Expected Stock Returns

No single model forecasts stock returns well: most predictors barely beat the long-run average out of sample (Goyal and Welch, 2008). So this tool blends five views per region and shows how far apart they are. All returns are real (after inflation), in local currency and compound (geometric). Currencies are assumed to add nothing over the long run, so regions are blended directly by weight.

Yield + growth. The building-block model (Grinold and Kroner) with valuation multiples held where they are: dividend yield + net buyback yield + real growth of total earnings. Damodaran’s implied equity risk premium rests on the same logic. Treating yield + growth as a compound return follows common practice; some argue it is closer to an arithmetic one, which would lower it by about half the variance.

CAPE reversion. Yield + growth plus a CAPE drag. Log CAPE decays toward your target like an AR(1): half the gap closes every half-life, so most of the move comes early. The total change is averaged over your horizon. In US data since 1881 the half-life is about 7–13 years, depending on the estimator; the default is 10. Setting the target equal to today switches it off for that region.

Earnings yield. 1/CAPE, scaled up by 1.075: CAPE’s 10-year earnings average sits about 5 years behind today’s earnings, and 5 years of 1.5% real growth is 1.015^5 ≈ 1.075. If multiples stay put and retained earnings earn the cost of capital, the real return equals the earnings yield, with no growth input needed (AQR averages a version of it with yield + growth). It overstates returns where companies issue many new shares, as in emerging markets.

Bond + premium. The US 10-year TIPS yield plus an equity risk premium, the same for every region. It ties the estimate to today’s bond market, so a rise in real yields lifts the expected return on stocks too. The default premium is based on Damodaran’s implied premium for the S&P 500, which leans on analyst earnings forecasts; stocks have beaten bonds by about 3% a year across countries since 1900.

History. One long-run real return for every region, about 5% for global stocks since 1900 (Dimson, Marsh and Staunton; Jordà, Schularick and Taylor). It is the anchor the other views shrink toward. The default weights are equal: simple equal-weight averages of forecasts have beaten the individual forecasts out of sample (Rapach, Strauss and Zhou, 2010).

Costs and conversions. The fund MER plus foreign withholding tax on dividends come off the blend. Withholding is lost in a TFSA or RRSP but mostly recoverable through the foreign tax credit in a non-registered account, so lower it there. The nominal figure compounds your inflation rate on top; the arithmetic figure converts it with your volatility. Even with a century of data, the average return is only known to about ±1.5%, so check plans against the low end of the range. Published assumptions, such as FP Canada’s Projection Assumption Guidelines, are a good cross-check.

The defaults are based on market data from November 12, 2026. Yields, CAPE, the real bond yield and the equity premium move with markets, so update them before relying on the result. Each field’s info button repeats its source.

Dividend yield and P/E. Index ETF pages list both: iShares XIC (Canada), XTOT (US), XEF (international developed) and XEC (emerging). Their distribution yields are after the fund’s fee and, for XTOT, XEF and XEC, after foreign withholding tax paid inside the fund. Add both back: divide by about 0.85 for withholding (15% on US dividends; rates vary by country), then add the fee.

CAPE. multpl.com shows it daily, and Robert Shiller’s data has the full history. For other regions, Research Affiliates’ Asset Allocation Interactive shows CAPE by market (free sign-up).

Real bond yield. The US 10-year TIPS yield, FRED series DFII10.

Equity risk premium. Aswath Damodaran’s site, updated at the start of each month (Implied ERP).

Buybacks and earnings growth. S&P Dow Jones Indices reports S&P 500 buybacks quarterly. For growth, long-run real GDP projections such as the IMF World Economic Outlook are a reasonable guide.

Fund costs and weights. The fund’s fact sheet has the MER and regional split. Long-run returns: the UBS Global Investment Returns Yearbook (free summary edition).