With a wide range of future return forecasts from the experts and limited insight into their assumptions, it’s difficult to assess which forecast is more realistic.
We will make projecting 10-year returns accessible to everyone, in a simple spreadsheet which you can experiment with and visualize the outcomes.
There are two components of future returns; dividends and sale proceeds - which are determined by estimating six key drivers of these two components.
These six drivers are real GDP growth, inflation, change in profit margins, change in 10-year rate, change in the equity risk premium and change in the dividend payout ratio.
Based on our estimates of these factors, the current 10-year total return estimate is 1%. Enter your own estimates and see the implied return forecast.
With varied forecasts from the experts - who should you believe?
There are reliable bootstrap methods to estimating long-term returns to the S&P 500, such as the CAPE ratio or market cap to GDP ratio