I find a major disconnect among investors on Main Street and Wall Street about what they expect to earn from their securities portfolio over the next ten, twenty, even fifty years, after tax and inflation.
Admittedly, that is a tough prediction because investors must take income taxes and inflation into account, along with projected securities’ yield and market returns. None of that is simple.
In one survey I noted net/net/net predicted return by a number of experts over the next fifty years. Interestingly, returns ranged only between 2% and 3% annually.
That is unusual and shocking to many. Investors’ experience from the past would have had expectations to be close to about 6%.
In other words, many securities markets observers believe that potential, along with taxation and inflation bites, will impair future market returns.
There is a possible solution to this quandary. Most investors who look ahead many years, some as much as fifty, tend to overlook it. It concerns the use of the corporate bond market and proper implementation of duration, to suit the investor’s personal horizon.
Corporate bonds can help overcome inflation and the dearth of income and potentially limited growth from stocks. Estimated earnings can well be at least 6% on a net, net, net basis, PROVIDED, strategy is wisely used.
I have broadly commented elsewhere on the subject. But be sure you invest in a low-cost bond mutual fund where interest earned is automatically reinvested in shares of the same fund each month.
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