Historic Returns
Historic (nominal) returns 1926-2005, source: Ibbotson Associates[1]
| Series
|
Geometric Mean
|
Arithmetic Mean
|
Standard Deviation
|
| Large Company Stocks |
10.4% |
12.3% |
20.2%
|
| Small Company Stocks |
12.6% |
17.4% |
32.9%
|
| Long-term Corporate Bonds |
5.9% |
6.2% |
8.5%
|
| Long-term Government Bonds |
5.3% |
5.5% |
5.7%
|
| U.S. Treasury Bills |
3.7% |
3.8% |
3.1%
|
| Inflation |
3.0% |
3.1% |
4.3%
|
Expected Future Returns
A summary of reasonable expected returns, derived from the Dividend Discount Model. (Published in 2002.)
Expected Long Term Real Returns.
Source: The Four Pillars of Investing[2]
| Asset Class
|
Expected Real Return
|
| Large U.S. Stocks |
3.5%
|
| Large Foreign Stocks |
4%
|
| Large Value Stocks (foreign and domestic) |
5%
|
| Small Stocks (foreign and domestic) |
5%
|
| Small Value Stocks (foreign and domestic) |
7%
|
| Emerging Market / Pacific Rim Stocks |
6%
|
| REITs |
5%
|
| High-Yield ("Junk") Bonds |
5%
|
| Investment-Grade Corporate Bonds; TIPS |
3.5%
|
| Treasury Bills and Notes |
0-2%
|
| Precious Metals Equity |
3%
|
Author of All About Asset Allocation
The table below is an expected return for all major equity and fixed income asset classes over the next thirty-years. It could be used as guide when constructing a long-term diversified portfolio. These estimates are not expected to be completely accurate. Actual returns will likely differ in several asset classes. (Published in 2011.)
Thirty-Year Estimates of Bonds, Stocks and REITs
Assumes a 2.8% Inflation Rate. Source: Portfolios Solutions[3]
| Asset
|
Real Returns
|
With 2.8% Inflation
|
Risk
|
| Government Backed Fixed Income
|
| US Treasury Bills (1 year maturity) |
0.3 |
3.1 |
2.0
|
| 10-year U.S. Treasury notes |
1.3 |
4.1 |
6.0
|
| 20-year U.S. Treasury bonds |
1.5 |
4.3 |
7.0
|
| 20-year inflation protected Treasury (TIPS) |
1.8 |
4.6 |
8.0
|
| GNMA Mortgages |
1.8 |
4.6 |
8.0
|
| 10-year tax-free municipal (A rated) |
1.5 |
4.3 |
7.0
|
| Corporate and Emerging Market Fixed Income
|
| 10-year investment-grade corporate (AAA-BBB) |
2.4 |
5.2 |
9.0
|
| 20-year investment-grade corporate (AAA-BBB) |
2.5 |
5.3 |
10.0
|
| 10-year high-yield corporate (BB-B)) |
4.0 |
6.8 |
15.0
|
| Foreign government bonds (unhedged) |
2.0 |
4.8 |
8.0
|
| US Equity
|
| US Large Stocks |
5.0 |
7.8 |
19.0
|
| US Small Cap Stocks |
6.0 |
8.8 |
22.0
|
| U.S. micro-cap stocks |
7.0 |
9.8 |
25.0
|
| US Small Value Stocks |
8.0 |
10.8 |
27.0
|
| REITs (Real Estate Investment Trusts) |
5.0 |
7.8 |
19.0
|
| International Equity
|
| Developed countries |
5.0 |
7.8 |
19.0
|
| Developed countries small companies |
6.0 |
8.8 |
22.0
|
| Developed countries small value companies |
8.0 |
10.8 |
27.0
|
| All emerging markets including frontier countries |
9.0 |
11.8 |
29.0
|
References
- ↑ A Random Walk Down Wall Street - Burton Malkiel (2007), page 185 (source: Ibbotson Associates)
- ↑ The Four Pillars of Investing - William Bernstein (2002), page 72
- ↑ Thirty-Year Estimates of Bonds, Stocks and REITs Assuming a 2.8% Inflation Rate - Portfolios Solutions LLC (2010). Reprinted with permission from Rick Ferri, CEO, Portfolio Solutions
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