Thornburg Value: Understanding Your Real, Real Returns

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Great find by Cullen see a tiny except followed by the full report

Understanding Your Real, Real Returns by Cullen Roche, Pragmatic Capitalism

Thornburg Funds has a new report out on understanding your real, real returns and it’s fantastic.  I discuss this topic in “>detail in my book,  Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance but they do a much better job covering this than I do

The chart below is super important.  Most people who get into investing think only of their nominal returns.  That’s the top line figure.  But what really matters to you is the bottom line.  And in the investment world that’s the real, real return you get.  That’s the after tax, after inflation, after fee return.  It’s the money that actually goes into your pocket relative to your purchasing power.

See full article by Pragmatic Capitalism


A Study of Real Real Returns

Unconventional Policies, Market Surprises and Other Signs of the Times

Investors could be forgiven for scratching their heads over the collisions between consensus views and actual market and economic performance since our report a year ago. After a banner year for stocks and high-yield bonds in 2013, investors were almost uniformly advised to stay the same course in 2014, given the U.S. Federal Reserve’s announced tapering of its asset purchase program and the eventual rise in benchmark interest rates. But if the Fed has repeatedly over-estimated inflation and economic growth in recent years, Wall Street has also misfired: stocks have had a rough ride higher so far in 2014, particularly the growth stocks that were supposed to benefit from the still elusive acceleration in U.S. growth. And after stumbling 2% in 2013, the total return of the Barclays U.S. Aggregate Bond Index unexpectedly climbed 3.93% in the first half of 2014. Indeed, U.S. Treasury bond yields spent the first six months of the current year noticeably lower than they were at the end of 2013, even as the Fed has steadily reduced its “Quantitative Easing” (QE).

Internationally, China’s economic reboot toward more domestic consumption and away from investment amid worries about its growing debt load has weighed on its economic growth, not to mention global commodities prices. Japan’s monetary reflation weakened the yen versus the dollar and boosted inflation expectations and asset prices last year, but structural reforms needed for meaningful and sustained long-term economic growth remain to be seen. In Europe, despite the recent European Central Bank measures to boost bank lending, disinflation persists. Elsewhere, emerging markets look poised for a modest recovery in 2015 after four years of declining growth, with emerging markets asset prices already rising smartly midway through 2014. But it’s far from clear that reforms in a handful of big, fiscally challenged developing countries grappling with current-account deficits will continue, given a renewal of cheaply financed, speculative inflows.

Inflation may appear tame, but investors should keep in mind that QE and rock-bottom interest rates in most of the developed world can’t go on indefinitely without consequence. Interestingly, after gold’s 12-year bull-run came to an end last year, prices for the yellow metal rose 10.5% in the first half of 2014. Benchmark U.S. stock market indexes recently hit record highs, while bond yields of some of the eurozone’s most troubled economies are not far off those of U.S. Treasuries. Issuance of riskier “covenant-lite” loans has been running at double its 2007 level. As the reach for yield grows and asset prices rise, so too do associated risks.

real returns

See full “A Study of Real Real Returns” in PDF format here.

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