Goldman Sachs: S&P 500 to average +3% over next 10 years?

[Aggie1999]

Of course they are. Makes it easier for them to sell their management fee services.

 

[foxfirev5]

A goal of mine is to no longer have a dog in this hunt. Our LMP gets beyond age 85 with a very conservative dividend estimate. Hopefully equities will provide enough growth for the kids 20 years down the road. The lost decade was well predicted. We thrived by pouring all new money into stocks. If it happens again I won't be a player at this stage of the game.

 

[jazz4cash]

Here's the thing though. With the creation of ETF's you can just buy the whole market and not have to concern yourself with individual companies management decisions or anything else not in your control. To me , that is such a relief!

You can just have returns that represent what the market does, which as history has shown done extremely well. Also, with minimal cost and in a tax efficient way. Individual investors have never had it so good.

I think index funds had all these attributes decades before ETFs were created.

 

[FREE866]

Small correction: Early on, ETFs were exclusively index funds in a form that allowed them to be traded like stocks. This encouraged trading and, hence, revenue for the brokerage houses. The first widely available index fund was created in approximately 1975 by Jack Bogle. The availability of index funds beginning almost 50 years ago has nothing to do with the invention of ETFs. ETFs are no longer limited to index road. The lost decade was well predicted. . The lost decade was well predicted.

I think index funds had all these attributes decades before ETFs were created.

Fair point. However , my sense is they weren’t free of fees. My post ,in context, to the poster comment about it being a casino and that ETFs of index funds is a simple way to participate in the stock market, which has an excellent track record.

 

[Focus]

All I know is that the stock market got high enough recently that I decided it was time for a major rebalance. Ten years into retirement, I plan to be roughly 50/50 from now on.

 

[HI Bill]

In the four or five years before I FIRED (2021), Vanguard had similar dismal forecasts. Their forecasters seem to be staying the course!

 

[OldShooter]

Fair point. However , my sense is they weren’t free of fees. My post ,in context, to the poster comment about it being a casino and that ETFs of index funds is a simple way to participate in the stock market, which has an excellent track record.

Well, I'm not going to go back to review historical index fund fees but they've always been low. Early on I think there were a few fund managers who charged rapacious fees but I think they have mostly died a natural death. You do understand, though, that ETF managers charge fees too, right? Then there is the spread. Then there is whatever the authorized participants are able to rake off.

An ETF is simply a mutual fund with a few slightly different characteristics that appeal to some people, especially traders. There is no magic, despite the investment industry's efforts with smoke and mirrors.

 

[FREE866]

Well, I'm not going to go back to review historical index fund fees but they've always been low. Early on I think there were a few fund managers who charged rapacious fees but I think they have mostly died a natural death. You do understand, though, that ETF managers charge fees too, right? Then there is the spread. Then there is whatever the authorized participants are able to rake off.

An ETF is simply a mutual fund with a few slightly different characteristics that appeal to some people, especially traders. There is no magic, despite the investment industry's efforts with smoke and mirrors.

VTI, IWM, SCHG, SPY etc to the best of my knowledge only have expense ratios which are very small. Correct me if I'm wrong. Those are the only ones I own. Given I've owned these for decades and don't trade them the "spread" of a couple pennies is inconsequential. Not sure what you mean by "authorized participants" ?

 

[OldShooter]

VTI, IWM, SCHG, SPY etc to the best of my knowledge only have expense ratios which are very small. Correct me if I'm wrong. Those are the only ones I own. Given I've owned these for decades and don't trade them the "spread" of a couple pennies is inconsequential. Not sure what you mean by "authorized participants" ?

Expense Ratio = Fee

 

[kcowan]

After a 68% increase in net worth since 1/1/2020, I can live with 3% for the rest of our lives! Our BTD will decline as we get tired of travel in 4 or 5 years.

 

[frayne]

Weren't all these same expert forecasters calling for a recession not all that long ago?

 

[FREE866]

Weren't all these same expert forecasters calling for a recession not all that long ago?

haha exactly.

And making a TEN year prediction is kind of silly when you think about it. So much can happen along the way that can change economic situation over such a long period. Good and bad.

 

[Diogenes]

My concern is that the S&P 500 has enormously beaten small-caps, and especially ex-US stocks. I would love to see a rotation of leadership away form large-cap US growth. I'd especially love to see a decade where ex-US stocks power ahead substantially, while the US market - to put politely, takes a breather.

 

[dmpi]

3% is OK if inflation is 3% or lower.

 

[GrayHare]

That prediction suggests the S&P 500 is overbought, which agrees with other metrics. But we also need to know their predictions for other asset classes. If everything else drops in price, 3% will look good!

 

[NeilDH]

My concern is that the S&P 500 has enormously beaten small-caps, and especially ex-US stocks. I would love to see a rotation of leadership away form large-cap US growth. I'd especially love to see a decade where ex-US stocks power ahead substantially, while the US market - to put politely, takes a breather.

I was just noticing how small caps have taken a beating in my portfolio. Hopefully, as you say, small caps (and mid-caps, and internationals) can offset any S&P 500 flatlining and get me my 7-8% per year. Thus we sing the praises of diversifying and AA again.

 

[SunGuy]

All of the different finance giants are just being very conservative.

 

[Montecfo]

Here's the thing though. With the creation of ETF's you can just buy the whole market and not have to concern yourself with individual companies management decisions or anything else not in your control. To me , that is such a relief!

You can just have returns that represent what the market does, which as history has shown done extremely well. Also, with minimal cost and in a tax efficient way. Individual investors have never had it so good.

I think you forgot the so called "Lost Decade", 2000-10. Stocks did not do well then, index or otherwise and that was after a long runup for stocks.

Back to the OP: yes it seems plausible. I think the range from peak, whenever we hit that, will be 1-5%. Returns are a function of market starting point and valuations are high now. Right now we are continuing to climb because earnings have continued to grow AND the interest rate path is downward.

So I have to ask myself after rates bottom, what is the next catalyst for stocks? Improved earnings growth? I kind of doubt that.

BUT AI could be a real game changer that continues to propel earnings. That would be the alternative view as I see it.

 

[Montecfo]

After a 68% increase in net worth since 1/1/2020, I can live with 3% for the rest of our lives! Our BTD will decline as we get tired of travel in 4 or 5 years.

I agree with you. 3% a year sounds pretty darn good to me.

 

[DrRoy]

The article mentions returns over the last 10 years of 13%, vs the long term rate of 11%.
Looking at just the last 6 years, returns have averaged 16-17%.

"Reversion to the mean" is a thing.

I think odds are pretty darn high the next 6 years will not be as good as the last 6. And I'd guess there is a decent chance that returns over the next 5-10 years will be below the long term rate. I have no idea if that means 3% or 7% or whatever returns - and I may be totally wrong - but I'm guessing some mean reversion is in our future.

+1

 

[mrfeh]

I'll have a shot of what Mr Goldman and Mr Sachs are drinking.

The last time the SP500 has had such a bad run for even 3 consecutive years was 2000 thru 2002.

They are predicting annualized average return over a decade, not every year.

 

[FREE866]

I think you forgot the so called "Lost Decade", 2000-10. Stocks did not do well then, index or otherwise and that was after a long runup for stocks.

I didn't "forget" the lost decade.

That said, the overwhelming majority of ten year periods have had excellent returns for stock investors in the area of 10%. Could it happen again? of course, but it certainly is not the norm.
Also, remember that the period you reference had not one but two pretty bad recessions. Historically that is an anomaly that has a very low probability based on history.

 

[pb4uski]

Ah but what was Vanguard's forecast for the 2020 decade? I am sure they made one and I am sure it is probably way off (to date).
Sounds like the goalposts keep moving outward in order to achieve the conservative results.
Of course, once in a while they will be correct.
Yes nobody knows nuthin as per Mr. Bogle.

Well 2020 is tough in no one could have anticipated a global health crisis happening in 2020 and the economic dislocations that resulted. I'll concede that these long term predictions are inherently dubious... that is the nature of the beast, but given valuation metrics and reversion to the mean I don't think that lower returns in the near term would be surprising.

At the same time, perhaps the recent returns and high valuation metrics are caused by the proliferation of index investing resulting in high demand for index stocks irrespective of their fundamentals... too much money chasing a fixed set of stocks resulting in overpricing as demand exceeds supply.

 

[Montecfo]

I didn't "forget" the lost decade.

That said, the overwhelming majority of ten year periods have had excellent returns for stock investors in the area of 10%. Could it happen again? of course, but it certainly is not the norm.
Also, remember that the period you reference had not one but two pretty bad recessions. Historically that is an anomaly that has a very low probability based on history.

Ok. Well I guess it was just a very broad brush. But to the OPs question: it happened before rather recently. It could happen for sure.

And it seems plausible.

 

[pb4uski]

3% is OK if inflation is 3% or lower.

I seem to recall that they were predicting 1% real returns, which is consistent with the Feds 2% inflation goal.