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Investing for a Lifetime: Managing Wealth for the "New Normal" by Richard C. Marston

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CHAPTER 3 Long Swings in Returns: Are We in a “New Normal?”

In 2009 after the financial crisis was beginning to abate, Bill Gross of PIMCO coined the term “New Normal” to describe the world of investing going forward.1 This is a world of half-size economic growth in the industrial world, painful deleveraging of the balance sheets of both governments and the private sector, and, as a result, disappointing bond and stock returns. It’s a depressing vision for younger investors trying to save for retirement. It’s a nightmare for retired investors trying to stretch their savings through retirement. Bill Gross is one of the most astute investors around, so his vision commands attention. Could it be that the long-run returns that we discuss in Chapter 2 are gone forever?

To try to answer that question, we need to understand the long swings in the returns on stocks and bonds that we have already experienced in the postwar period. It has been a very rocky ride for investors. There have been thrilling periods when investors rushed to open their investment statements. That was certainly true of the 1950s when stock markets soared. But it was also true of the two decades of the 1980s and 1990s. In other periods, market movements caused despair. Let’s try to make sense of those decades.

LONG SWINGS IN RETURNS

The performance of the U.S. economy has varied substantially over the past 60 years. The postwar boom was followed by the high inflation, low growth decade of the 1970s. Then the ...

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