Investing is easy until it’s not…
Over the last 10 years, the annualized S&P 500 return was 13.3%, above the average of 11% over almost a century. In hindsight, it was relatively easy to achieve double-digit returns with a single ETF. In the past years, I noticed that many investment forums have the same advice for individual and UHNWI investors – “VWCE and chill”.
Goldman Sachs released a research note saying that the future is going to be more complicated with a forecasted 3% annualized return for the next decade (or 1% real return). On top of that, the forecast notes that US Treasuries have a high chance (72% odds) to outperform the S&P 500 index.
A large part of disappointing returns is coming from the high concentration of the top 10 mega caps in the S&P 500 index (concentration at 36%). “In past episodes in which the market became highly concentrated, the megafirms that drove gains weren’t able to continue achieving the outsized growth in sales and profit margins that would have propelled further gains.”
The idea of subpar performance is not new. In past LinkedIn posts, I have dived into the key drivers of the Total Shareholder Return and assumptions needed to sustain the same returns. Vanguard, which regularly updates their 10-year market outlook, is on the same page:
– US equities projected to return 3.2%-5.2% p.a., of which US growth is only at 0.1%-2.1%
– Higher returns projected for Global equities (av. 8%), US small caps (av. 6%), US value (5.7%), and US REITs (av. 5.2%)
Goldman Sachs and Vanguard forecasts suggest that diversification outside US mega caps will be the key. On the other side, many forecasts and assumptions turn out to be wrong (or untimely), the AI revolution could change the historical trends and MAG7 could continue to be the next decade’s winners.
Source: Goldman Sachs, Vanguard, Axios // #investing #stockmarket #personalfinance
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