What to Expect from Stocks and Bonds

My friend and colleague Steve Sjuggerud recently studied 100 years of investing returns for 16 countries and found that stocks yielded an annualized gain of 9.2% a year in U.S. dollars, including dividends. U.S. stocks did a little better, returning 10.1% a year. Bonds, Steve says, brought in 4.4% globally and 4.8% in the United States. And cash, measured by short-term Treasuries, earned 4.1%.

Those are the long-term averages — and if you are investing for the long term, you can use them as general indicators of what to expect. In the medium term (the next five years), however, stocks probably won’t do as well as 10%, Steve says. I agree with him. By traditional price-earnings standards, the market is still overvalued. If you believe, as I do, that things eventually regress to the mean, you are probably inclined to think the regression we are experiencing might continue till stocks reach, on the average, about a 15-to-1 ratio.
As for bonds, Steve quotes Bill Gross (whom he calls the “Warren Buffet of Bonds”): “There’s little doubt … that the bond market’s salad days are over. Four and a half total returns at best over the next several years should be expected.” In Message #773, I told you my ideas on investing — what to expect from stocks and bonds (just about what Steve says here) and how to get slightly higher yields by sticking with good advisers. I told you I’d recommend good people to you now and then. Steve is at the top of my list. His newsletter is called “True Wealth,”. You can subscribe for the equivalent of $8 a month. For more information, go to http://www.agora-inc.com/reports/TRW/WTRWCC13/
[Ed. Note.  Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]