RR #224 - Prof. Scott Cederburg: Long-Horizon Losses in Stocks, Bonds, and Bills

Are stocks and bonds good in the long game? What are the best long-term investment options? In this episode, we speak to Professor Scott Cederburg about the nuance surrounding the stock market, bonds, and other investment types in the long term. He has a Ph.D. in Finance from the University of Iowa and is currently the Associate Professor of Finance at Eller College of Management at the University of Arizona. His research focuses on the long-horizon performance of a range of asset classes and investment types and has published in high-ranking academic journals, making him the perfect person to speak to about the subject. We discuss the topic through the lens of several papers he has written on stocks, bonds, retirement savings, and return predictability. In our conversation, we unravel the nuance of the returns on long-term stocks and bonds, hear details about his research design, and learn how unanticipated events can affect the market. He also provides insight into the different biases surrounding long-term investments, the block bootstrap approach, reasons why the block bootstrap approach is needed, and why bonds and bills may not be the long-term investment you were hoping for. We also discuss the best options for investors regarding pre-tax and post-tax accounts and the differences between high-beta and low-beta portfolios. He also shares some basic steps for investors to help them protect their investments. Join us as we dig into the past to uncover the financial future with Professor Scott Cederburg.

Timestamps:
0:00 Intro
4:45 Long-Horizon Losses in Stocks, Bonds, and Bills
35:20 Breakdown of what the Distribution looks like for Bonds & Stocks
1:00:06 Tax Uncertainty & Retirement Savings Diversification
1:17:29 Does It Pay to Bet Against Beta?
1:25:18 Prof. Cederburg's definition of success

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[brettnickols]

Just rewatched. This was a really good episode. Need the follow up for work he previewed at that time.

[jmc]

Sobering but valuable. Hoping Prof. Cederberg will continue dialogue on RR when new research is ready esp how now/close to retired are effected and how/if plans can be changed incl DIY. Thank you.

[chrisf]

Fascinating stuff. I'm thanking my lucky stars that I assumed a pessimistic 2% real return when I was trying to decide if I could afford to retire (although it seems that even that may be too optimistic !)

[andresbaroja]

Benjamin getting excited about the data when hearing the 2% withdrawal rate was a great listen. My reaction exactly.

[kumarbrowns]

Not everybody had to grow food anymore in the UK in 1841 because the UK had India in her pocket by that time 😉
I am a big fan of your podcast, just felt like making a comment on this particular thing about UK.

[charlesmartineau]

Ya Scott is a really good guy ;) I had a lovely chat with him back in Budapest at the FIRS conference

[davidwilkie]

"Survival Bias", or "getting away with it" ignoring the consequences, this concept is very familiar, but what to do with the knowledge is the big problem, you can not use past Precedent to make reliable predictions for Future Markets. This presentation will make it clear and definite.

[thomas]

Curious where the traditional notion of some of these asset types being uncorrelated came from. Maybe I just don't understand correlation... I'll add it to the list of things I have no idea about after all.

[safetyfirst]

Awesome 😊👍 Thanks. Scott is super nice guy

[SonOfLiberty]

If the historic US data supports the 4% rule withdrawal approach but the international data supports a lesser withdrawal rate, say 2.25%, isn't this a strong argument to be a US-only investor? (See 56:00 to 57:12 in the video.)

[jaredcone]

For pre-tax vs post-tax, if you do pre-tax does that leave more money in your paycheck that you could put into additional investments, thereby increasing the value of pre-tax?

[The_Asset_Man]

do you think now is a good time to invest into the msci etf ? or the s&p etf?

[kenthughes]

That can lead to a miserly miserable retirement lifestyle to use 2%

[Bobventk]

Idk man. I’m trying to stay open minded but I’m having a hard time believing some of this doom and gloom