Published Wed, 06 Nov 2019 07:08:07 -0500 on Seeking Alpha
Many people nearing retirement have a problem. The market is at all-time highs, is historically overvalued, and bond yields are near all-time lows.
Over 10 years, 90% of bond returns are determined by starting yield, so future bond returns are likely to be very low, compared to their strong returns over the past 35 years.
Similarly, 90% of long-term stock forward returns are determined by starting valuation, according to a study by Bank of America's quantitative analysts, and corroborated by research from both JPMorgan and Princeton.
While valuation only explains 10% of 12-month returns, by year five it explains nearly half of it, and that rises to as much as 90% over 30 years.
Thanks to a decade-long bull market, stocks look historically expensive on all metrics except earnings premium relative to risk-free 10-year US Treasury yields.
Thus, it's not surprising that leading asset managers expect much weaker returns from both stocks and bonds in the coming years, which spells trouble for anyone using the standard 60/40 stock/bond portfolio.
With inflation running close to the Fed's 2% target, the consensus among asset managers is that the standard 60/40 portfolio will generate about 0.7% CAGR real returns, possibly for the next decade.
A reader recently asked me to point out my 10 favorite stocks for retirees to buy today. I'll do him, and you, one better by walking you through how to construct a reasonably balanced portfolio,... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|BRITISH AMERICAN TOBACCO||37.99||0.0||0.00||2.68||6.64|
|SIMON PROPERTY GROUP||155.27||20.8||7.48||8.40||5.21|
|MSC INDUSTRIAL DIRECT||71.99||13.6||5.30||3.00||4.18|
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