Waiting for Average Returns

Average returns

2 Responses

  1. Hi Mike, totally agree with all of that. The UK picture is slightly different than the US, but the basic building blocks of long-term returns are the same.

    The only problem I have with these long-term return calculations is that in the long-term we’re all dead anyway, so nobody really invests over the long-term (except, perhaps, for endowment funds).

    Realistically most people have a 10-50 year time horizon, and over that sort of period the dominant factor is usually changes to the PE ratio, or more usefully, the CAPE ratio.

    Add in the massive uncertainty future PE ratios and the need, for most people, of broad multi asset class diversification, and forecasts of long-term equity returns become largely unimportant.

    Having said that, I’ve just written a 1-yr forecast for the FTSE 250, so I guess I shouldn’t try to undermine the idea of forecasts too much.

    • Mike Rawson Mike Rawson says:

      I think we all have to decide for ourselves what is short term and what is long term.

      I’ve been investing for 30 years and I hope I’ve got another 30 years to go. So that’s long-term for me.

      You can’t be too precise about these forecasts, but I expect returns in the next 30 years to be lower than in the past 30 years. That’s the key point – the past is not a guide to the future.

      I have a problem with the CAPE (especially in the US) because it only ever predicts that markets will go down – possibly because it doesn’t take account (no pun intended) of changes to accounting standards.

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Waiting for Average Returns

by Mike Rawson time to read: 2 min