http://www.efficientfrontier.com/ef/701/cheap.htm
Eyeballing the M* returns from that period, I'd say Bill's estimates were very accurate - large returned around 3% real, but small returned 6.5% real. So, where does that leave us today?First, large-cap stocks are quite expensive in most of the developing world, with P/Es in the 25 to 30 range. The earnings yield of a market is a fair predictor of its future long-term real return: both the discounted dividend model and P/E predict a real return of about 3% for U.S. stocks. So at best, expect a 4% real return from large-cap foreign stocks.
Second, small stocks are somewhat cheaper than large stocks in most of the world, with P/Es in the 20 range. So expect perhaps a 5% real long-term return from them.
Then:
S&P 500 P/E: 31.2x
Russell 2000 Small Cap Index: 22.1x
DFA Small Company Index: 21.1x
Source: Dr. Bernstein
Now:
Vanguard 500 Fund P/E: 18.3x
Vanguard Small Cap Index: 28.8x
Source: Vanguard