You might have seen articles making equity returns predictions for the next 5, 10, or 20 years. These predictions often forecast dire conditions, which in turn get the reader asking questions like “Is this true?”, “Should I be worried?”, “How should I use this information?” When reading these articles, it’s essential to step back and think about what we can control, what we can’t, and how we should act with that knowledge in mind.

Are these predictions accurate? No one knows. Equity markets are volatile, and the timing or magnitude of returns is tough to predict. Even experts have a terrible track record of reading the tea leaves and investing based on their predictions. Said differently, even those who get it “right” don’t get it right all the way. A common source of error is timing. A famous example is Robert Shiller, credited with “predicting” the 2008 housing market crash with the phrase “irrational exuberance.” The problem? He made that claim in June of 2005, and the market continued to rise for another three years. By the end of 2010, within two years of the crash, global markets on average were once again higher than the June 2005 levels and have remained higher ever since.¹

Should you worry? Since you can’t control near-term future returns, there is little benefit to trying to predict or worrying about them. However, based on the past 100 years or so of market history, we can be generally confident in the long-term future of positive global equity returns. This is because investing in equities involves taking risks, and investors would not take that risk unless they expected some positive return in exchange. Moreover, we know from the past that the range of short-term outcomes will be broad: sometimes positive, sometimes negative. Knowing that short-term results can vary may sound like a bummer, but it can help us build confidence (read on to find out how). 

How can I use this information? Using historical returns, we can determine how much investors, on average, have been compensated for investing in equities over the long term. We can also understand something about the range of possible outcomes over shorter periods. This info is useful when constructing your financial plan. 

At HIG, we can perform an in-depth analysis that includes the financial factors you can control, like saving and spending, and the ones you cannot, like market returns and inflation. Our team uses a sophisticated statistical tool that runs thousands of simulations to determine a range of different potential outcomes for your specific situation. Comparing this range to your goals can give you a sense of your personal “odds of success.” When the analysis shows >85% probability of meeting your goals, we find most clients are comfortable that they are on the right track. The benefit? Confidence. You can focus your time on what’s truly important and ignore the crisis of the month. In other words, we have your back.

If you would like to talk more about this, our CIO office hours are open. Feel free to schedule a 30-minute call.

Tammira Philippe is the embodiment of the American dream. The first in her family to go to college and now the President and CEO of Bridgeway Capital Management, Tammira has paved a purposeful path for herself and her organization. Hear her conversation with Matt. Listen on Apple or click below.

Read the full transcript here.

We are excited to announce that, out of 1,000 nominees, our Cofounder and President Matt Hall has been awarded the ThinkAdvisor Luminary Award for Thought Leadership. The recognition is no surprise to our team at Hill Investment Group, as Matt has always taken creative and bold steps to push the industry and clients’ best interests forward. The ThinkAdvisor Luminary Awards shine a spotlight on individuals and firms changing the investment advisory industry where it matters most. Matt is known for inspiring others to “take the long view” and his relentless message that the keys to long-term investment success are patience and discipline.

READ MORE ABOUT THE AWARD HERE.