15-Year Stock Returns Starting at Recent Valuations
Posted: Sat Oct 16, 2004 1:21 pm
15-Year Stock Returns Starting at Recent Valuations
These 15-Year Returns complement the 30-Year Returns that I posted previously.
I have calculated 15-Year annualized real returns for portfolios containing 80%, 50% and 20% stocks when all dividends are reinvested. Expenses were set at 0.00%. All portfolios were rebalanced annually.
I examined portfolios with commercial paper as the non-stock component and with 2.2% TIPS as the non-stock component.
I have used Excel's plotting capability to fit straight lines of returns based on the data in 1923-1987 versus the percentage earnings yield 100E10/P. I have had Excel present the formulas of these lines along with the values of R-squared. I have estimated confidence limits visually.
I have calculated the results when P/E10 equals 27.0. This is close to recent levels. Looking at the latest update of Professor Robert Shiller's data, the S&P500 index in January 2004 was 1132.52 and P/E10 was 27.65. In June 2004, the S&P500 index was 1131.4 and P/E10 was 26.40. [Earnings have been increasing recently.]
Here are the results.
80% stocks and 20% commercial paper:
return = [111.52 / (P/E10)] - 2.5926
R-squared was 0.6053.
Confidence limits equal plus and minus 3.0% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (1.5%) and 4.5% (and 1.5% is the most likely return).
50% stocks and 50% commercial paper:
return = [76.53 / (P/E10)] - 1.5025
R-squared was 0.5826.
Confidence limits equal plus and minus plus 3% and minus 5% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (3.7%) and 4.3% (and 1.3% is the most likely return).
20% stocks and 80% commercial paper:
return = [41.53 / (P/E10)] - 0.6533
R-squared was 0.2637.
Confidence limits equal plus 2% and minus 5% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (4.1%) and 2.9% (and 0.9% is the most likely return).
80% stocks and 20% TIPS at 2.2%:
return = [107.72 / (P/E10)] - 2.0837
R-squared was 0.5781.
Confidence limits equal plus and minus 4.0% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (2.1%) and 5.9% (and 1.9% is the most likely return).
50% stocks and 50% TIPS at 2.2%:
return = [67.25 / (P/E10)] - 0.2585
R-squared was 0.59.
Confidence limits equal plus and minus 2.5% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (0.3%) and 4.7% (and 2.2% is the most likely return).
20% stocks and 80% TIPS at 2.2%:
return = [26.93 / (P/E10)] + 1.3002
R-squared was 0.5984.
Confidence limits equal plus and minus 1.0% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between 1.3% and 3.3% (and 2.3% is the most likely return).
With 100% stocks [and with expenses set to 0.00%]:
return = [134.92 / (P/E10)] - 3.4612
R-squared was 0.5683.
Confidence limits equal plus 4% and minus 6% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (4.5%) and 5.5% (and 1.5% is the most likely return).
Have fun.
John R.
These 15-Year Returns complement the 30-Year Returns that I posted previously.
I have calculated 15-Year annualized real returns for portfolios containing 80%, 50% and 20% stocks when all dividends are reinvested. Expenses were set at 0.00%. All portfolios were rebalanced annually.
I examined portfolios with commercial paper as the non-stock component and with 2.2% TIPS as the non-stock component.
I have used Excel's plotting capability to fit straight lines of returns based on the data in 1923-1987 versus the percentage earnings yield 100E10/P. I have had Excel present the formulas of these lines along with the values of R-squared. I have estimated confidence limits visually.
I have calculated the results when P/E10 equals 27.0. This is close to recent levels. Looking at the latest update of Professor Robert Shiller's data, the S&P500 index in January 2004 was 1132.52 and P/E10 was 27.65. In June 2004, the S&P500 index was 1131.4 and P/E10 was 26.40. [Earnings have been increasing recently.]
Here are the results.
80% stocks and 20% commercial paper:
return = [111.52 / (P/E10)] - 2.5926
R-squared was 0.6053.
Confidence limits equal plus and minus 3.0% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (1.5%) and 4.5% (and 1.5% is the most likely return).
50% stocks and 50% commercial paper:
return = [76.53 / (P/E10)] - 1.5025
R-squared was 0.5826.
Confidence limits equal plus and minus plus 3% and minus 5% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (3.7%) and 4.3% (and 1.3% is the most likely return).
20% stocks and 80% commercial paper:
return = [41.53 / (P/E10)] - 0.6533
R-squared was 0.2637.
Confidence limits equal plus 2% and minus 5% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (4.1%) and 2.9% (and 0.9% is the most likely return).
80% stocks and 20% TIPS at 2.2%:
return = [107.72 / (P/E10)] - 2.0837
R-squared was 0.5781.
Confidence limits equal plus and minus 4.0% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (2.1%) and 5.9% (and 1.9% is the most likely return).
50% stocks and 50% TIPS at 2.2%:
return = [67.25 / (P/E10)] - 0.2585
R-squared was 0.59.
Confidence limits equal plus and minus 2.5% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (0.3%) and 4.7% (and 2.2% is the most likely return).
20% stocks and 80% TIPS at 2.2%:
return = [26.93 / (P/E10)] + 1.3002
R-squared was 0.5984.
Confidence limits equal plus and minus 1.0% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between 1.3% and 3.3% (and 2.3% is the most likely return).
With 100% stocks [and with expenses set to 0.00%]:
return = [134.92 / (P/E10)] - 3.4612
R-squared was 0.5683.
Confidence limits equal plus 4% and minus 6% (using an eyeball estimate).
At today's valuations (with P/E10 close to 27), the 15-year annualized real return is estimated to be between (4.5%) and 5.5% (and 1.5% is the most likely return).
Have fun.
John R.