Girls please!

Actually the link by *Sunny *is very interesting, and whether *Gordon* quoted from it without referring to his source is really not terribly relevant. Just to get the technicals out of the way, the median does not refer to median size of company but to median size of P/E. It is a fair statistic to consider, though it is not absolutely consistent to track this statistic against the 10 year returns as these latter are overall cap weighted.

The negative correlation between past P/E ratios and the subsequent 10 year growth is stark, and it is intuitively appealing.

The graph itself was constructed in February 2016 and the P/E was 21.5 which the author states is only 2.7% below the level that would be considered overpriced. Interestingly, today it stands at 21.9. The historic average (median) level is 16.9. So a very crude calculation is to say that in 12 years time the P/E level will have fallen from 21.9 to 16.9 - a fall of 23% in price, all else equal. Meanwhile earnings of 4.6% p.a. will be enjoyed. However, after allowing for taxes and charges this does not suggest to me that equities look good over this time period. Of course, this was all done in S&P land.

But bonds are a far worse proposition. No capital upside. Yields of 0%. Potentially big downside. Institutions are holding bonds at negative yields for technical reasons all tied up with the policies of the central banks. Retail investors should shun bonds for the foreseeable future. Once the central bank manipulation has been wound down and bond yields rise to around 4% p.a. then they will again serve a purpose in stabilising and diversifying fund performances.

Meanwhile cash or State Savings is your only man.