From Credit Suisse’s latest global investment returns yearbook, Generation Z’s earnings from stocks and bonds will be significantly lower than those of previous generations.
“They estimate that baby-boomers (defined here as those born 1946–64), Generation X (born 1965–80) and Millennials (born 1981–96) have all earned average real returns of at least 5% on equities and at least 3.6% on bonds. The authors then forecast what Generation Z might expect to earn in the coming decades. To do this, they assume that the real return on equities will be equal to the inflation-adjusted return on a risk-free asset (represented by Treasury bills), which they estimate at -0.5%, plus a “risk premium” for buying equities of about 3.5%, for a real return of just 3%. For bonds, the authors assume the current, negative real yields on the index-linked variety. All of this adds up to annualised returns for Gen Z of a mere 2% on a 70:30 portfolio of stocks and bonds—not even a third of the historical return of the baby boomers (see chart). These guesses could prove too pessimistic, but perhaps not dramatically so.”