Estimating Expected Returns: Then and Now

Abstract

In this article, I discuss the evolution of my thinking about the expected return of equities over three decades, point out what has stayed constant and what has changed, and provide my current estimates of the expected return of the S&P 500. I also present a simple universal portfolio that reflects my views and can be implemented at low cost by investors worldwide. Finally, I discuss the evolution of my investment perspective from an asset-only perspective to an asset/liability/surplus perspective. My central results can be replicated using the SP500 dataset in the open-source R package PCRA, and are relevant to CIOs and asset allocators as well as to individual investors.

Keywords: Expected return, Cost of Equity, Asset Pricing