This is our mid-year update on the long-term expected returns of various asset classes, a calculation we perform twice annually.

After April lows for stock prices, the rebound in stock prices has been rapid. High returns for stocks today often mean lower returns in the future. This update aims to quantify for you just how much of future returns have been pulled forward.

Our estimates are grounded in first principles: the fundamental driver of value is future cash flows. For bonds, these cash flows come from yield; for stocks, they come from earnings.

Current Valuations and Expected Returns

For stocks, how much you pay for those earnings (or P/E ratio) is the best predictor of long-term returns. When P/E ratios are high, returns tend to be lower, and vice versa. The table below shows current P/E ratios for the major equity classes. One can see that compared to historical average P/E ratios, most equity classes look modestly expensive. For example, the S&P 500 (US Equities) has a P/E ratio of 27x, compared to its historical average over the past 30 years of 20x. 

Source: Bloomberg. Data as of July 15, 2025.

Higher than average valuations mean expected returns should be near or below historical averages. The chart below shows our calculated expected returns for various classes of bonds and stocks. We can see that various bond classes offer returns in the 4-6% range while most stocks offer returns in the 6-7% range. Of course, there will be a range around these numbers, but this is the midpoint of our expectations.

Source: Bloomberg, Greenline Partners analysis

As the chart above illustrates, rising prices have pulled forward returns. Historically, stocks have earned 8-10% annual returns, while today we expect only 6-7% going forward. 

To estimate long-term expected returns, we assume valuations will gradually revert to historical averages over the next decade. Where it is warranted, we make adjustments. For example, the increased weighting of technology companies in the S&P 500, which tend to have higher profit margins, may justify a higher valuation multiple.

Investment Implications

Today, stocks offer returns only slightly higher than bonds. This does not mean we are in a bubble but it does mean investors should not be rushing to take more risk by moving out of bonds and into equities.  

As investors, we do not time markets nor do we make big bets. For our clients, we focus on preserving and growing wealth for multiple generations. Therefore we are not interested in what might happen to the stock market or the macro environment in the next few months. We keep our eye on the horizon and patiently diversify. This is the timeless formula for investing success.

DISCLOSURES:  The information contained herein is the property of Greenline Partners, LLC and is circulated for information and educational purposes only. There is no consideration given for the specific investment needs, objectives or tolerances of any of the recipients. Additionally, Greenline's actual investment positions may, and often will, vary from its conclusions discussed herein based upon any number of factors, such as client investment restrictions, portfolio rebalancing and transaction costs, among others. Reasonable people may disagree about a variety of factors discussed in this document, including, but not limited to, key macroeconomic factors, the types of investments expected to perform well during periods in which certain key economic factors are dominant, risk factors and various assumptions used. Recipients should consult their own advisors, including tax advisors, before making any investment decision. This report is not an offer to sell or the solicitation of an offer to buy the securities or instruments mentioned. No part of this document or its subject matter may be reproduced, disseminated, or disclosed without the prior written approval of Greenline Partners, LLC.