We cannot tell the future. Neither can the following organizations. Yet we respect these organizations and their estimates of future returns, which deserve consideration. Dismal forecasts such as these are not new. They have been around for a few years. And for a few years they have been wrong. Most of them are based upon the Schiller P/E ratio which is controversial (see our article here).
In the 90’s, the long-term average of 12% was often used for financial planning purposes. In the 2000’s, we often used 8% as a long-term average. None of the following forecasts project 6% average return for at least the next 10 years.
John P. Hussman, Ph.D. is president of Hussman Investment Trust and widely looked to for his stock market expertise. On August 31, 2015 he wrote, “Current valuations continue to imply approximately zero nominal total returns for the S&P 500 over the coming decade….” (http://hussman.net/wmc/wmc150831.htm)
GMO, LLC and one of its founders, Jeremy Grantham, are widely quoted, partly for their accurate forecasts. The following chart was taken from a 4/15/2015 article. The first three columns are applicable to this article.
Ed Easterling of Crestmont Research is often looked to because of his thorough research. He is the author of two books, Probable Outcomes and Unexpected Returns. He stated the following in his article “Waiting For Average, Why The Long-Term Average Will Never Occur For Today’s Investors.”(Updated October 2013)
“According to the 2013 Ibbotson Classic Yearbook published by Morningstar, Inc., the long-term average return from the stock market is 9.9% (pg. 144 & 145).”
“… our best case future long-term [approximately two decades] return approaches 6%.”
Finally, Rob Arnott’s company Research Affiliates is widely known in the financial business. In a July 2015 article found on the company’s website entitled “Are Stocks Overvalued? A Survey of Equity Valuation Models”, authors Chris Brightman, Jim Masturzo, Noah Beck, state the following:
Our answer to the question “Are stocks overvalued?” in the U.S. market is a resounding “Yes!” Our forecast for core U.S. equities is a 0.8% annualized real return over the next decade.
Please contact us if you like to revisit your allocation or any projections.
The purpose of this article is not to create fear, but realistic expectations. We have not even mentioned the bond market. As a reminder, bonds generally increase in price as interest rates decrease. We do not know of a time when the stock market has been so highly valued and interest rates so low. We constantly search for vehicles to help you reach your goals with acceptable risk.
This information is provided for general purposes and is subject to change without notice. The information does not represent, warranty or imply that services, strategies or methods of analysis offered can or will predict future results, identify market tops or bottoms or insulate investors from losses. The information has been obtained from sources considered to be reliable, but it is not guaranteed. Past performance is not a guarantee of future results. Before acting on this information, consult your Financial Advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the author and not necessarily those of Geneos Wealth Management, Inc.