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

[Montecfo]

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.

You make a good point about effect of indexing. We definitely see that sentiment here. At some point indiscriminate buying can become indiscriminate selling.

 

[pjigar]

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.

As my deca-millionaire friend says: Capital always finds its rightful owner/user (i.e. the opportunity and growth). And no-one knows where future growth or opportunities would be. I believe in what Warren Buffet says: "Never bet against America." America will be a land of opportunities for a long time to come because of our people, entrepreneurs, attitude, productivity, equal opportunities, natural resources, law/order, freedom/democracy and lastly, military power. IMHO.

 

[pb4uski]

You make a good point about effect of indexing. We definitely see that sentiment here. At some point indiscriminate buying can become indiscriminate selling.

Yeah, I recall many years ago seeing a graphic suggesting that when the boomers retired there would be much less demand for stocks as boomer sold stocks for retirement spending and prices would decline, but it hasn't seemed to really happen en masse as feared.

 

[MichaelB]

Yeah, I recall many years ago seeing a graphic suggesting that when the boomers retired there would be much less demand for stocks as boomer sold stocks for retirement spending and prices would decline, but it hasn't seemed to really happen en masse as feared.

The same thing was said about housing. All the boomers downsizing would create a glut of homes. No signs of this on the horizon.

 

[audreyh1]

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

I was thinking maybe 0.5% real returns.

 

[FREE866]

The same people:

2010: "Don't buy stocks, they won't go up."

2024: "Don't buy stocks, they've gone up too much."

 

[Fermion]

So are they predicting a 10% return for the next nine years and then the 10th year a decline of 40%?

 

[jazz4cash]

So are they predicting a 10% return for the next nine years and then the 10th year a decline of 40%?

If so, sign me up! I think many people (not on this forum) will interpret it as a consistent low-ish return but the reality will be volatility.

If you really buy into this forecast 10 yr Treasuries are >4% now.

Edit: Also, Fidelity is showing 10yr call protected CD @ 3.75%

 

[Go-NoGo]

Some of GS "forecasts"

2024 forecast: The S&P 500 Index is forecast to return 6% in 2024
2023 forecast: US Stocks are Forecast to Have Less Pain but No Gain in 2023
2022: forecast: Here’s What Wall Street’s Biggest Banks Predict For Stocks In 2022—And What To Watch For
2021 forecast: S&P 500 returns to halve in coming decade – Goldman Sachs

My monkey (if I had one) could throw darts at a Wheel of fortune filled with numbers and would do better than them.

 

[homestead]

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.

Your post got me curious how much inflation we have had since then.
ChatGPT says ...
As of October 2024, the cost of living in the U.S. has seen an approximate overall increase of about 20-25% since January 1, 2020. This estimate considers factors such as:

1. Housing: Many areas have seen increases of 30% or more.
2. Food: Grocery prices have generally risen by around 20%.
3. Transportation: Gas prices and vehicle costs have contributed to a significant increase, roughly around 20%.
4. Utilities: Energy costs have fluctuated but are generally up around 15-25%.

Well done. Looks like you are keeping well ahead of inflation, hopefully it be even better in near future.

 

[Chuckanut]

The stock market has done remarkably well this year. I would not be surprised to see a down year in 2025, especially if profits are moderated. What else is new?

IMO, taking some profits off the table is a good idea especially for those who will need the cash to help get through an extended down or even flat market.

If I was planning to replace my car in 2025, I would seriously take enough profit now to pay for the vehicle, or at least put down a big enough payment so as to keep my loan to no more than four years.
My two cents. YMMV.

 

[Chuckanut]

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.

That’s why I use a total market index fund. And even keep a bit in international index funds. If one group, sector, etc. goes down, hopefully another one bounces back.

 

[audreyh1]

Small caps are generally very dependent on the stage of the business cycle.

 

[Dtail]

Some of GS "forecasts"

2024 forecast: The S&P 500 Index is forecast to return 6% in 2024
2023 forecast: US Stocks are Forecast to Have Less Pain but No Gain in 2023
2022: forecast: Here’s What Wall Street’s Biggest Banks Predict For Stocks In 2022—And What To Watch For
2021 forecast: S&P 500 returns to halve in coming decade – Goldman Sachs

My monkey (if I had one) could throw darts at a Wheel of fortune filled with numbers and would do better than them.

This.....
Negative information attracts more hits. Yes, once in awhile they will be correct. The way to make lots of money via GS is to work for them.

 

[Diogenes]

This.....
Negative information attracts more hits. Yes, once in awhile they will be correct. The way to make lots of money via GS is to work for them.

Indeed. What glory is there, or generation of clicks, if we merely and meekly repeat: "Behold, there may be news, or not; momentous, or not... but either way, just stay the course. A bovine passivity beats frenetic effort".

 

[Montecfo]

Ok yeah Goldman doesn't know anything. I get that. But their view as I stated here and others have echoed, does seem plausible given where we are today and the present environment.
.
But I would be very interested in someone setting for the case of how stocks rally say 5%+ on average over the next 5 years after we peak here say in early to mid 2025 (or whenever you think that will occur).

And I don't mean by saying the long-term average return for the market is x or nobody knows nothing.

To continue to climb there should be a rationale for it If I hear one I may adopt it.

 

[Andre1969]

Haven't these so-called experts been predicting "much lower future SP500 returns" for decades, now?

With regards to the 2000s being a "lost decade," I did a really simple calculation. I assumed starting with $100 on 1/1/2000, and then multiplying by my actual annual returns for each year. By the time I got to 12/31/2009, I was at around $98.50. Ouch!

However, a good chunk of the decade was actually pretty good. It's just that 2008 really knocked it down, and then 2009 built it back just enough that it almost zeroed out.

For that decade, additional investments accounted for about 78% of my asset rise, compared to about 22% of actual market gains.

In comparison, 2010-2019, additional investments were only around 29% of my asset rise, versus around 71% being actual market gains.

From 12/31/2019 to now, it's about 25% additional investments, 75% market gains.

So even though I did manage to make some money in the "lost decade" thanks to dollar-cost averaging, rebalancing here and there, and perhaps some accidental market timing, that decade pales in comparison to the 2010s. And, so far, the 2020s.

 

[Andre1969]

With respect to the forecasts of Boomers downsizing their homes in droves, it might be a good thing that they're not. There's a good chance that the younger generations aren't going to be able to afford those bigger homes, anyway. And a wave of Boomers wanting to downsize is going to put pressure on smaller, more affordable housing.

 

[Onda]

That is 3% in real returns. So in nominal returns GS predicts about 6% a year.
Good enough for us.

 

[Onda]

If so, sign me up! I think many people (not on this forum) will interpret it as a consistent low-ish return but the reality will be volatility.

If you really buy into this forecast 10 yr Treasuries are >4% now.

Edit: Also, Fidelity is showing 10yr call protected CD @ 3.75%

Right so GS predicts 1% "real" returns in 10 yr Treasuries and 0.75 for CDs that you will buy and hold today. ( at higher tax rate than equities )

 

[Lewis Clark]

That is 3% in real returns. So in nominal returns GS predicts about 6% a year.
Good enough for us.

I'm not looking to build dynastic wealth. I would be satisfied if I can get:

1) 3% real returns on my total portfolio for the rest of my life, which is greater than my withdrawal rate (both current and projected).

2) A sequence of returns that is not close to the historical worst case. My returns since I retired in 2020 appear to be far from the historical worst case, at least so far.

 

[audreyh1]

That is 3% in real returns. So in nominal returns GS predicts about 6% a year.
Good enough for us.

No they were predicting 3% nominal.

The S&P 500 Index is expected to post an annualized nominal total return of just 3% over the next 10 years, according to an analysis by strategists including David Kostin.

 

[kgtest]

Wait, didn't they say the same thing last year? And we are back to record highs essentially. Good thing those analysts are paid well, to be super accurate!

 

[Dtail]

I'm not looking to build dynastic wealth. I would be satisfied if I can get:

1) 3% real returns on my total portfolio for the rest of my life, which is greater than my withdrawal rate (both current and projected).

2) A sequence of returns that is not close to the historical worst case. My returns since I retired in 2020 appear to be far from the historical worst case, at least so far.

Haven't had the worst case 30 year beginning of retirement scenario since 1966. Even the 2000 year retiree with 2 large bear markets in the first 10 years is currently not in the top 5 worst starting years to retire.

 

[Chuckanut]

With respect to the forecasts of Boomers downsizing their homes in droves, it might be a good thing that they're not. There's a good chance that the younger generations aren't going to be able to afford those bigger homes, anyway. And a wave of Boomers wanting to downsize is going to put pressure on smaller, more affordable housing.

Would not that same wave also result in lower prices on the larger homes that the younger generation can’t afford today?

FWIW, most of the Booners I know are staying put. Their homes are paid off or nearly paid off, or they have previously refinanced to very low interest loans.