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?
"We are now trying to calibrate where we are in bubble cycles, rather than asking the question: 'Is the starting valuation correct?'," he says.
In turn the long-term return is crucially dependent on the starting valuation.
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.
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.
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.
To justify today's valuation, Tesla needs to start selling cars well beyond the Roadster niche.
Still, the Commerce Departments definition of profits, which eliminates accounting legerdemain to start with and includes the inventory valuation adjustment and capital consumption adjustment to remove the misleading effects of inflation, has also been robust.
Many investors are treating health care stocks with kid gloves and Stewart said valuations are going to start looking pretty compelling compared with other more cyclical sectors that have set the tone for the rally.
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.
