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The 30-Year Forecast

A recent Forbes article led me to the author’s company site Portfolio Solutions. There I found an article The Portfolio Solutions 30-Year Market Forecast. The author presents a bit of an explanation of the relationship between risk and reward, and then we are presented a thirty year projection.

Before sharing a few highlights, I’d like to mention the past 30 year S&P return, the 30 years from Jan 1, 1980 through Dec 31, 2010. 11.39%. What’s curious about his number is that the first 20 years of that period saw a 16.53%/yr growth rate which came to a halt with a “lost decade.” It seemed that there was a strong reversion to the mean that made the 30 year period a bit closer to the 10% longer term growth. Portfolio Solutions believes the U.S Large Cap Stock return will average 7.8% over the next 30  years. This number comes with little further explanation, except that it’s the total return, inclusive of a 2.8% inflation rate, and a risk (standard deviation of annual returns) of 19%. To mention bonds as well, the 20 yr treasury is forecast to return 4.3% over the same period.

Before I went to the site and saw these numbers, I was skeptical, ready to disagree with whatever was forecast. But I must admit, as long term numbers go, this is probably close to the mark. Whether the next three decades mirror the past with a run of 15% growth mixed in with a flat period, or year to year randomness that produces three similar decades, I don’t know. Absent any global disasters of a long term nature, or on the positive side, a new set of discoveries/inventions that fuel worldwide growth, I’m good with 7.8%.

What do you think? Too high? Too low?

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