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Equity Returns Assumptions Remain Totally Unrealistic

Brian Sturgess - March 2013

Speed Read
  • Equity returns over long periods of time are unlikely to significantly exceed real GDP per capita growth rates which have averaged around 2% in Europe and the USA over the last fifty years.
  • The Credit Suisse Global Returns Yearbook 2013 based on research from the London Business School predicts equity returns of only 3% to 3.5% average per annum in the next 20 to 30 years on the basis of past long-run performance.
  • The growth assumptions of most private and public pension and savings fund providers are too optimistic with projected real returns double or treble more realistic levels.

Long term equity returns unlikely to exceed real national income growth

Long-term equity returns are unlikely to exceed the rate of growth of real GDP per capita. The long term growth in the return on assets employed in an economy must move in line with the growth rate in economic activity. In the short-term, however, the relationship between GDP growth and equity returns is controversial[1] and GDP forecasts are not reliable predictors of returns on assets. Nevertheless, real GDP growth is necessary to provide the...

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