Historical and expected returns
Historical and expected returns provides historical market data as well as estimates of future market returns.
Historic returns
Burton Malkiel
Burton Malkiel, author of A Random Walk Down Wall Street provides historic asset class returns.
| 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% |
Robert Shiller
Robert Shiller is a Professor of Economics at Yale University. He maintains multiple historical market data spreadsheets, including the following:
Aswath Damodaran
Aswath Damodaran is a Professor of Finance at New York University. He maintains various corporate finance and valuation spreadsheets, including the following:
Expected future returns
John Bogle
John Bogle with reasonable expectations for stocks and bonds over the next ten years, using his own "Occam's razor" model.[2]
| Asset Class | Expected Nominal Return |
|---|---|
| U.S. Stocks (broad market) | 4% |
| U.S. Bonds (broad market + moderate risk) | 3.1% |
Note: Bonds expected return assumes accepting moderate additional credit risk and significant interest rate risk vs. the U.S. Treasury 10-year note.
William Bernstein
William Bernstein with a summary of reasonable expected returns over the next ten years, derived from the dividend discount model, published in 2014. [4]
| Asset Class | Expected Real Return |
|---|---|
| U.S. Large-Cap Stocks | 2% |
| U.S. Large-Value and Small-Cap Stocks | 3% |
| U.S. Small-Value Stocks | 4% |
| Developed Foreign Stocks | 5% |
| Emerging Markets Stocks | 4% |
| REITs | 1% |
| Precious Metals Stocks | 1% |
| Base Metals and Oil Stocks | 3% |
| Treasury Bills, Notes, and Bonds | -1% |
Bernstein's estimates in 2002 are below:
| 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
Rick Ferri, 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.
| Asset Classes | Real returns | Nominal returns with 2% inflation |
Risk Estimate* |
|---|---|---|---|
| Government Backed Fixed Income | |||
| US Treasury Bills (1 year maturity) | 0.1 | 2.1 | 2.0 |
| 10-year U.S. Treasury notes | 1.9 | 3.9 | 7.0 |
| 20-year U.S. Treasury bonds | 2.5 | 4.5 | 8.0 |
| 30-year inflation protected Treasury (TIPS) | 2.6 | 4.6 | 9.0 |
| GNMA Mortgages | 2.4 | 4.4 | 8.0 |
| 10-year tax-free municipal (A rated) | 1.6 | 3.6 | 7.0 |
| Corporate and Emerging Market Fixed Income | |||
| 10-year investment-grade corporate (AAA-BBB) | 2.6 | 4.6 | 9.0 |
| 20-year investment-grade corporate (AAA-BBB) | 3.3 | 5.3 | 10.0 |
| 10-year high-yield corporate (BB-B)) | 4.0 | 6.0 | 15.0 |
| Foreign government bonds (unhedged) | 2.4 | 4.4 | 9.0 |
| US Equity Common Equity and REITs | |||
| US Large Stocks | 5.0 | 7.0 | 19.0 |
| US Small Cap Stocks | 5.3 | 7.3 | 22.0 |
| US Small Value Stocks | 5.8 | 7.8 | 26.0 |
| US Real Estate Investment Trusts (REITs) | 4.8 | 6.8 | 19.0 |
| International Equity (unhedged) | |||
| Developed countries | 5.4 | 7.4 | 20.0 |
| Developed countries small companies | 5.7 | 7.7 | 23.0 |
| Developed countries small value companies | 6.2 | 8.2 | 27.0 |
| All emerging markets including frontier countries | 7.0 | 9.0 | 29.0 |
| *The estimate of risk is the estimated standard deviation of annual returns.
The 30-year forecast data is presented on an annualized compounded total return basis. | |||
See also
External links
- Google spreadsheet to calculate an estimated expected return for an entire portfolio.
- Vanguard’s economic and investment outlook contains Vanguard's expected 10-year returns for major asset classes. December 2015.
- Expected Returns on Major Asset Classes from the CFA Institute, Anti Ilmanen, June 2012, Vol. 2012, No. 1.
References
- ↑ A Random Walk Down Wall Street - Burton Malkiel (2007), page 185 (source: Ibbotson Associates)
- ↑ Occam's Razor Redux: Establishing Reasonable Expectations for Financial Market Returns - John Bogle (Fall 2015)
- ↑ John Bogle, Bogleheads XVI!, Bogleheads XVI Presentation (Slides 64 to 65), October 19, 2017.
- ↑ Dividend Discount Model
- ↑ Rational Expectations: Asset Allocation for Investing Adults (Investing for Adults) (Volume 4) - William Bernstein (2014)
- ↑ Bernstein: A Decade of Super-Low Returns in Bogleheads.org forum, 9 June 2014
- ↑ The Four Pillars of Investing - William Bernstein (2002), page 72
- ↑ Portfolio Solutions’ 30-Year Market Forecast for 2015, from Portfolio Solutions. Reprinted with permission from Rick Ferri, CEO, Portfolio Solutions.
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