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In turn the long-term return is crucially dependent on the starting valuation.
So the key factor turns out to be the starting valuation of the market.In response to another posting, why focus on the market rather than individual stocks?
In fact, Standard Life posits a wider range of minus 1%-8%, suggesting the potential for a significant change in valuation.But achieving the top end of this range will be difficult, given the starting valuation of the American market.
Starting valuation matters.
"We are now trying to calibrate where we are in bubble cycles, rather than asking the question: 'Is the starting valuation correct?'," he says.
This only reinforces the point made in last week's issue that the likely return from equities, going forward, will be modest because of the low starting valuation.
Similar(53)
The investment environment we have been operating in for the last five years has been favourable with strong returns and low volatility, due to abundant liquidity, recovering corporate earnings and favourable starting valuations.
European and British equities both have lower starting valuations than the US market and the potential upside is therefore slightly higher.The surprise asset class of the next decade could yet be property, which became something of a dirty word after 2007.
The relationship has worsened since 2011 but it is still better than in 2009, when 24% of companies reduced their dividends and 13% suspended them altogether.No one can be sure of the economic outlook, but history suggests that starting valuations are a good guide to future returns.
'I'll telephone the office and have them send over some people to start valuation and packaging this afternoon.
Charles G. Crane, a strategist for Victory SBSF Capital Management, said, "There is still a very reasonable negative case to be made against equities, starting with valuation, continuing on to the risk of a prolonged period of economic softness and the risk that we may even be heading into a deflationary period of time that's typically corrosive to profits".
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com