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Long-term investors can count on these returns

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The Roaring 20s of this millennium did not start as hoped. Instead of departure and optimism: pandemic and stock market crash (although the crash was quickly overcome). If you believe the analysts of large investment companies, things are now looking up again, at least on the stock exchanges. They expect several asset classes to deliver decent returns in the years to come. The past year has shown that one should view stock market forecasts with caution. Nevertheless, the predictions are interesting, at least if they cover a longer period of time: They show which trends the professionals are expecting, regardless of intermittent crashes.

At Franklin Templeton, unsurprisingly, it is assumed that the 1920s will be a decade of stocks. In view of the persistently low interest rates, which have recently even fallen as a result of the corona measures taken by central banks and governments, bonds are likely to remain unattractive for the foreseeable future from a yield perspective. Analysts at the fund provider expect global stocks to yield an average of 5.6 percent annual return in US dollars over the next ten years. For government bonds from industrialized countries around the world, they expect an average of 0.3 percent per year. A comparison of returns between equities and bonds is not quite as good, but shows how massive the difference between the two major asset classes is now or at least how the analysts estimate it could be in the future.

Inflation remains subdued

If bond investors want to achieve adequate returns in the next few years, according to the Franklin-Templeton experts, they have to look around for papers with a poor credit rating or in the emerging markets. The analysts predict a return of just 1.8 percent per year for global investment grade corporate bonds. For junk bonds, on the other hand, they expect an annualized return of 4.9 percent on average. With emerging market government bonds, they expect 4.4 percent plus per year for paper in hard currencies such as euros or US dollars, and at least 3.8 percent per year for debt securities in local currencies.

Overall, Franklin Templeton expects the global economy to continue to grow moderately in the current decade. Extreme fluctuations are unlikely, the report said. This finding is somewhat surprising after last year’s experience. The analysts justify it by saying that the current monetary and fiscal policy measures will support the economy in the coming years. “Inflation in the most important industrial and emerging countries will likely remain subdued at 2.8 percent,” they forecast.

Stable economic growth, moderate inflation, stocks much more attractive than bonds: these are assumptions that investors who want to build a long-term portfolio can work with. Concrete forecast numbers, especially for a relatively long period of time, are more of academic interest. “One way to solve this problem is to change your perspective and, detached from short-term cycles, concentrate on the structural trends of the economy and the capital markets,” says Tilmann Galler, capital market strategist at J.P. Morgan Asset Management. He also expects economic growth to continue in the years ahead and that share prices will continue to rise.

However, J.P. Morgan AM doesn’t. The experts of the fund provider expect US stocks to return 4.1 percent per year over the next ten to 15 years. In Europe, Asia and the emerging markets, they expect slightly higher returns. That makes them a little more pessimistic about the stock markets overall than their colleagues at Franklin Templeton. For US government bonds with a ten-year term, J.P. Morgan AM with an annual return of 1.5 percent. The experts are forecasting an increase of 0.6 percent per year for euro government bonds.

The numbers differ, but the forecasts of the large investment companies have one thing in common: They are both optimistic and cautious. The professionals expect positive returns for both stocks and bonds – but lower than in previous years. If you are right, the Roaring Twenties will probably not be as brilliant for investors as expected.

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