The Rational Reminder Podcast

Episode 297 - Do Stocks Return 10-12% On Average? & Zero to Millionaire with Nicolas Bérubé

36 snips
Mar 21, 2024
Guest
Nicolas Bérubé
Diving into the flaws of the 10% stock return myth, survivorship bias in U.S. equity premiums, and historical asset pricing behaviors. Contrasting U.S. and global stock returns, emphasizing long-term vision in investing, and navigating investment options. Also, discussing entertainment, dining experiences, basketball triumphs, Patagonia vests, and AI advancements.
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INSIGHT

Exceptional U.S. Gains Included Unexpected Alpha

  • Research (Fama–French; Van Binsbergen et al.) shows post-1950 US returns exceeded rational expectations due to falling discount rates and survivorship.
  • Those unexpected gains (~2% annual) are unlikely to persist and shouldn't be the default planning assumption.
INSIGHT

Global Returns Are Lower Than US Anecdote

  • Global long-run real returns (1900–2023) are materially lower than the US post-1950 sample, about 4–5% real.
  • A diversified global view gives more realistic expected returns for planning than US-only history.
ADVICE

Use Valuations To Set Realistic Returns

  • Build planning return assumptions from broad historical data, adjust for valuation and current yields, and use global diversification.
  • Felix's firm estimates a 4.62% real return (7.24% nominal at 2.5% inflation) for a diversified portfolio.
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