Three reasons to expect long-term returns to be lower than historical averages – Charles Schwab
04.05.2021, 09:20

Three reasons to expect long-term returns to be lower than historical averages – Charles Schwab

FXStreet reports that according to 2021 estimates of economists at Charles Schwab, market returns on stocks and bonds over the next decade are expected to fall short of historical averages.

"Three primary factors are behind the forecast for reduced returns: Low-interest rates. Lower inflation affects yields on everything from cash to 30-year Treasury bonds. Inflation is low by historical standards and expected to remain so over the next 10 years. Low yields mean investors earn less from the fixed-income portion of their portfolios.”

“Low economic growth. At present, while near-term economic growth is likely to be robust, as the economy opens up (post-pandemic), consensus forecasts of economic growth over the long term remain subdued. According to consensus forecasts, economists expect 2.3% GDP growth per year, on average, over the next 10 years. This compares to historical average GDP growth of 3.1% per year (since 1948).”

“Equity valuations. Valuations appear to be stretched compared to last March’s levels. While earnings growth is expected to remain strong in the medium term – as the economy starts to get back to normal post-pandemic – the stock rally since last March has run far ahead of these expectations. High stock prices today, without a proportionate increase in future earnings, mean lower expected returns going forward.”

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