Over the last 100 years, the US equity market has returned about 9% annually. What will it return over the next 100 years?
Well, the index fund promoters say that history will repeat itself and that the next 100 years will look like the last 100 years, so you should go to Vanguard.com and put all your money in the Vanguard Total Stock Market Index Fund (VTI).
I don’t believe this to be true.
Stocks are loosely correlated to corporate earnings, which are loosely correlated to economic growth. Economic growth has been gradually slowing over the last 100 years. I predict it will slow further.
Our Work Ethic Has Disappeared
Output is a function of hours worked, effort, and productivity. In the future, people will work fewer hours and won’t work as hard. I have a nose for social and cultural trends, and I know how hard people worked in 1999, and I know how hard people work today. There is no comparison.
Part of this is because since the pandemic, which served as some kind of psychological shock—people decided that they now value leisure more than output. There are places in the world where people traditionally value leisure more than output, like Europe, where stocks have returned zero over the last 15 years. The good news is that productivity continues apace—ChatGPT is a good example of that, a productivity miracle.
I don’t want to call this laziness because that’s not what this is—it’s a shifting of priorities. Twenty-five years ago, it was pretty common to see people working two jobs. Now, it is a rarity.
I went to the Walmart pharmacy two weeks ago, like I do every month, and saw Kristin, the tech. I commented that she works some pretty long hours, from 11 am to 7 pm. She told me that she works another job after that. That’s admirable and uncommon. Most people would rather go home at four o’clock, have an edible, and watch some shows.
Our hustle, our work ethic, has disappeared, and there are economic consequences to this, which nobody is talking about. There is no such thing as a free lunch. If you want money, if you want prosperity, you have to work long hours, you have to work hard, and you have to work productively. Don’t get me started on the “quiet quitting” and “lazy girl” trends.
The Economics of It
For a while, trend gross domestic product (GDP) growth was about 4%. Then it dropped to 3%. We’ll be lucky to achieve 2% in the future—I think it will be closer to zero or 1%. And if we have GDP growth of 1%, it is unlikely that stock market returns will be anywhere near 9%. And if stock market returns are going to be nowhere near 9%, then it doesn’t make much sense to put your money in VTI.
Some people say that what worked in the past will work in the future. But that’s an article of faith, right? There is no rule that says that stocks must return 9% a year. If the conditions that were present for the last 100 years are not present for the next 100 years, then it would be a mistake to invest in stocks.
Alternatively, we might get our 9% return, but after a decade or more of negligible returns. We have had such periods in the past, from 1929–1945 and 1969–1982. We may be entering one of those periods. I think that is more likely than not. There may be other, better investment opportunities over the next 10 years. Maybe gold. Gold did pretty well from 1969–1982.
Stocks Ain’t for the Long Run
Speaking of faith, a lot of people, years later, still believe that stocks are for the long run. I think that the bear market will continue until people are disabused of that notion. I believe that the bear market will continue until people question the most fundamental tenet of investing: that stocks return more than bonds and all other asset classes.
We have gotten to this stage in the past, in 1982, with the “Death of Equities.” We could get there again. Thirteen years of crappy returns wore out a generation of investors, forcing complete and utter capitulation right when they should have been buying stocks. Even after an ugly 2022 and 21 months under the high-water mark, people will believe in stocks. (Side note: They no longer believe in bonds.)
I haven’t even begun to discuss the demographic argument, where a generation of boomers engage in dissaving and liquidating stocks to fund current consumption. That argument carries some weight.
I am not so optimistic about the stock market on a long-term basis. And I think it’s because of a change in attitudes toward work and productivity. We have forgotten how to hustle.
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Jared Dillian writes the investment newsletter, The 10th Man, for Mauldin Economics. Subscribe here to receive a new issue in your inbox every Thursday.