What Long-Term Return Should We Expect On large-capitalization Stock Market Indexes?
The answer is, in the long-term Stocks will return a percentage that is roughly equal to (actually slightly lower than) the Rate of Nominal GDP Growth Plus the average Dividend Yield. This is demonstrated with logic and graphs below. Investors putting their money into stocks need to understand what long-term average return they can reasonably expect. This article shows that a reasonable estimate for the average long-term compounded stock market return is currently no more than 7% to 8% (before trading and management costs) on large-capitalization stocks. This is based on U.S. data, but would also apply very similarly to Canada. Many analysts forecast the long-term average return based strictly on historic returns. For example, the Dow Jones Industrial Average Total Return (including reinvested dividends), has returned, as of the end of, 2008, a yearly average of about 10.8% per year since 1930. On a compounded basis this is equivalent to a steady return of 8.6% per year compounded. (Co
