Author Topic: Average stock returns over next 50 years  (Read 3735 times)

alwaysonit

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Average stock returns over next 50 years
« on: October 02, 2016, 03:34:19 AM »
Of course we can't predict this, but what would be a conservative guess, after inflation?
Buffet says 6-7%, is this after inflation?
Another, and probably too conservative estimate, could be that with international equity risk premium being 4% and bonds paying close to nothing now, the inflation adjusted return will be 2-3%.
What do you guys think?

arebelspy

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Re: Average stock returns over next 50 years
« Reply #1 on: October 02, 2016, 03:55:15 AM »
Current discussion, including poll with 271 responses, on returns over the next 25 years:
http://forum.mrmoneymustache.com/investor-alley/us-stock-market-expected-real-return/

50 years being even longer than what's being discussed there, I'd say just reversion to the mean.  6, 7% real is more likely than not.
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MustacheAndaHalf

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Re: Average stock returns over next 50 years
« Reply #2 on: October 02, 2016, 04:01:16 AM »
I think it was one of William Bernstein's books where I learned some countries have gone through complete collapse of their stock markets - a return of 0% over 50 years.  Rare, but something to keep in mind when you consider diversification v.s. Buffet's position of the top 500 U.S. stocks being enough.  And to pick on Warren Buffet for a moment, he has no chance of being around in 50 years.

arebelspy

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Re: Average stock returns over next 50 years
« Reply #3 on: October 02, 2016, 04:15:02 AM »
I think it was one of William Bernstein's books where I learned some countries have gone through complete collapse of their stock markets - a return of 0% over 50 years.

Or total collapse of the country itself.

See, for example, part 3 of Bernstein's Retirement Calculator from Hell, where he says:
Quote
A wildly optimistic historian might give us another few centuries of economic, political, and military continuity. Back-of-the-envelope, that’s about an 80% survival rate over the next 40 years. Thus, any estimate of long-term financial success greater than about 80% is meaningless.

http://www.efficientfrontier.com/ef/901/hell3.htm

It's absolutely a possibility.  One more likely than a meteorite strike.  But less likely than reversion to the mean.  If I were betting (and I am, via my investments!), I'd bet on that.  (Doesn't mean I wouldn't also hedge some.)
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Monkey Uncle

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Re: Average stock returns over next 50 years
« Reply #4 on: October 02, 2016, 04:45:48 AM »
No one has any idea, so I wouldn't listen to anyone's prediction (not even Buffet's).  The best you can do is diversify across countries and asset classes and rebalance periodically.  Either it will work out or it won't.  Either you won't have to go back to work, or you will.

AdrianC

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Re: Average stock returns over next 50 years
« Reply #5 on: October 02, 2016, 07:46:33 PM »
Of course we can't predict this, but what would be a conservative guess, after inflation?
Buffet says 6-7%, is this after inflation?

Do you have a link for the Buffett reference? I expect it would be after inflation, so maybe 4-5% real return.

steveo

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Re: Average stock returns over next 50 years
« Reply #6 on: October 03, 2016, 04:03:50 AM »
No one has any idea, so I wouldn't listen to anyone's prediction (not even Buffet's).  The best you can do is diversify across countries and asset classes and rebalance periodically.  Either it will work out or it won't.  Either you won't have to go back to work, or you will.

100% correct. Personally I'm not worried at all. I figure that when I FIRE I should be fine. If something happens before or after FIRE I'll probably be better off than most people so the worst case isn't really that bad.

I'm also FIRE'ing at a WR > 4% and probably > 5%.

AdrianC

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Re: Average stock returns over next 50 years
« Reply #7 on: October 03, 2016, 04:32:22 AM »
There's also the 5:2:1 rule:

http://mebfaber.com/2016/09/27/the-521-rule/

World index equity returns have been 5% real since 1900. Bonds 2%. Bills, housing, gold 1%.

Since bonds are currently expected to return zero, if the equity risk premium stays at about 3%, equity returns will be about 3%.

All this to say: expecting 6 or 7% from a globally diversified portfolio is quite optimistic.

arebelspy

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Re: Average stock returns over next 50 years
« Reply #8 on: October 03, 2016, 05:33:02 AM »
Since bonds are currently expected to return zero

In the short term.  Over 50 years, I'd expect some reversion to the mean.

And if you're going to have low returns at some point over a timespan, earlier is better than later.  So the short term prognosis is poor-ish, but over the 50 years approximately most of us have left, it may be decent, especially if you're investing over the first 10-15 years of that (during the low returns, meaning you'll end with way more than you need way in the future).  I'd say that's more likely than low returns continually for 50 years.

His 5% real is a good guesstimate though.  I think 3-5%, real, is more than plausible.
« Last Edit: October 03, 2016, 05:35:02 AM by arebelspy »
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AdrianC

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Re: Average stock returns over next 50 years
« Reply #9 on: October 03, 2016, 06:26:30 AM »
His 5% real is a good guesstimate though.  I think 3-5%, real, is more than plausible.

I agree.

Here's another Meb Faber piece I liked:
http://mebfaber.com/2016/09/23/you-dont-have-to-play/

Historical returns in US stocks have been about 9% for reference.  So, if we stay at these lofty valuations for 10 years we get 6% returns.  If we go back to normal valuations for a low interest rate environment we get to 3.4%.  Not good but not as bad as bonds.  If we go back to full history normal valuations we get to 1.5%.

Only if CAPE ratio expands can we get back to historical stock market returns.  The CAPE ratio has to go up to about 35(!) for us to get to historical stock levels.  Even if we go back to the highest bubble levels ever – where Elon Musk invents free energy and we all find out we’re living in a simulation – do we get 11.6% returns. 

spud1987

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Re: Average stock returns over next 50 years
« Reply #10 on: October 05, 2016, 02:07:34 PM »
I personally would be happy with 5% real returns. That would be fine for most of us using a 4% withdrawal rate (depending on when we retire, i.e., sequence of return risk, etc.).

frugledoc

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Re: Average stock returns over next 50 years
« Reply #11 on: October 05, 2016, 02:36:16 PM »
Nobody knows but if I had to guess for fun I would say 5 - 10% per year total return.

My reasoning is that "the noise" seems to be predicting very low returns, so the opposite may occur.

Whatever happens, nobody will have seen it coming.

« Last Edit: October 06, 2016, 12:59:08 PM by frugledoc »

TheAnonOne

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Re: Average stock returns over next 50 years
« Reply #12 on: October 06, 2016, 12:41:36 PM »
Nobody knows but if I had to guess for fund I would say 5 - 10% per year total return.

My reasoning is that "the noise" seems to be predicting very low returns, so the opposite may occur.

Whatever happens, nobody will have seen it coming.

That AND the PE has changed in a way that reads a bit higher now. IE: historical 16 is more like an 18 now.... (From a few things I have been reading here, if anyone can dispute or add-to this, that would be fantastic)

I think, if you hold any international stocks your fine as well. The US has "high" PE ratios but the rest of the world is lower.

whodidntante

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Re: Average stock returns over next 50 years
« Reply #13 on: October 06, 2016, 08:23:15 PM »
I have a magazine from 50 years from now, though it's apparently put out by the machines.  The s&p 500 isn't mentioned, but apparently stocks in New Marianas Region have done really well.  Also, avoid Wisconsin.