The most-likely annualized real return for the S&P index over the next 10 years is about 1.3 percent. There’s a less than 1-in-20 chance that we will see a return of worse than a negative 4.7 percent or of greater than a positive 7.3 percent, presuming that stocks perform in the future as they have in the past.
Go out 20 years, and the numbers get a bit better. The range of possible real returns extends from a negative 1.3 percent to a positive 6.7 percent. The most likely real return (the return in the middle of those two extreme outcomes) is 2.7 percent.
The 30-year numbers are a lot more encouraging. At that point, the most likely return is 5.4 percent. The worst outcome is a positive 3.4 percent return. The best is a 7.4 percent return.
My take on the message of the historical stock-return data? To know how much you can afford to invest in stocks, you need to think carefully about how long you can wait to see an appealing return on your money.
Does it make me a bear to report these numbers? I sure don’t think so.
If I said that I thought that returns were going to fall on the high side of the range of possibilities, that would make me a bull. If I said that I thought that returns were going to fall on the low side of the range of possibilities, that would make me a bear. The act of reporting the numbers by itself does not make me a bull or a bear.
Some say otherwise. Some say that it makes me a bear that I report the numbers that so many other investing analysts dare not report.
That shows how out of whack we have permitted our thinking about stocks to get after 20 years of the strongest bull market in U.S. history. We have become so accustomed to hearing a pro-stock slant that the straight story has come to sound bearish to our ears.
That’s not good. The very fact that there are some who refer to me as a bear is evidence of the extent of the overvaluation problem that casts a dark cloud over the financial futures of many of today’s aspiring early retirees.