Historical and Expected Returns

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Historic Returns

Burton Malkiel

source: [1] historic (nominal) returns 1926-2005, source: Ibbotson Associates
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

William Bernstein

source: [2] The Four Pillars of Investing
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%

Rick Ferri

Author of All About Asset Allocation

source: [3] Portfolios Solutions
Asset Real Returns With 3% Inflation Risk
Government Backed Fixed Income
US Treasury Bills (1 year maturity) 0.5 3.5 1.5
Intermediate-term US Treasury Notes 1.5 4.5 4.8
Long-term US Treasury Bonds 2.0 5.0 5.3
GNMA Mortgages 2.0 5.0 8.0
Intermediate Tax-free (AA Rated) 1.0 4.0 5.0
Corporate and Emerging Market Fixed
Intermediate High Grade Corporate 2.0 5.0 5.5
Long-term Investment Grade Bonds 2.8 5.8 8.5
Preferred Stocks (Rated A or better) 3.5 6.5 9.0
High Yield Corporate (B to BB) 4.0 7.0 15.0
Emerging Market Bonds 4.0 7.0 15.0
US Equity
US Large Stocks 5.0 8.0 15.0
US Small Cap Stocks 6.0 9.0 20.0
US Small Value Stocks 7.0 10.0 22.0
REITs (Real Estate Investment Trusts) 5.0 8.0 14.0
International Equity
International Developed Country Stocks 5.0 8.0 17.0
International Small Country Stocks 6.0 9.0 22.0
International Emerging Country Stocks 7.0 10.0 25.0
Gross Domestic Product 3.5 6.5 2.0

References

  1. A Random Walk Down Wall Street - Burton Malkiel (2007), page 185 (source: Ibbotson Associates)
  2. The Four Pillars of Investing - William Bernstein (2002), page 72
  3. 30 Year Market Forecast - Portfolios Solutions LLC (2006). Reprinted with permission from Rick Ferri, CEO, Portfolio Solutions

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