Forecaster Sees Dow Going to 110, 000 by 2025
By REUTERS Filed at 8:55 p.m. ET
BEAVER CREEK (Reuters) - While day trading captures the headlines and investors check their portfolios daily on the Internet, others are looking further down the road to see where the Dow Jones industrial average will head.
One of them, Roger Ibbotson, of Yale University and Ibbotson Associates of New York and Chicago, forecasts the Dow will rise to, hang on to your hats, 110,000 by 2025.
Crazy, you say?
Ibbotson was the same man who in 1974, when the Dow stood at 851, forecast the index would reach 10,000 by 1999. The Dow closed on Friday at 10,927.
``Over the long run stocks will out perform money markets or bonds,'' Ibbotson said after giving the key note address Friday night at a conference of investment professionals and university professors sponsored by the Burridge Center for Security Analysis and Valuation at the University of Colorado's College of Business.
But Ibbotson was quick to add that his 2025 forecast was ''just a probability -- it's not guaranteed.''
He bases his estimate on stock market gains of about 12 percent a year -- far short of the 20 percent plus returns some investors have gotten used to and think is their due.
``It was sort of hard to comprehend. They were all asking when it was going to go to 1,000 and I said it would go to 10,000,'' Ibbotson said, looking back at his forecast of 25 years ago right after a big stock market decline.
He points out 25 years isn't an eon away when it comes to planning for retirement. ``That's you -- that's your planning -- 25 years.''
Ibbotson's forecast should make it easier for investors who have not taken advantage of the current bull market to jump in.
``The game isn't over. It's as good to start now as anytime. The next 25 years is going to be a lot like the last 25 years,'' he said.
NOTE OF CAUTION
But for the investor who wants to put everything in stocks Ibbotson has a note of caution. ``You need to diversify. If you can afford the risk -- go more into stocks.''
Age, wealth, cash flow needs and the ability to take risk all go into the percentage of stocks a person should have in a portfolio along with real estate, cash and bonds.
Ibbotson isn't expecting a straight line up and he noted that his forecast model, which uses the past 75 years of data, includes the Great Depression.
``Nothing steady about it -- that's the key. If it were steady growth it wouldn't grow that fast.''
For instance, an investor in 1967 who was 15 years from retirement, saw the real return on his portfolio fall to zero, Massachusetts Institute of Technology economics professor James Poterba told the group on Saturday.
Financial planners fret that investors, especially young ones, who have no experience of a bear market, think it will be easy as pie.
``Unrepresentative'' is how Ibbotson describes the big returns of the past few years. Yet investors think the bull market will continue at its present rate.
``When you poll individual investors that seems to be what they think,'' he said. ``They should be terrified. They shouldn't be complacent,'' Ibbotson said, adding that stocks do better than bonds because they carry a greater risk.