/stories/F/FINANCIAL_MARKETS_MARKETS_RIGHT_NOW?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2017-04-26-12-01-27
Bloomberg Evening Briefing:
https://www.bloomberg.com/news/articles/2017-04-26/your-evening-briefing-j1zenb0h
WSJ Markets At A Glance:
http://markets.wsj.com/us
SPDR's Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
SPDR's Bloomberg Sctor Performance Pie Chart:
https://www.bloomberg.com/markets/sectors
Current Futures: Positive
http://finviz.com/futures.ashx

FYI: (This is a follow-up article.)
Shareholders of British asset manager Henderson Global Investors (HGGH.L) backed its $6 billion merger with U.S. fund firm Janus Capital (JNS.N) on Wednesday, after Janus shareholders approved the deal earlier this week.
Regards,
Ted
http://www.reuters.com/article/us-henderson-m-a-janus-idUSKBN17S2BJ

Hi Guys,
Thank you all for a very informative discussion with a wide range of opinions well represented and well defended. I learned much.
Forecasting is dangerous business. Forecasting follies is well documented, especially when the forecast is made by a very knowledgeable and respected expert, I do read these forecasts, but I'm reluctant to act on them.
I mostly believe what Lao Tzu said that "Those who have knowledge, don't predict. Those who predict, don't have knowledge". More recently, Nils Bohr observed that "Prediction is very difficult, especially if it's about the future." So true.
Bear market risks are always a possibility. How possible? How deep? For how long to recovery? These are all relevant questions. History doesn't yield definitive answers, but it does help to scope the risks. Here is a Link to a useful summary:
http://www.mooncap.com/wp-content/uploads/2016/04/bear-markets-Mar2016.pdf
This reference helped me to scope the possibilities. It is a short presenration with excellent charts that nicely summarize the data. No guarantees, but these data help to put numbers on the risks. I hope it helps you guys too.
ADDED THOUGHT: The ultimate test is always the outcome. As famous physicist Richard Feynman said: "It doesn't matter how beautiful the guess is, or how smart the guesser is, or how famous the guesser is; if the experiment disagrees with the guess, then the guess is wrong. That's all there is to it." Amen to that!
Best Wishes

There is no way I'm going to be able to explain how to build regression models. What I tried to do was just offer the simplest model (100% CAPE + static bond return - static expenses).
I rattled off a few of the many simplifying assumptions inherent in this model. Since the model does not fit the actual performance figures, some of those assumptions must be wrong. One way to figure out which ones is to relax (weaken or remove) some of the assumptions and try fitting the resulting, more complex model to the data.
While it may look like you've got lots of data points to work with (each day's performance), there's lots of noise inherent in that data, especially since you've no real idea what's going on with the bond portion (more below). There are various standard filtering/smoothing techniques that can be tried to deal with this. The end result, while cleaner, would leave you with too sparse a data set to fit to most models. (Call that intuition from experience, I haven't worked the numbers.)
While DoubleLine may say that the bond portion has returned a fairly steady 2.87% annually, it's not clear whether that is net or gross, or what portion of the portfolio the bonds represent ("up to 100%"). One sees, e.g. at least 7% of the fund in cash (so add that to the model). One doesn't even need M* to see the cash. In the latest (semi) annual report, the fund had 7.8% invested in three MMFs (Blackrock Liquidity FedFund, Fidelity Institutional MM, Morgan Stanley Institutional).
Nor is the bond return all that steady. In that same semiannual report, the six month contribution of the bond portion is reported to be 2.3% (not annualized). Annualized, that's 4.65%, a far cry from 2.87%. How likely is it that they're fudging 2.87%? I'm sure that this is a reasonably accurate number. It's the "steady" part that's dubious. Not from a 100,000 foot level, i.e. the bond returns are not bouncing around like some EM bond funds. But it's hardly constant, certainly not close enough to build a model around that assumption.
Personally, I'm comfortable with my prior posts - that the fund should approximate CAPE (for better or worse; I didn't comment on how that might behave) less overhead (leveraging costs, management costs, administrative costs, trading costs, clawback costs) plus bond portfolio returns (as much or as little a black box as one regards all of DoubleLine's bond funds).
Read the fund reports - they give the contributions from the CAPE side and the bond side. Add these numbers, subtract the fund's ER, subtract a bit more for the stuff that isn't reflected in the ER, and you get the total return of the fund. That much is easy to confirm.

FYI: We’ve been hearing a lot of talk over the last few days that just a handful of stocks are driving the rally in US equities. This suggests that the gains aren’t representative of broad market strength, but instead strength in just a handful of stocks. We’ll be the first to agree that the S&P 500’s gains this year are the result of gains in some of the index’s largest members, but that’s only because they have grown so large. As we noted earlier this week, the five largest companies in the S&P 500 have a combined market cap of over $2.75 trillion, and the four largest companies in the index have a greater market cap than the entire Russell 2000 small-cap index. Just because the largest companies in the S&P 500 are doing so well doesn’t mean that the rest of the index is doing poorly though.
The first chart below shows the S&P 500 market cap weighted index over the last twelve months. As shown in the chart, after the rally of the last few days the index is currently just 0.52% below its all-time high from 3/1.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/narrow-rally-is-fakenews/

FYI: After 10 years, my $60,000 investment in a private gin company finally paid dividends. Initially, given the company was sold for about $49M after expenses and I had invested in the company at a $10M post money valuation, I was thinking I had made a ~3X return ($180,000). Since over time shareholders get diluted with subsequent funding rounds, I thought that was a reasonable assumption. -
Regards,
Ted
http://www.financialsamurai.com/just-say-no-to-angel-investing/

I can remember Mr. Know-All Gross and a lot of other self-appointed poobahs predicting low, single-digit returns for the last decade (2000-2010), then just about every year thereafter.

While I agree with your sentiment that a lot of these guys are self-inflated blowhards, IMHO Bogle is not in that camp. As I recall, he did predict that in the 2000s bonds would outperform stocks. He also said that stocks would do better than bonds in this decade. (Hard to find citations for these, but I do trust my memory here.)
The numbers seem to have borne him out. Here's a total return chart comparing VFINX and VBMFX from 1/1/2000 to 1/1/2010. Bonds win the total return race, +80% vs. -9.8%. In case you think that this was just luck with the stock market peaking in 2000, here's the comparison from 1/1/2001 to 1/1/2011, bonds winning +72% vs. + 13.9%. Even the comparison from 1/1/2002 to 1/1/2012 shows bonds winning +71% vs. +32%. In the current decade (to date), stocks have outperformed +147% to +28%.

Mr. Gloom, Jeremy Grantham has certainly been forecasting similar numbers for some time. Gosh, if you listen to him, the only place to make real money is investing in timber. The "baby-boomer" concept has also been floating around for some time. I can't speak for all the other baby boomers, but I don't intent to pull money from my retirement accounts until the RMD rule forces me, and then only the minimum amount.

IRA distributions and asset allocations are essentially independent concepts. If you want to pull money out of the market you can do that while keeping your money inside your IRA.
Not that Bogle has ever suggested significantly adjusting allocations based on market conditions, let alone pulling money out of IRA, which wouldn't be necessary for that purpose. For example, "Fix your proper allocation and either leave it completely unchanged, irrespective of circumstances, or change it, but never more than 10 percentage points. Never be 100% in the market or 100% out of the market."
http://premium.working-money.com/wm/display.asp?art=107

FYI: (Attention John Bogle, here are 10 needles in your haystack !)
While it's true that most funds won't beat market indexes over long stretches after accounting for fees, here's a closer look at a handful of Morningstar Medalists that did.
Regards,
Ted
http://news.morningstar.com/articlenet/article.aspx?id=804177

The amount of dollars you should have in cash/CDs/short-term bonds depends on what you need to withdraw from your portfolio. We advocate 4-6 years, some folks use longer time frames. Let's assume a person needs $1,250 per month from their investments. That would mean $15,000 per year multiplied by five for five years of protected income stream. This does not account for any taxes that might need to be withheld. You would gross up the monthly amount to accommodate that.
On a $300,000 portfolio, that would require $75,000 be in cash/CDs/short-term bonds. Have at least 6-12 months of this in cash or CDs maturing in the near term. The remaining portfolio can be invested as aggressively as your risk profile and time horizon allow. In years when the stock markets are good, you would capture gains from your equity investments to replenish the $75,000. In lean years, you use dollars from your set-aside stash. The last two market crashes have meant recovery of values in about 5 years or less for our clients. The stash means you won't have to sell devalued assets in a down market.
Does this work? Yes. We have used this strategy with many clients for 30 years. The variables are the dollars needed, the number of years selected for protection, whether to withhold taxes from distributions in retirement accounts. Many clients reduce spending in years when returns are not good or negative. Some do not have that option. The key is to establish a very conservative total return projection for your retirement, and be able to adjust your cash flow need. If you base your lifetime income projection (to age 100) on a 7% annual return, you may be asking for a rude awakening.

FYI: Portfolio returns in the early years of retirement could have a large bearing on the success or failure of a retirement income strategy; a few years of early market appreciation means a high likelihood for a healthy retirement, while a flat or declining market in the early years could throw a wrench into the calculation.
It is called sequence-of-return risk, and it poses a serious conundrum for advisers putting together a retirement-income plan for client
Regards,
Ted
http://www.investmentnews.com/article/20170425/FREE/170429938?template=printart

Hi @VintageFreak,
I'm pretty much with you on the subject ... as I average in (or down) when making changes within my portfolio; and, I also keep some powder dry (cash) for the unexpected pullbacks that most did not see coming in the markets. When stocks are selling towards their lows I hold more and when they are pricey I hold less. Currently, based upon the TTM P/E Ratio of 24.4 (April 21st) for the S&P 500 Index they are pricey in my book. And, if you buy on the come line of forward estimates ... you are buying just that estimates. Most times these forward looking estimates get revised downward and although you may win some come line investments often times you'll lose by buying when they were very richley priced.
Before, someone calls me out on the TTM P/E Ratio for the S&P 500 Index I'm linking my reference source(s).
http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=wsj_mdc_additional_ustocks
and, here ...
https://www.advisorperspectives.com/dshort/updates/2017/04/04/is-the-stock-market-cheap
Yep, I'm thinking stock prices are extended and they usually by history go soft during the summer months and rally during the winter months. Still with my plan to reduce my equity allocation towards its low range during the summer. Come late summer or early fall I'll let my market barometer and equity weighting matrix be my guide as to when to start to average back upward. And, I also know that some say that this strategy (Sell in May) does not work in modern day investing. The below link will provide an article that explains the Sell in May strategy in some detail.
http://www.etf.com/sections/features-and-news/should-you-sell-may-go-away?nopaging=1
Perhaps, this is Old_School investment mythology ... but, for me, it has worked more times than not. With this, I plan to "keep on keepin' on."
Old_Skeet
Trailing Note: Since, comments were made below about bond duration and maturity I thought I post mine. My portfolio as a whole bubbles, according to Morningstar Portfolio Manager, with a bond duration of 3.4 years and an average maturity of 5.9 years while my fixed income sleeve bubbles with a duration of 2.71 years and an average maturity of 4.91 years. So my hybrid funds seem to be carrying longer durations and maturities and run the overall numbers upward for the portfolio as a whole.

Very few leading indicators are signaling a market top at this time. There is not much exuberance, and a lot of former investors are still in that category. I can tell you that we have had NO clients or potential clients tell us they want to put more of the money at risk. It just is not happening. Unless your are trying to time the market, and assuming you have an asset allocation that allows you to sleep at night, don't do anything. Remember that a lot of folks have been telling of impending doom for quite a few months now. Could we have a 10% correction? Of course we could. That's a possibility ANY time.

"Live in the present" might work better as a matter of tactical allocation (stocks or bonds this year? here or there? defensive or aggressive?) but the strategic question (how much do I need to squirrel away over each of the next 35 years to have a reasonable chance of meeting my goals) has to include a "likely market return" variable.
David

I just know I suffered 50% losses in the first correction and 20% in the second correction. That's what I meant by invest in the present. Sometimes it is best to leave the battlefield and live to fight another day. Now if you are wrong and the party you left ended up winning the battle, then you don't partake on the spoils. However, what I've learnt is you get over missed opportunities in 1 week, while you never get over ...death.
I think that works for me.

I can remember Mr. Know-All Gross and a lot of other self-appointed poobahs predicting low, single-digit returns for the last decade (2000-2010), then just about every year thereafter. Mr. Gloom, Jeremy Grantham has certainly been forecasting similar numbers for some time. Gosh, if you listen to him, the only place to make real money is investing in timber. The "baby-boomer" concept has also been floating around for some time. I can't speak for all the other baby boomers, but I don't intent to pull money from my retirement accounts until the RMD rule forces me, and then only the minimum amount. At least that is the plan. As for inflation, most folks have been terribly wrong about that since the 2007-08 economic meltdown.
All the predictions for low returns are based on interpretations of current valuations, economic growth, and other guesses. And keep in mind that the prediction in question is for the S&P 500. What about other U.S. markets, developed international, and emerging markets, not to mention non-traditional investments? It seems to me that there is no way to predict this with any accuracy - heck, the weather people can't even get it right for the next 24 hours, and they have all sorts of ways to monitor things. The best thing is to assume your portfolio will achieve a very conservative return during your retirement years, and then run some scenarios to see if your dollars will outlast you. I would urge a similar strategy for the accumulation phase up to retirement. If the numbers turn out to be better, wonderful. You will have saved "too much".

Okay, no charts, graphs or data support for this, but.....
Reported that the baby boomers (born 1946-1964) are retiring at a rate of 10,000/day (don't know if this counts weekends, too). Although also reported that only 1/3 saved enough for a decent retirement, one may suspect this bunch put away a lot of money via the normal investment vehicles of 401k, 403b, 457 and IRA's during the lots of jobs and money decades.
These folks will also hit the RMD stage, and start pulling money from these accounts, as well as some folks who will need to pull money before RMD.
So, my question is whether this money leaving the investment system will be offset by new investment money from the current working folks?
If there is more "out" money, versus "in" money, is the amount enough to affect the outcome of continued returns going forward, being 4%/annual or whatever.
What say you?
Thank you,
Catch