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Just how much more does the market owe investors at this point?
The is up more than 6 percent this year and within 1 percent of a record high. Even better: Stocks have surged nearly 20 percent in a bit over six months, the past five years have doubled stock investors' money - and there hasn't even been much of a penalty for playing it safer by owning some bonds.
So if markets "pay" investors for shouldering risks that others shun, have the charges been paid in full for the next few years?
It's never possible to say for sure given the lack of a payment schedule and constantly negotiable terms. But let's run through some numbers.
Five Fine Years
Remember the late summer of 2011? European government-debt markets were quaking in what seemed a hastily produced sequel to the global financial crisis. Congress was dragging its feet in lifting the Treasury debt ceiling. The U.S. economic recovery was so fragile that many refused to acknowledge that it was one.
The S&P 500 lost almost 20 percent over a few months before the Federal Reserve promised support and the debt ceiling was lifted. From the market lows that September, the S&P 500 Total Return Index (which counts dividends) has returned an average 16.4 percent a year.
That's more than five percentage points a year better than the very long-term average. And it's better than what the entire (if truncated) 2002-2007 bull market delivered.
Just Getting Started?
But, hold on – wasn't the decade heading into 2011 one of the lousiest in history for stock owners? And wouldn't that make the past half-decade a catch-up or payback for that period of suffering?
There's something to this. Some investors believe stocks entered a new "secular" – or long-trending – bull market only in 2013 when the benchmark finally surmounted its old peak levels from 2007 and 2000. This implies that even nasty corrections and perhaps even downturns of more than 20 percent from here will represent brief detours on the way toward much higher prices.
Such upbeat observers often turn to "rolling 10-year returns" over time to support the idea that markets are likely to pay up somewhat more in coming years. The annualized total return for the S&P over the last ten years is about 7.2 percent – a good deal below the historical norm.
At any given moment since the 1930s, the average gain from stocks over the prior ten years was about 10.3 percent. And when secular bull markets were in the process of peaking – such as in the 1960s or late 1990s – this trailing ten-year annual return figure had been above 15 percent for several years.
So, lots of room to run, then? Here's reason for investors at least to hope that we are indeed in a secular bull market – something that can only be known in retrospect.
No Sacrifice for Playing It Safe
One of the remarkable story lines of the current market cycle is the way more risk-averse investors have had to give up so little in exchange for a gentler ride. This is another way of saying that bonds have done so well, as central banks anchor interest rates at or below zero.
This bolstering of bond values has flattered what many considered the "standard" balanced portfolio of 60 percent stocks and 40 percent bonds.
Vanguard Balanced Index Fund is a tidy proxy for this simple approach. It's returned 10.3 percent annualized the past five years - far better than history would lead an investor to expect. From 1925 through 2000, this strategy netted 9.3 percent a year, according to Peter L. Bernstein's "The 60-40 Solution."
And recent gains have come with unusually modest pain. The Sharpe Ratio tries to quantify how much return is achieved per unit of volatility, or risk. In the latest five years, Vanguard Balanced's Sharpe Ratio was 1.22 – a stellar result that exceeds what many risk-aware hedge funds seek.
AQR Capital says from 1947 to 2015, the 60-40 Sharpe Ratio was 0.52. So this stock-bond mix has furnished investors with twice as much return per unit of risk since 2011 as in the prior seven decades.
Does this seem like a trend that investors should extrapolate indefinitely? Whether by interest rates rising, stocks pulling back or volatility picking up, it would seem this investment blend is due for some give-back in coming years.