4 ms·

Is it still common to get 12% return on the market? My layman impression is that with ETFs, ~6% is the current average return.

spacehome 9y ago
I think the more commonly cited number is 7% as an inflation-adjusted total return.
adamt 9y ago
It’s not been hard to get more than those returns in recent history. The Nasdaq-100 total returns have been 32% last year and 155% over the past five years. This is a average of just over 20% a year. Source: https://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx https://www.nasdaq.com/markets/indices/nasdaq-total-returns....
- gdubs 9y ago
  I imagine if you looked at the 5 years leading up to 2000, the nasdaq would have some astronomical annualized returns. However, it’s too specific an index and too narrow a time range to draw any meaningful conclusions about the kind of total market returns an investor can expect over the next several decades.
gdubs 9y ago
Important to remember that they’re averaging over a decade to get that annual return figure. I still hear 10% thrown around as a rough estimate (if you believe anyone is capable of making such a prediction) — though Jack Boggle has been cautioning that we should expect much lower returns over the next twenty years (more like 3-4%).
- mancerayder 9y ago
  But if that's true, isn't that just keeping, just barely, with inflationary predictions? Especially given the new tax bill increases the deficit wildly, which will lead to a bond glut / money printing exercise? If so, what's the market going to do, if not reallocate capital from the stock market to a less risky asset?
  - gdubs 9y ago
    I mean, I honestly have no idea. The concerns about inflation are real; we have high employment, and a relatively strong economy. Stocks (and Real Estate in certain areas) are at high valuations already. The tax bill is stimulus at a time when we don’t really need it - and it doesn’t address inequality, which economists like Robert Gordon consider one of the major headwinds against lifting productivity. I think it’s the Dutch who have a saying that the point of investing isn’t to make money - it’s to not lose what you already have. Buffet has said something like, “I’d rather have a lumpy 12% than a smooth 10%”. Higher risk can mean higher reward. I’m not offering investment advice; but for myself, I still think being invested in stocks for the long haul is smart. As they say, if it isn’t, then there are bigger problems to worry about. Doesn’t hurt to hedge against some “black swan” events too.
    - dnautics 9y ago
      Just be wary about advice from buffet. He's rich enough that he can basically buffer swings in the market. For the rest of us, employment might be market-procyclical: We lose the ability to buy in at the bottom of the market because we're at employment risk and maintaining personal cash reserves is critical and it's more likely that we have to sell off to stay afloat.
      - gdubs 9y ago
        For sure. That’s why a safety net is a core of so many strategies. And again, amateur opinions here - not offering investment advice.
fwdpropaganda 9y ago
It's not 12% return on the market. The 12% figure refers to "return on equity". That is, how fast a company can grow its equity. Buffet being a very long-term investor who often buys controlling chunks of business, can reasonably equate this to a sort of return his investment. If you're a regular retail investor, you can't. How fast a business is compounding their equity doesn't necessarily get reflected in the value of the stock that you bought. > With bonds yielding only 3 or 4%, the right to reinvest automatically a portion of the equity coupon at 12% was of enormous value. Note that investors could not just invest their own money and get that 12% return. Stock prices in this period ranged far above book value, and investors were prevented by the premium prices they had to pay from directly extracting out of the underlying corporate universe whatever rate that universe was earning. Historical returns of stocks in the equity market are around 6-10% depend on time period considered.
spectrum1234 9y ago
Historically its about 9% but its been trending lower and many expect future returns to be a tad lower. Subtracting 2-3% for inflation and you are about correct for real returns.
OscarCunningham 9y ago
The market is so volatile that if you take an average over a period long enough to get a meaningful answer, you are including data from the time Buffett was originally speaking.

spacehome 9y ago

I think the more commonly cited number is 7% as an inflation-adjusted total return.

adamt 9y ago

It’s not been hard to get more than those returns in recent history. The Nasdaq-100 total returns have been 32% last year and 155% over the past five years. This is a average of just over 20% a year. Source: https://www.nasdaq.com/markets/indices/nasdaq-total-returns.aspx https://www.nasdaq.com/markets/indices/nasdaq-total-returns....

gdubs 9y ago
I imagine if you looked at the 5 years leading up to 2000, the nasdaq would have some astronomical annualized returns. However, it’s too specific an index and too narrow a time range to draw any meaningful conclusions about the kind of total market returns an investor can expect over the next several decades.

gdubs 9y ago

Important to remember that they’re averaging over a decade to get that annual return figure. I still hear 10% thrown around as a rough estimate (if you believe anyone is capable of making such a prediction) — though Jack Boggle has been cautioning that we should expect much lower returns over the next twenty years (more like 3-4%).

mancerayder 9y ago
But if that's true, isn't that just keeping, just barely, with inflationary predictions? Especially given the new tax bill increases the deficit wildly, which will lead to a bond glut / money printing exercise? If so, what's the market going to do, if not reallocate capital from the stock market to a less risky asset?
- gdubs 9y ago
  I mean, I honestly have no idea. The concerns about inflation are real; we have high employment, and a relatively strong economy. Stocks (and Real Estate in certain areas) are at high valuations already. The tax bill is stimulus at a time when we don’t really need it - and it doesn’t address inequality, which economists like Robert Gordon consider one of the major headwinds against lifting productivity. I think it’s the Dutch who have a saying that the point of investing isn’t to make money - it’s to not lose what you already have. Buffet has said something like, “I’d rather have a lumpy 12% than a smooth 10%”. Higher risk can mean higher reward. I’m not offering investment advice; but for myself, I still think being invested in stocks for the long haul is smart. As they say, if it isn’t, then there are bigger problems to worry about. Doesn’t hurt to hedge against some “black swan” events too.
  - dnautics 9y ago
    Just be wary about advice from buffet. He's rich enough that he can basically buffer swings in the market. For the rest of us, employment might be market-procyclical: We lose the ability to buy in at the bottom of the market because we're at employment risk and maintaining personal cash reserves is critical and it's more likely that we have to sell off to stay afloat.
    - gdubs 9y ago
      For sure. That’s why a safety net is a core of so many strategies. And again, amateur opinions here - not offering investment advice.

fwdpropaganda 9y ago

It's not 12% return on the market. The 12% figure refers to "return on equity". That is, how fast a company can grow its equity. Buffet being a very long-term investor who often buys controlling chunks of business, can reasonably equate this to a sort of return his investment. If you're a regular retail investor, you can't. How fast a business is compounding their equity doesn't necessarily get reflected in the value of the stock that you bought. > With bonds yielding only 3 or 4%, the right to reinvest automatically a portion of the equity coupon at 12% was of enormous value. Note that investors could not just invest their own money and get that 12% return. Stock prices in this period ranged far above book value, and investors were prevented by the premium prices they had to pay from directly extracting out of the underlying corporate universe whatever rate that universe was earning. Historical returns of stocks in the equity market are around 6-10% depend on time period considered.

spectrum1234 9y ago

Historically its about 9% but its been trending lower and many expect future returns to be a tad lower. Subtracting 2-3% for inflation and you are about correct for real returns.

OscarCunningham 9y ago

The market is so volatile that if you take an average over a period long enough to get a meaningful answer, you are including data from the time Buffett was originally speaking.