Reasons Why Equities Could Have a Decent Decade Ahead

By on May 4, 2010

Richard DeKaser, Contributing Economist, The Kiplinger Letter, writes why he sees good returns in the coming years from equities, which he says investors avoid at their peril.

This past decade, of course, wasn’t an especially good 10-year span. It started at the pinnacle of the 1990s expansion and ended in the depths of the Great Recession. Going forward, an average of 5% annual economic growth is more likely — with inflation of 2.25% and real growth of about 2.75%.

Next we need to factor in dividends. Over the past 50 years, the dividend yield for the S&P 500 averaged 3.1%, ranging from a high of 5.7% (1982) to a low of 1.1% (2000). Let’s conservatively assume a 2% dividend yield. With a trend of 5% earnings growth, that boosts the expected total return on stocks to 7% over the long run.

Source: Yahoo Finance

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