What investment returns can you expect?

One of my client asked me recently what type of returns should he expect if he is to invest in Equities and Bonds over long term. I told him it will depends on what type of equities and bonds he is investing? Global, Country Specific, Emerging Markets, etc all comes with different risk and potential yields.

Of course, he don't seems convinced because he have still have no idea what returns he can expect. I decided to show him an example based on the MSCI returns over 30 years and the US market over some 80 years. "On average", I told him, " Maybe around 7% - 8% p.a for equities and 3% - 4% for bonds". However, with some country or regional specific allocations, you may expect more as you are taking higher risk. This number is arguable as some will insist that it should be 10% to 12% p.a for equities.

One of the article I used to show him is a research done by Vanguard Investments on the Historical Real Annual U.S market returns. I think that its a good guide and I always use to show my clients.

Let me give you some figures from this research

Historical Real Annual Returns
* Long term - 1802 to 2005 ==> Stock - 6.8% / Bonds - 3.5%
* Major Subperiod
a) 1802 to 1870 ==> Stock - 7.0% / Bonds - 4.8%
b) 1871 to 1925 ==> Stock - 6.6% / Bonds - 3.7%
c) 1926 to 2005 ==> Stock - 6.7% / Bonds - 2.3%

I also used a table with the number of years showing the S&P 500 Index Annual Returns from 1926 to 2005
-35% & below = 1
-35% to -30% = 1
-30% to -25% = 1
-25% to -20% = 2
-20% to -15% = 0
-15% to -10% = 5
-10% to -5% = 8
-5% to 0% = 5
0% to 5% = 4
5% to 10% = 7
10% to 15% = 7
15% to 20% = 8
20% to 25% = 9
25% to 30% = 4
30% to 35% = 9
35% to 40% = 4
40% to 45% = 2
45% to 50% = 1
50% to 55% = 2

From the above, there are 23 negative years and 57 positive years out of the 80 years. Well, there are turbulence in the financial market, but history proves that there are more than 7 positive returns years out of every 10 years.

In conclusion, back to the above question, What investment returns can you expect? Sorry that I still cannot give you an answer because it really depends what exactly you are investing before I can give you a guage.