Survey - Predict Stock Market Growth Average for next 7 - 10 years

[cyber888]

Hi,
I know that some of you are pretty conservative and will probably assume the markets are growing below 3.5% - 4.0% per year, as your assumption for your 401K or IRA withdrawals in order for your nest egg to be sustainable indefinitely.

But for those of you who have been following the stock market for 10-30 years, let's for a moment just eliminate personal assumptions and just make a more realistic forecast of where the market is going in the next 7 - 10 years. In your intelligent calculations, what would be the average growth of the US stock market in the next 7 - 10 years ?

I'm running a survey

 

[cooch96]

-5% is the doomsday scenario?

Wow, now that is optimism.

 

[Gone4Good]

Here's my estimate for total average annual returns of the S&P 500 over the next 10 years . . .

	S&P 500 Dividend Yield		2.00%
+	Median 10-yr Real Annual Earnings Growth		2.38%
+	10-Year TIPS Break Even Inflation		1.64%
=	Avg Expected Nominal Return at Current CAPE		6.02%
+	Change in CAPE to 60yr Avg of 20x		-2.81%
=	10-Yr Avg Expected Nominal Return		3.22%

So that puts me in the "Low growth" camp. But that includes reinvested dividends and it's not clear whether the question was about Total Returns or the level of the S&P. So the S&P index price growth is probably in the <2% area.

 

[Gone4Good]

-5% is the doomsday scenario?

Wow, now that is optimism.

(5%) compounded annually over 10 years means that in 2026 your equity investment of $100 today will be worth about $59 before accounting for inflation. That probably craters all of the high equity allocation, 4% withdrawal rate, retirement plans.

 

[cooch96]

(5%) compounded annually over 10 years means that in 2026 your equity investment of $100 today will be worth about $59 before accounting for inflation. That probably craters all of the high equity allocation, 4% withdrawal rate, retirement plans.

Good point. Funny how I compound positive returns normally, but not for negative rates. Like a blind spot or something. I'll have to watch out for that.

 

[Gone4Good]

Good point. Funny how I compound positive returns normally, but not for negative rates. Like a blind spot or something. I'll have to watch out for that.

Yeah but your intuition is based on experience that isn't wrong. A 5% average annual loss over 10 years probably doesn't happen in a slow slide. You probably have a 40% drop, followed by a 15% drop, followed by some years of good growth and perhaps more drops.

So saying 5% down is a doomsday sounds weird because that's not how we'll experience it.

 

[DrRoy]

Here's my estimate for total average annual returns of the S&P 500 over the next 10 years . . .

	S&P 500 Dividend Yield		2.00%
+	Median 10-yr Real Annual Earnings Growth		2.38%
+	10-Year TIPS Break Even Inflation		1.64%
=	Avg Expected Nominal Return at Current CAPE		6.02%
+	Change in CAPE to 60yr Avg of 20x		-2.81%
=	10-Yr Avg Expected Nominal Return		3.22%

So that puts me in the "Low growth" camp. But that includes reinvested dividends and it's not clear whether the question was about Total Returns or the level of the S&P. So the S&P index price growth is probably in the <2% area.

I didn't do this math but I have the same feel for the low growth scenario.

 

[MichaelB]

Yeah but your intuition is based on experience that isn't wrong. A 5% average annual loss over 10 years probably doesn't happen in a slow slide. You probably have a 40% drop, followed by a 15% drop, followed by some years of good growth and perhaps more drops.

So saying 5% down is a doomsday sounds weird because that's not how we'll experience it.

Peter Bernstein said it best (interview with Consuelo Mack)

I think something very important to think about this, that a period of low returns, you think, well, every year maybe we'll have 4%, 5%. It doesn't work that way. Low returns result from high volatility. You have a big year, and then a bad year, and the pattern of low return periods is high volatility, not low volatility. It's a scary time.

 

[Gone4Good]

Peter Bernstein said it best (interview with Consuelo Mack)

I think something very important to think about this, that a period of low returns, you think, well, every year maybe we'll have 4%, 5%. It doesn't work that way. Low returns result from high volatility. You have a big year, and then a bad year, and the pattern of low return periods is high volatility, not low volatility. It's a scary time.

Yup.

Kind of makes the case for sitting on the sidelines and earning a guaranteed 2% if you're thinking the equity premium above that is only going to average another 1-2%.

Edit to add: It looks like the S&P has returned a touch over 4% (including dividends) from April 2000 until today. In that time we've had two ~50% drops and plenty of +20% gainers.

 

[cyber888]

No Cooch96, it's not optimistic at all. I'm saying -5% average for 7 - 10 years, not just 1 year. It occurs over several years.

So, here's what I'm saying:
2017 -5%
2018 -7%
2019 -3%
2020 -5%
2021 -10%
2022 0%
2023 - 5%

Now that is an example of -5% average growth over 7 years (you lose 35% over 7 years).

Looking at -5% over 10 years, your portfolio will lose 50% if it's -5%/year for 10 years (-5% x 10). I hope you get it. -5% is not a 1 year thing, but that could be -5% per year over 10 years. In 10 years, your money with lose 50% of it's value (in today's present value).

-5% is the doomsday scenario?

Wow, now that is optimism.

Now assuming, that we drop big in 2 years, but then recovers in 8 years ... maybe we could drop -55% in 2 years, and then see a recovery. It may still be less than -5%/year on average over 10 years.


-40% year 1
-15% year 2
+5% year 3
+5% year 4
+3% year 5
+5% year 6
+8% year 7

This is a -4.14% per year (average per year) over 7 years.

So Gone4Good, again, we're talking about a -5% per year on a span of 7-10 years, so your big drop scenario is covered in my scheme.

Yeah but your intuition is based on experience that isn't wrong. A 5% average annual loss over 10 years probably doesn't happen in a slow slide. You probably have a 40% drop, followed by a 15% drop, followed by some years of good growth and perhaps more drops.

So saying 5% down is a doomsday sounds weird because that's not how we'll experience it.

 

[W2R]

Gazing into my very own crystal ball, which I bought a few years back just for questions like this, I was surprised when it (like a Magic 8 Ball) actually responded to my question:

"REPLY HAZY, TRY AGAIN"​

Doggone substandard crystal balls. You can't rely on them for anything any more! Oh well, anyway, that's my forecast.​

 

[Gone4Good]

Now assuming, that we drop big in 2 years, but then recovers in 8 years ... maybe we could drop -55% in 2 years, and then see a recovery. It may still be less than -5%/year on average over 10 years.


-40% year 1
-15% year 2
+5% year 3
+5% year 4
+3% year 5
+5% year 6
+8% year 7

This is a -4.14% per year (average per year) over 7 years.

So Gone4Good, again, we're talking about a -5% per year on a span of 7-10 years, so your big drop scenario is covered in my scheme.

So, cyber888, if you compare what you wrote with what I wrote you'll see they are identical . . .

(5%) compounded annually over 10 years means that in 2026 your equity investment of $100 today will be worth about $59 before accounting for inflation.

Yeah but your intuition is based on experience that isn't wrong. A 5% average annual loss over 10 years probably doesn't happen in a slow slide. You probably have a 40% drop, followed by a 15% drop, followed by some years of good growth and perhaps more drops.

So saying 5% down is a doomsday sounds weird [only] because that's not how we'll experience it.

 

[mpeirce]

I get asked this occasionally. My response it always, "I have no idea".

I usually follow this by saying something like "historically it goes up over time, that's why I stay invested in the stock market."

 

[nash031]

In my relatively short investing "career", I've seen three different times where "this time it's different" whether positive or negative, and I think we're in a fourth right now with some of the doomsday predictions. JMO. Every time, on a long enough time horizon, it wasn't different. So I just ignore the noise, recognize that the market might shoot up, overcook itself, and then over-correct down, then back up. It's what it does.

I expect average performance over ten years, and have planned for 6% nominal (roughly 4% real) in my 80/20 AA. If I'm wrong, well, I'm only 38 so I've got time on my side! In a few years, I may start dabbling in value stock investing to play on the behavior of others. In my reading, I think my temperament could handle it and I would keep the bulk of our portfolio invested as is (modified "three fund" Boglehead type).

 

[Corporateburnout]

I get asked this occasionally. My response it always, "I have no idea".

I usually follow this by saying something like "historically it goes up over time, that's why I stay invested in the stock market."

+1.

No one can predict the future with any certainty therefor I will not participate in the survey. I established an AA that allows me to sleep well at night and if the market drops by 50% it should be no different than 2007-2009 when the S&P dropped 54%. Folks who stayed the course are better off today than before the great recession.

 

[Gone4Good]

In my relatively short investing "career", I've seen three different times where "this time it's different" whether positive or negative, and I think we're in a fourth right now with some of the doomsday predictions.

My argument for low returns isn't that "this time is different." It's that this time is exactly the same . . .

I took a rough cut at calculating 10-year real returns for the S&P 500 by starting CAPE value (a.k.a. Shiller's PE-10, unadjusted). Here's the results sorted by CAPE quintile (where the highest 20% of staring PE values are grouped in the 5th quintile and the lowest 20% are in the 1st quintile).

CAPE Quintile		10-yr Average Real Return
1st		11.60%
2nd		7.46%
3rd		6.27%
4th		5.02%
5th		1.79%

The current CAPE of 26.2x is at the 93.7 percentile, which puts it at the very top end of that 5th quintile and at the very bottom of the chart above.

So if past is prolog, we'll be lucky to get 2% real from stocks over the next 10 years. Of course we can expect to do only a quarter as well in bonds.

 

[nash031]

My argument for low returns isn't that "this time is different." It's that this time is exactly the same . . .

No problem with what you posted nor your prediction, even though I don't subscribe to CAPE predictions, 200-day moving avg, or any of the like. They can be informative, but if they were truly predictive, market timing would be easy. It's more the doomsday crowd that I think is off. If you're right, I'll work longer... as mentioned, I have time on my side. If I was 55 and potentially staring down 2% avg for the next ten years, I'd feel differently.

 

[Totoro]

World economic growth: 3% - 4%
Dividend: 2%

So base real return = 5% - 6%
Nominal = 2% inflation = 7% - 8%

Then the big ?? is multiple change, highly likely it's negative though, so subtract 1% to 3%. And another negative could be % profit of companies. subtract 0% - 2%.

Ends up at say 3% to 6%. Lowish growth it is.

 

[eta2020]

My argument for low returns isn't that "this time is different." It's that this time is exactly the same . . .

You need to be an optimist in order to invest. I am looking at 100 year chart of S&P and it looks mighty fine, but only for people who can handle down years.

 

[Gone4Good]

No problem with what you posted nor your prediction, even though I don't subscribe to CAPE predictions, 200-day moving avg, or any of the like. They can be informative, but if they were truly predictive, market timing would be easy.

I think there's a lot of confusion between timing the market and forecasting long-term market returns. The former is near impossible. The latter is not.

Take interest rates. Everyone who's predicted that rates would return to their historic norms has been consistently wrong. Nobody knows where rates will go.

What I do know, with absolute certainty, is that if I buy the 10-year treasury strip maturing February 2026 today my average annual nominal return will be exactly 1.89%. And I know that return will be well below historic norms.

That doesn't help me time the market. Interest rates could soar or they could fall between now and maturity. But at maturity, I know exactly what I'll get . . . 1.89% annually for 10 years.

Stock returns have more variability than treasury strips. But just like bonds, when you buy stocks at earnings yields that are lower than average you should expect lower than average returns. No market timing required.

 

[prototype]

I have no idea what it will be or have any statistics/analysis to post. So I went with I the 3-5 percent. I'm OK with that. More is always better of course .

If a big correction/recession hits in the next 10 years, I will just make appropriate budget/lifestyle adjustments for a while (like switching from expensive K-Cups to cheap instant coffee, cancel my Netflix subscription, etc. LOL) and reallocate accordingly.

 

[Gone4Good]

You need to be an optimist in order to invest. I am looking at 100 year chart of S&P and it looks mighty fine, but only for people who can handle down years.

I'm not so optimistic to think I'm going to have to worry about 100 year returns.

 

[eta2020]

I'm not so optimistic to think I'm going to have to worry about 100 year returns.

S&P 500 Return Calculator, with Dividend Reinvestment - Don't Quit Your Day Job...

But I assume that having retired at 38 you will likely live another 20 years.
Going back to 1900 I can not find any 20 years with negative inflation adjusted returns.

2% CD after inflation and taxes is pretty much 0% return if you are lucky. If equities earned only
2% they would still be better deal because they have favorable tax status.

Maybe this time it is different

 

[nash031]

I think there's a lot of confusion between timing the market and forecasting long-term market returns. The former is near impossible. The latter is not.

That doesn't help me time the market. Interest rates could soar or they could fall between now and maturity. But at maturity, I know exactly what I'll get . . . 1.89% annually for 10 years.

Stock returns have more variability than treasury strips. But just like bonds, when you buy stocks at earnings yields that are lower than average you should expect lower than average returns. No market timing required.

I understand that, but I also understand that while you can probably predict "below average", you can't pinpoint it, heck I'd say you won't be within 1% +/-. So, potato po-tah-to... I'm in violent agreement as I've also forecast "below average" returns for my portfolio planning. Your definition of "below average" happens to be different than mine by 4%.

As I've now said three times: time is on my side, so if your number is closer to correct than mine, it makes no nevermind.

I should also note that I "predict" portfolio earnings, not the S&P, so that makes some difference considering I have 30% of our equity position in international stock funds as well. And obviously that includes dividends reinvested when I say "6%". *shrug*

 

[Fedup]

I say 2%. I was in mostly CDs in 2007, lots of cash in 2008-2009, but did get back in 2009 for my husband, and 2010 for my account. I slept well and so was my husband.
Now I don't remember what happened to my 401k money in 1987, but I did buy a put the Friday before the market dropped on Monday 1987. Yes, I'm a "dirty little market timer", LOL.
No sage advice there except I inherit a little gambling trait in my nature. Maybe I'll learn to invest properly eventually.


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