What type of returns can investors expect over the next decade?

Last month, legendary investor Stanley Druckenmiller said there was a “high probability” that the market will be flat for a decade. Is he spitting out facts, or is he Drucken outta his mind?

He argues that the factors that created the bull market since 1982 are no longer there:

• Falling interest rates: The US benchmark interest rate has fallen from nearly 20% in 1981 to near zero by 2009. It stayed close to zero for almost a decade and is now rising.
• De-globalization: The division between the US, China and other economies risks slowing worker productivity and technological innovation.

Not what we wanted to hear… What does this mean for us?

If you bought the S&P 500 at the peak, go back to bed. It’s going to be a snooze for a couple of years.

Say the S&P 500 grows at the historical ~9% average (incl. dividends) — it would take just under three years from yesterday’s price to break new highs.

That’s also assuming two things:

• Market doesn’t drop anymore.
• Market actually grows at the historical average.

But the recovery time will vary depending on at which point you bought in the cycle. If the annual compounded return drops to 5%, we’re looking at nearly five years to return to break new highs.

Investors face a new reality

Those that joined the market in the past decade are used to double-digit yearly growth — thanks to low interest rates and easy monetary policies (Fed printing money).

• At the market’s peak in 2021, the 10-year compounded annual return was 16.6% (incl. dividends). Crazy numbers, considering the market’s historical average is ~9%.
• In the long run, most things trend toward their average. So it only makes sense if there are years of lower than 9% performance — otherwise, the average would continue to rise.

Most economists and analysts have been very wrong with forecasts this year. It’s almost pointless to focus on short-term price predictions.

The Average Joe: “It’s a good thing I’m farsighted. Can’t see sh*t in the short-run — but the distant future is crystal clear.”