On Sept. 25, the 10-year Treasury yield reached 5.23%, its highest since 2007. Over 10 years, the S&P 500 needs about 4% annual earnings growth to match a Treasury at 5.2%, assuming a steady valuation multiple, a 1% fund dividend yield and reinvested bond interest.
Historical data from Robert Shiller cited in the article show S&P 500 earnings grew at least 4% annually in about 80% of 10-year stretches starting in 1950 or later; median growth was about 6%. Using the same assumptions, the article estimates that $10,000 in the fund would grow to about $19,700 in 10 years at 6% earnings growth, compared with about $16,600 for a Treasury with interest reinvested at 5.2%.
The author says valuation decline is the main risk: from about 26 times earnings, a drop to 22 over a decade could make even 6% earnings growth trail Treasuries; 22 remains above the long-run price-to-earnings average of about 16. In 2000, the S&P 500's P/E was near 29 and the 10-year yield about 6.7%; over the next decade, the index's total return was slightly negative while bondholders collected every coupon. The author favors the fund for money not needed for well over 10 years, but calls a 5.2% Treasury hard to dismiss for nearer-term needs.
