ISMS 28: Stocks for the Long Run

Stocks for the Long Run

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What long-term return do you expect for US stocks?

In Siegel’s “Stocks for the Long Run,” he tells us to expect a 5% LT real US stock market return

I became a finance teacher in Thailand in 1992

Then started as a financial analyst in 1993

Siegel’s book came out in 1994 and was one of the best references available at the time

US nominal returns

US real returns

More than 200 years of returns

95 years of returns

• Higher inflation and higher nominal stock market returns, but only slightly higher real returns
• Slightly lower real LT bond return, near zero ST bond return

Post WWII/Bretton Woods 75 years of high inflation

• Real stock returns up slightly
• Real LT bond returns down
• Real ST bond returns down to zero
• Gold outperformed ST bonds

The 21 years after the Dot Com bubble saw an unprecedented level of globalization

• Inflation was down, and real US stock returns also down
• Real US LT bond returns up
• Nominal ST bond collapse, and real returns turn neg.
• Gold beats all

Siegel’s advice

• Over the long-term, an investor has paid about 15x PE for about 6-7% after inflation US stock market return
• In the future, expect to pay about 20x PE for about 5% after inflation return

Click here to get the PDF with all charts and graphs

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