Comments on: What is a realistic expectation of return for stocks and real estate? http://www.thickenmywallet.com/blog/wp/2010/01/18/what-is-a-realistic-expectation-of-return-for-stocks-and-real-estate/ Everything to do with thickening your wallet Wed, 01 Feb 2012 15:44:00 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Thicken My Wallet » Blog Archive » Is real estate still a good investment? http://www.thickenmywallet.com/blog/wp/2010/01/18/what-is-a-realistic-expectation-of-return-for-stocks-and-real-estate/comment-page-1/#comment-22215 Thicken My Wallet » Blog Archive » Is real estate still a good investment? Tue, 07 Sep 2010 09:04:54 +0000 http://www.thickenmywallet.com/blog/wp/?p=1422#comment-22215 [...] economic data seems to indicate that real estate investing, as undertaken by institutional investors, has approximately the same range of.... In other words, the debate about stock investing vs. real estate investing may not be a debate [...] [...] economic data seems to indicate that real estate investing, as undertaken by institutional investors, has approximately the same range of…. In other words, the debate about stock investing vs. real estate investing may not be a debate [...]

]]> By: jesse http://www.thickenmywallet.com/blog/wp/2010/01/18/what-is-a-realistic-expectation-of-return-for-stocks-and-real-estate/comment-page-1/#comment-20284 jesse Mon, 18 Jan 2010 23:21:36 +0000 http://www.thickenmywallet.com/blog/wp/?p=1422#comment-20284 Real estate investing -- that is, buying a property and renting it out -- does not have much of a tax advantage over stocks. Personal residence is a different story but investors will eventually set the marginal pricing and that price must include taxes. Real estate investing — that is, buying a property and renting it out — does not have much of a tax advantage over stocks. Personal residence is a different story but investors will eventually set the marginal pricing and that price must include taxes.

]]> By: CanadianInvestor http://www.thickenmywallet.com/blog/wp/2010/01/18/what-is-a-realistic-expectation-of-return-for-stocks-and-real-estate/comment-page-1/#comment-20282 CanadianInvestor Mon, 18 Jan 2010 22:41:50 +0000 http://www.thickenmywallet.com/blog/wp/?p=1422#comment-20282 I'd like to propose a small change to a saying you quote: never speculate with money you are not prepared to lose. Real investing doesn't deserve such a bad rap. I cannot fathom why people are so focussed on one asset class or one market either. A mixed portfolio works best. An internationally diversified portfolio achieved 4.6% compounded real annual return over the period 1992-2009 (using data from Libra Investment Management that I turned into a sample portfolio), which is probably a good estimate and plenty adequate returns. I’d like to propose a small change to a saying you quote: never speculate with money you are not prepared to lose. Real investing doesn’t deserve such a bad rap.

I cannot fathom why people are so focussed on one asset class or one market either. A mixed portfolio works best. An internationally diversified portfolio achieved 4.6% compounded real annual return over the period 1992-2009 (using data from Libra Investment Management that I turned into a sample portfolio), which is probably a good estimate and plenty adequate returns.

]]> By: Canadian Capitalist http://www.thickenmywallet.com/blog/wp/2010/01/18/what-is-a-realistic-expectation-of-return-for-stocks-and-real-estate/comment-page-1/#comment-20277 Canadian Capitalist Mon, 18 Jan 2010 19:06:33 +0000 http://www.thickenmywallet.com/blog/wp/?p=1422#comment-20277 The Gordon equation is only useful for estimating long-term expected returns because there is a third variable in estimating stock market returns. Stock Market Return = Dividend Yield + Earnings Growth Rate + Change in Valuation. Over the short-term, changes in valuation could easily swamp the other two variables. In fact, valuation change is the single biggest culprit for dragging down S&P 500 returns over the past 10 years as P/Es went from 32 to 20 (or whatever it is currently at). Also, it is worthwhile to simply look at inflation-adjusted earnings growth rate, instead of nominal growth rates. If valuation stays where it is, my estimate for future, real, stock returns is: 2.0% (dividend yield) + 2.0% (real earnings growth) = 4.0% Not too shabby but investors expecting double-digit returns are likely to be disappointed. The Gordon equation is only useful for estimating long-term expected returns because there is a third variable in estimating stock market returns.

Stock Market Return = Dividend Yield + Earnings Growth Rate + Change in Valuation.

Over the short-term, changes in valuation could easily swamp the other two variables. In fact, valuation change is the single biggest culprit for dragging down S&P 500 returns over the past 10 years as P/Es went from 32 to 20 (or whatever it is currently at). Also, it is worthwhile to simply look at inflation-adjusted earnings growth rate, instead of nominal growth rates. If valuation stays where it is, my estimate for future, real, stock returns is:

2.0% (dividend yield) + 2.0% (real earnings growth) = 4.0%

Not too shabby but investors expecting double-digit returns are likely to be disappointed.

]]>