Equity returns 3% for the next 20 - 30 years?

andrei

CREDIT SUISSE GLOBAL INVESTMENT RETURNS YEARBOOK 2013

http://www.investmenteurope.net/digital_assets/6305/2013_yearbook_final_web.pdf

From their Conclusions:

"We estimate that the prospective real return on world equities has fallen to around 3%–3.5% per annum.
While we have now been living with low rates for several years, many investors still seem in denial, hoping for a rapid return to “normal” conditions.

The high equity returns of the second half of the 20th century were not normal; nor were the high bond returns of the last 30 years; and nor was the high real interest rate since 1980. While these periods may have conditioned our expectations, they were exceptional.

The projections we have made for asset returns over the next 20–30 years are simply our own best estimates. They will almost certainly be wrong, but we cannot predict in which direction. There will also be large year-to-year variations in return. They should also be viewed strictly as long-run forecasts, and they are not incompatible with short-term optimism or pessimism about particular asset classes.

As long-term forecasts for the next 20–30 years, we nevertheless believe our estimates are realistic. This is in stark contrast to some of the projections currently being made by many asset managers, retail financial product providers, pension funds, endowments, regulators and governments. Overly optimistic estimates of future returns are dangerous, not only because they mislead, but also because they can mask the need for remedial action."

Investor

The Yearbook was linked earlier: http://www.mutualfundobserver.com/discuss/index.php?p=/discussion/5437/credit-suisse-global-investment-returns-yearbook-2013

Investor

The 2-3$% is "real" i.e. after inflation return. It corresponds to 5-6% "nominal" equity returns assuming inflation is around long term average of 3%.

Most people may miss this important detail and as headline sounds worse than in reality.

andrei

Sorry, did not notice your previous link...

BobC

Keep in mind that others have said essentially the same thing for years, and they have been woefully wrong. And some have been predicting total economic collapse. Woe to those who have been suckered into that mindset. I am not saying we will have 10% or greater world market returns into the sunset. But I have learned to not underestimate the ability of markets to surprise on the upside as well as the downside. And I have learned the true benefits of real diversification. There is almost always something or some sectors that are doing ok. Notice that C/S even says their prediction "will almost certainly be wrong". So whay even bother to predict that far into the future. It is futile.

andrei

Well, they admit that they may be wrong, but their main point is to argue that the commonly accepted optimistic predictions have a much greater chance to be wrong. According to them, this should be taken into account by financial planners:

"As long-term forecasts for the next 20–30 years, we nevertheless believe our estimates are realistic. This is in stark contrast to some of the projections currently being made by many asset managers, retail financial product providers, pension funds, endowments, regulators and governments. Overly optimistic estimates of future returns are dangerous, not only because they mislead, but also because they can mask the need for remedial action."

BobC

It would be prudent for investors to use a diversified allocation AND use a conservative return expectation. We seldom use anything greater than 5% in our projections. If the future turns out better than projected, no one will be disappointed. It often means people need to save a greater percentage of their income during their earning years. But it also means not being left in the lurch when it comes time to use the portfolio to supplement retirement cash flow.