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I generally don't pay a lot of attention to stock market predictions, and ordinarily I would feel the same about this article. But what struck me about this 4% prediction is how close it is to current long term bond yields. Vanguard offers a number of long term bond funds with yields in this range. For example, the long-term bond index fund (VBLTX) has a current yield of 4.49%. Unfortunately, VBLTX also has a duration of 14.1 years, so its yield is not directly comparable to the ten year predictions for stock market returns.
Still, it seems likely that one could put together a mixture of intermediate and long term bond funds that would have an average duration of ten years and average yield of about 4%. Considering that the expected return of such a portfolio would be quite similar to the 4% prediction for stocks, it seems to me this might be a viable option for at least some of one's long term investments.
Note that this is for long term investments only. Over periods shorter than a decade, it's very possible that both stocks and long term bonds might generate negative returns. Over a full ten years, who knows? My guess is that with a properly designed portfolio, bonds would offer more chance of delivering positive returns than stocks, with historically have occasionally fallen over the course of a decade or more.
On average, going back to the 1930s, the market has risen just 4% a year in the following decade when stocks have traded for a similar P/E as they are now, according to Birinyi Associates.
And among a growing group of forecasters, 4% is becoming something of a consensus.
Bridgewater's Ray Dalio last week said that's what he expects from the market for the next decade.
Robert Shiller says his calculations suggest stocks will rise about 2.5% a year for the next decade, plus inflation, which has recently been averaging 1.5%. Cliff Asness, who runs AQR, which manages one of the largest hedge funds in the world, says they will rise 4.5% annually on average.
I generally don't pay a lot of attention to stock market predictions, and ordinarily I would feel the same about this article. But what struck me about this 4% prediction is how close it is to current long term bond yields. Vanguard offers a number of long term bond funds with yields in this range. For example, the long-term bond index fund (VBLTX) has a current yield of 4.49%. Unfortunately, VBLTX also has a duration of 14.1 years, so its yield is not directly comparable to the ten year predictions for stock market returns.
Still, it seems likely that one could put together a mixture of intermediate and long term bond funds that would have an average duration of ten years and average yield of about 4%. Considering that the expected return of such a portfolio would be quite similar to the 4% prediction for stocks, it seems to me this might be a viable option for at least some of one's long term investments.
Note that this is for long term investments only. Over periods shorter than a decade, it's very possible that both stocks and long term bonds might generate negative returns. Over a full ten years, who knows? My guess is that with a properly designed portfolio, bonds would offer more chance of delivering positive returns than stocks, with historically have occasionally fallen over the course of a decade or more.