(Sources: Shiller Database, NAREIT Equity REIT Index)
Looking ahead, there seems to be really only three possible outcomes going forward:
- • The New Neutral: Yields will stay at or near their current levels for years and possibly decades — resulting in portfolio returns that are permanently much lower than they have been historically.
• Reversion to the Mean: Yields will revert toward their historical averages, delivering higher long-term returns after the reversion — but as this occurs, investors will experience significant capital losses as yields rise.
• The Miracle: A permanent change in asset return fundamentals —for example, equity earnings growth will be sustainably stronger than in the past, making future stock returns much higher than current yields imply.