The next ten years
Investment outlooks vary in time frame from weeks to decades. Financology’s Synthetic Systems for example focuses on the outlook for the next one quarter to four years, and is best thought of as a cyclical overlay to longer term forecasts. We usually frame such longer term forecasts in general qualitative terms. Here let’s take a look at some quantitative forecasts … those that attempt to put some numbers on them.
Most readers are probably familiar with a couple of them. Research Affiliates and Grantham, Mayo Van Otterloo – RA and GMO – are well known. Here is a recent example from GMO, as of July 31, 2024:
GMO’s covers seven years. RA’s, which covers ten, can be found at https://interactive.researchaffiliates.com/
A less familiar and possibly more mainstream example is Vanguard.
https://advisors.vanguard.com/insights/article/series/market-perspectives#projected-returns
The source provides more detail, but for purposes of comparison, let’s look at Vanguard’s broad breakdown. These are ten year annualized outlooks, in nominal USD, as of June 30, 2024:
US Stocks: 4.2%
XS Stocks: 7.9%
US TBonds: 4.7%
US TBills: 4.4%
Inflation: 2.4%
Vanguard posts its figures in the form of a range. This seems a bit redundant since it also posts a separate range of uncertainty. I list the center point of each range above.
Note that Vanguard’s nominal forecasts contrast with the prior “real” forecasts … presumably one can extract the implied real forecast by subtracting the “Inflation” figure from the nominal forecasts, or vice versa.
But more relevant are the relative returns anyway; and they remain unchanged by subtracting a constant. One of the more notable features is that they broadly align with the forecasts from GMO and RA … they all for example generally find higher prospective returns in XS (ex-US) stocks than in the US. Strikingly the US stock return outlook falls below that of US Treasury bonds and cash (presumably TBills or money markets).
These forecasts are all obviously and explicitly accompanied by accuracy disclaimers … when it comes to anticipating the future it goes with the territory. And most don’t include gold or other commodities; possibly because they don’t readily lend themselves to valuation analysis. On the other hand, they’re also broadly consistent with our home-grown analysis and I’m hard pressed to think of a better general guide. Taken with the appropriate grains of salt, they seem as realistic as expectations could get about the years to come with the information available today.