I am a big fan of the Shiller CAPE method to take a view on stock prices. I found this very interesting article, which was analyzing the returns not only for the S&P500 but also for different other markets. And to be clear: I am not involved with that company in any way and I do not want you to buy their stuff / use their service - it is just an interessting analysis; go buy Vanguard and ETFs! :D
http://www.starcapital.de/docs/2014_02_CAPE_Predicting_Stock_Market_Returns.pdf I did my own calculations based on the Shiller data and came up with similar results - although I did not format it so nicely as they did ;)
So bottom line:
- For current S&P500 CAPE of ~25 you can expect a total return of ~4% over 15 years after inflation. (if interessted, check out the table on page 3 of above linked document)
- This includes dividends (dont get confused, they use a performance index version of the S&P500).
- This holds for mainly all analyzed markets (e.g. US, Germany, UK, Australia, ...)
- US vs. European market might be overvalued (but make up your own mind, I am not telling you this is the truth).
So why am I posting this?
I just want to highlight, that you cannot throw all your money into the market and hope for a 7-10% return after inflation - at least not now (dont get me wrong, I am totally convinced in investing in stocks, but watch to not get caught on an optimistic bias here)
What do I take from this?
- Invest more in market downturns on top of regular buying plan - this will improve return (market timing is impossible but at least its possible to tell "sort of cheap" and "sort of expensive")
- Don't overestimate the power of the stock market - Since the US market was around a Shiller-CAPE of ~16-28 for most of the last 30 years you can expect a return of 4-6% after inflation (cost averaging might help a little)
- Be flexible in withdrawing your money once you hit FI - be extra frugal in downturn markets, this will help to avoid downturns and improve your overall return
Glad to hear your opinions on this!