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Financial Happenings Blog
Tuesday, November 27 2007

An article in the Wealth Section of today's Australian caught my eye.  The article was written by Don Stammer, a well respected economic commentator.

The article made 10 year predictions for various investment market returns.

His 10 year prediction for returns from Australian shares was 10% a year.  This was based on the current income of 3.5% and growth in income of 6.5% - a total return of 10%.  He says that dividends tend to increase at the rate of GDP (gross domestic product), which he forecasts to be 6.5%.

Listed property is currently paying average income of 5.5%.  He notes that the income from listed property trusts grow at a trend rate of around 4.5% annually.  This gives a total return of 10% annually.

Don Stammer also forecasts returns of 10% a year from international shares, and notes that emerging countries should outperform this.  His forecast for inflation is 3% a year.

This 10% forecast is exactly the same as the forecast that I get using research from respected academic Jeremey Seigel.  He suggest that the long run return from sharemarkets is 7% above inflation.  If inflation runs at 3%, then this will be a total return of 10%.  To achieve this he says that sharemarkets should be on a PE ratio of about 14 to 15 - where they are now.

10% returns from growth assets is lower than they have been historically - although the inflation forecast is lower as well.



Posted by: Scott Francis AT 06:33 pm   |  Permalink   |  Email
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