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.