Thursday, November 10, 2016

Expect Negative Returns On Stocks And Bonds Going Forward

The Trump rally probably has legs here that will take indices to even higher highs. But prices matter. Historically, if you buy at these market levels, your expected returns are going to be very low, ie., negative for the next 7 years..

According to respected GMO, your expected returns for the next 7 years is now negative 3% for stocks and negative 2% for bonds.  So, if you buy US bonds for 2% yield, you can expect no return at all as prices will likely fall.  Worse, you can expect negative price returns for equities AND the prospect of stomach churning declines of 30 to 50% along the way!  It won't be a pleasant ride. At equity prices today, you're not being compensated sufficiently to endure such risk!

GMO: Expected Asset Returns for Next 7 Years
We're enjoying the 3rd large peak in equity prices in the past 15 years. But two times already, equities plunged 50%  after those peaks.  We've going to have a down cycle in prices going forward! 


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