Rethinking Stock Market Returns: Are Clients Being Promised Too Much?

Rekenthaler, John
October 2000
Journal of Financial Planning;Oct2000, Vol. 13 Issue 10, p36
Academic Journal
This article examines five financial planning programs in the U.S., three of which are sold to planners and two of which target the investor. All five projected stock returns at or above 11%. During the past few decades, stocks have traded at progressively higher multiples of price/dividend or price/earnings because inflation has cooled and investors have become increasingly comfortable with the notion of owning equities. The first point represents good news but is not a repeatable event, because the outlook on inflation can scarcely be improved. The second point has decidedly mixed consequences. While it is splendid that U.S. citizens have firmly embraced capitalism, the fact that so many investors perceive only modest risk in owning stocks means that they are willing to hold those securities even if they receive only a modest return.


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