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A recent article summarized the predictions of 500 advisors for the 10-year returns for a number of asset classes. If advisors construct portfolios based on those forecasts, they will destroy significant portions of their clients’ wealth.

Specifically, advisors expect large U.S. stocks to average 5% over the next 10 years (half of the long-term average of 10%). Fewer than 5% of advisors expect the next 10-year return to be equal to or greater than the 10% long-term performance of the stock market. (I will use nominal returns – before inflation – throughout this article.)

To further put this in perspective, for the nearly 70 years from 1950 through 2017, the stock market has experienced eight (14% of the total) rolling 10-year periods in which returns averaged less than 5%. Four of these were driven by the stagflation of the 1970s (none were negative) and four were prompted by the Bernanke-driven 2008 market crash (two were small negative and two were small positive).

On the other hand, 21 (36% of the total) of the rolling 10-year periods averaged returns greater than 15%. That is, it is nearly three times more likely to earn a 10-year return greater than 15% than it is to earn a return of less than 5%. Yet advisors are, on average, forecasting a 10-year return of 5%!

This begs the question of what horrific economic and market events do these advisors foresee to justify such a dour 10-year outlook for the stock market.

It’s the economy!

The history of stock returns reveals that regardless of whether we are primarily agrarian (early to mid-1800s), industrial (late 1800s to mid-1900s), or service/information (mid 1900s to present), the average annual return has been right around 10%. The reason is that during each of these periods, economic growth varied little, allowing stocks to generate the same average return in each of these dramatically different time periods.