Using Gordon's Rate of Return r to Forecast Long Term Returns and to Create a Ten Layer Portfolio with Superior Returns and Low Risk

Abstract

John D Van Sant

I use the rate of return r in Gordin's equation P = d1 / r-g to forecast ten year returns which then form the basis of ten stock/bond portfolios. These portfolios are placed in staggered layers to form a combined portfolio. Over the period 1909 through 2024, this portfolio produces a geometric mean return of 9.07% per year, an arithmetic mean return of 10.01 % per year with a standard deviation of 12.95%. Over the same period the S&P 500 index produced a geometric return of 9.78% per year, an arithmetic mean return of 11.52% per year with a standard deviation of 19.09%.1 propose a new metric to gauge the extreme risk of a portfolio: one standard deviation below the mean of the portfolio’s drawdowns.

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