From Morningstar:

Recently, long-term total return on equities appeared certain. Since 1871, US stocks outgained inflation by an annualized 6.9%. Wharton professor Jeremy Siegel’s analysis to 1802 produced a strikingly similar result of 6.7%. This figure was consistent with stock market gains worldwide in the 20th century.

However, new data from international stock investigators has revised the annualized estimate to 4.3%, threatening the premise of persistent 6%-plus stock returns. Edward McQuarrie has since cut the pre-World War II estimate for real equity performance to 5.4%, matching bonds’ performance.

McQuarrie’s paper challenges the presumption that stocks will consistently outperform bonds. He considers the stationarity presumption about the future predictability and argues that equities do not outperform so consistently over time, or across countries. This challenges the notion that equities invariably outgain fixed-income securities.

The debate about the utility of the additional investment data is practical, rather than theoretical. On projecting future investment returns, the academic community and investment professionals differ in data selection and adjustments, but both parties extrapolate from the past. Nonetheless, McQuarrie’s evidence, which shows that modern American equity returns have been exceptional by historical standards, is very useful for challenging complacency.

Warren Buffett and other thoughtful observers believe that modern American equity returns may continue. However, there are signs that this might not happen, especially for retirees who are heavily invested in equities based on the implicit assumption that stocks will inevitably beat bonds over time.



Read more: Equities Haven’t Always Beaten Bonds. Should I Care?