Investment bank Goldman Sachs published a report last week analysing what kinds of returns investors can expect from the $SPX500 over the next 10 years.
moneycheck.com/the-partys-over-goldman-sachs-projects-below-average-stock-returns-for-next-10-years/
Investors have enjoyed an easy ride over the past decade. Company earnings grew, valuations expanded, and the S&P 500 returned 13% a year.
Goldman predicts the future will be rather different. Their return forecast for the S&P 500 is only 3% a year. The reasons are that:
1. The S&P 500 is highly valued, with a Shiller CAPE ratio of 37.
Valuation has historically been the strongest single predictor of 10-year future returns.
www.multpl.com/shiller-pe
2. The market is heavily concentrated in a few top stocks, whose fortunes the index depends on. Highly concentrated markets have historically led to low future returns.
3. Over the past decade, the US economy was in recession only 5% of the time. Goldman assumes it will be in recession 10% of the time over the next 10 years, more in line with the historical average.
Goldman concludes that the S&P 500 has a more than 2/3 probability of underperforming bonds. It even has a 1/3 probability of losing to inflation.
It’s not all bad news for investors. Goldman sees an equally-weighted portfolio of S&P 500 stocks ($RSP) outperforming the index itself by 2-8% a year.
3% a year is on the pessimistic side of forecasts available from different sources. The average professional forecast is 6%. I myself believe 4-5% a year is achievable with the S&P 500. But this is less than what many investors expect.
Getting 10%+ a year returns going forward will require a portfolio entirely different from the S&P 500, under any reasonable analysis.
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