I've prepared a simple spreadsheet to project the Annualized Future Total Market Return. The equation used to make this calculation comes from John P. Hussman, of Hussman Funds. Use values found in the article to test the accuracy of the spreadsheet.
To gain access to the spreadsheet move to the right-hand edge of the page and scroll down to Interesting Sites. Then look for the Market Return Spreadsheet link. The spreadsheet is titled, AFTR.xlsx. The xlsx extension indicates I am using a current version of Excel. If you are unable to open the SS, let me know as I can save it in the traditional xls format.
To use the spreadsheet, one needs to work with four variables.
1. Growth Rate of Dividends. Use historical data or select your own percentage projection.
2. Yield of the S&P 500 or Total Market Index at the time of the calculation. When this blog entry was written, the percentage is 2.0%.
3. Expected Yield at the End of the Holding Period. This is a difficult projection. If one expects the market to go up, this percentage will likely decrease. If the market goes down, this percentage will be higher than the current rate.
4. The Holding Period in Years. This one is easy as the spreadsheet user determines over what time frame the analysis is to take place.
Play around with the four variables until you get a feel for what the equation is doing.
Photograph: Lisbon, Portugal