Investor Expectations Are Too Damn High

The Schroders Global Investor Study was just released for 2017. Globally, investors expect a 10.2% annual return over the next five years. For millennials, it’s even higher at 11.7% per year.

That’s possible but unlikely, especially because it’s a projection for a broad investment portfolio, not just stocks. The historic annual returns of stocks, the best performing asset class, don’t even reach that 10% figure.

We’ll reiterate that given where starting valuations are today for stocks and bonds, a 4-5% expected annual return for the next 5-10 years is a more reasonable assumption and is less likely to lead to disappointment.

Source: David Brett at Schroders

Estimating Future Returns of the S&P 500

A few months ago, we posted a chart from Goldman Sachs that emphasized how remote the possibility of a 10% annual return for the next 10 years in the S&P 500 would be.

Recently, we found this chart from David Merkel at The Aleph Blog that forecasts future returns using a methodology of his own. Its average forecast is a 4-5% annual return for the next ten years.

4-5% annual return for S&P 500 is most likely result for next 10 years

Forecasts like these are not meant to predict exactly what the stock market will do in the years to come. Instead, they can act as a reality check for investors whose expectations for future capital gains may be too optimistic.

Source: David Merkel at The Aleph Blog