A 30-year Market Forecast

Investors expect to be paid for taking financial risks. Consequently,
all financial assets are priced based on their perceived risk. The
greater the perceived risk, the greater the expected return. When the
perceived risk of an asset class is low, the expected return is also
low relative to more risky asset classes.

Each year, I analyze the primary drivers of asset class long-term
returns including risk as measured by implied volatility, expected
earnings growth based on GDP estimates and foreign business expansion,
market implied inflation based on the spread between long-term
Treasury Bonds and TIPS, and current cash payouts from interest and
dividends on bond and stock indexes. These factors plus others are
used in a valuation model to create an estimate for risk premiums over
the next 30 years. In a sense, these expected returns reflect what the
market is estimating will be a fair payment for each asset class over
T-bills over the long-term.

Of all the returns we estimate, perhaps inflation is the most
difficult to forecast. There are so many variables that affect
inflation that it's nearly impossible to guess the future. This is
why I prefer to show expected market returns on an inflation-adjusted
(real return) forecasts as well as nominal return expectations.
To view the table of 30 year expected returns for 9 equity markets and
10 fixed income asset classes, please see the report titled The
Portfolio Solutions 30-Year Market Forecast on my company's website.
_Visit www.RickFerri.com for more articles and insight from Rick
Source: Forbes.com