Planning for retirement is all about making accurate assumptions. But forecasting the future is always tricky. Even large, sophisticated financial firms like Goldman Sachs turn out to be wrong sometimes. That said, their latest prediction might worry long-term investors banking on the stock market growing their retirement accounts.
A forecast that’s half a guess
Equity strategists at the giant New York-based investment bank predict that over the next 10 years (through the third quarter of 2034), diversified domestic stock portfolios, such as an S&P 500 index fund, likely will return an average of just 3.1% per year.
Other analysts appeared surprised by the lowball numbers Goldman put out.
“That’s an extraordinarily low expected return,” said the founder and CEO of an investment management and advisory company. “Saying you’re going to get a 3% return from the stock market over the next decade implies there’s some big problem structurally.”
What is the average stock market return?
There’s no way to know how large the stock market’s returns will be 10 years in the future, but a “big problem” is unlikely in the opinion of one investment manager and financial planner given that the average annualized return for the S&P 500 has been 9.8% since 1928.
The average annualized return for the S&P 500 is a little lower if you look back just 50 years (10.2%) and a little higher if you look back 10 years (11.04%).
The S&P 500’s yearly returns varied widely, according to data compiled by SlickCharts, a website for stock charts, quotes and performance data.
But even during the notoriously bearish 2008, the S&P 500 annually lost 36.55%, while the year before, it gained 5.49%, and the year after, it gained 25.94%.
It’s all speculation
The S&P 500’s annual returns separate the results into the prices of the stocks and into stock value plus dividends. Dividends make a big difference in annualized returns, Goldman says.
Their 10-year estimation is for an annualized 3.1% return for a diversified stock portfolio of U.S, stocks with dividends reinvested. The estimated market price change for the portfolio across the same period is about just 0.7% higher than it is now.
Goldman’s outlook for the stock market through 2034 is reportedly lower than the firm’s outlook from a year earlier, due to the fact, according to one market analyst, that a lot of tech-firm stocks hurt the S&P 500 by maintaining high levels of earnings and investment creation, which make it harder for the companies to grow.
As to value prepared before this new 10-year speculation, you can presumably still base your investment decisions on them, other experts say.
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