Wednesday, October 2, 2013

7 Year Asset Class Forecast

The bar graph below has been seen many times across the online world of finance since its release. It comes from Jeremy Grantham's GMO, and it is their forecast of how asset classes will perform over the next 7 years. The graph is so widely followed because of GMO's track record in correctly predicting future gains and losses.

The following shows GMO's previous forecasts vs. their actual outcome. You are unlikely to find another source in the market place anywhere near to this precision.


Here is their current forecast, which provides a follow up to my discussion earlier in the week on U.S. vs. emerging stock market valuations. GMO believes that emerging market stocks will provide an average return of 6.9% while U.S. stocks will lose an average of 1.1% (3 green bars averaged). Click for larger image:

More important than the difference between emerging markets and U.S. stocks is the return expected even if you choose the best parts of the world. This should be considered when a pension fund or financial advisor speaks about a guaranteed 8% plus return per year as long as you invest for the long run.

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