We feel long-term expected returns can be forecast with some degree of accuracy. We take a bottoms-up approach to forecasting. We use a risk-adjusted return model that relies on historical price volatility to forecast the relative future performance for various asset classes. While market returns can vary greatly over different periods of time, the volatility of those returns is more consistent.

Historically, T-Bills after inflation and taxation average close to 0%, which makes sense given it is the “risk-free” investment. Other asset classes have additional risks on top of the T-Bill. By stacking these risk premiums, expected returns can be derived.