Research Affiliates 10-Year Asset Class Forecast, Q1 2016

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Research Affiliates, an asset-management firm founded by Rob Arnott, also offers long-term forecasts across a variety of asset classes via their Expected Returns tool. Here is a paper explaining their equities methodology [pdf]. I would like to note down some of these predictions, in the hopes of coming back later and seeing how they turned out. I’ve already been around over 10 years, what’s another 10? 🙂

Here is what they have as of April 30, 2016 (click to enlarge):



Overall, their conclusions suggest that we should have very modest expectation for US stocks and US bonds, while some international diversification can help boost expected returns. More specifically:

  • Future 10-year average returns for US Stocks are expected to be very small on an inflation-adjusted basis (between roughly 0%-1%). US equities are highly-valued based on historical values.
  • Broad US (Core) Bonds, Long-term US Treasuries, Short-Term Treasuries, and TIPS are all expected to have low forward returns (between roughly 0%-1%). Their low current yields offer little other alternative prediction.
  • Relatively bright spots, at least returns-wise, include Emerging Markets stocks, Developed International (EAFA) stocks, and Emerging Markets bonds (both local and non-local currency).
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  1. You say “modest expectations”….you are either a master of understatement or don’t recognize financial ruin and impoverishment when you see it. Sorry….while eating my cat food for breakfast this morning, I forgot we were already at financial ruin and impoverishment.

    • From 2000 to 2010, the average real return of the S&P 500 was under 1%. So it has happened before, and people have survived. Sure it is low, but 10 years is not a lifetime. If future returns are truly that low for 10 years, the next 10 years will look much better. From 2010 to end of 2015, the average real return was over 13% a year.

      In the end, it is only a forecast, you should consider the numbers and the reasoning behind the numbers.

    • Is this EThompson? You sound like someone I know…

  2. These forecasts just prove that when it come to predicting the future, no one knows what will happen. Were I to trust any future forecast, it would be that of two of the greatest investors of our time (Warren Buffet and Jack Bogle) both of whom are bullish on the US and less so on the rest of the world. This forecast plus a dollar are worth $1.00.

    • I’ve often wondered with all the “super-premium” cat and dog food out there, why isn’t there a brand that makes stuff that is legal to sell to humans? Tagline would be easy – “Quality so good you could eat it yourself”

  3. Found this article to be fascinating in regard to asset allocation. Point is, it really doesn’t matter. Just pick an asset allocation and invest for the long term.

  4. Jonathan….it seems there is real interest in cat food consumption among your readers, probably the older demographic that’s been grappling with zero per cent interest rates for the last eight years. Perhaps you should start including articles for these former middle class readers of yours. I’m sure taste test comparisons would also be appreciated. I’m almost there myself.
    It will be a while before any of us know whether your optimism is well founded or turns out to be naive. Personally I wouldn’t make a bet either way.

  5. This is great information.

    On a general level, I don’t disagree, although I think forecasting specific rates of return is challenging.

    I think there is going to be significant downward pressure on US equities over the next 20 years as baby bomers retire, so these forecasts don’t surprise me.

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