Elroy Dimson

The sort of numbers that we come up with nowadays are much lower than the spending rules that are followed by many endowments.

We could live with 3% as the equity premium, the amounts that

Equities will throw off relative to safe assets.

But 4% is, you have to be quite lucky.

And in many cases, you find endowments and other long-term investors who think that sustainable spending can run at a level of 5%.

Sustainable spending means money that you can spend without destroying the future of the fund.

It is not to do with rainforests or climate change.

What we're talking about is how much you can take out of the fund and still leave it in good shape for the future.

That equity premium estimates that we have, I think, although the consensus is much smaller than it was, I think there's been

gradual agreements, so even the most optimistic of individuals, so you might think of Jeremy Siegel as an optimist amongst commentators, have brought down their numbers.

And in other cases, their estimates of the reward for equity risk compared to short-term risk-free investments or long-term risk-free investments, it's a smaller number than we used to talk about.

Well, we can look at the equity premium as the difference between the expected or the realized return on equities, the return on the safe assets.

We can do that in real terms or nominal terms.

The number will be exactly the same.

So if you've got a numerator and denominator, which is nominal, you divide one by the other.

It doesn't matter if the top half of that fraction and the bottom half of the fraction are scaled by inflation.

So the equity premium is fundamental.

It's fundamental whether you are an investor that's focusing on real returns, focusing on the purchasing power of your portfolio, or whether you are focusing on the nominal returns.

risks and what a nominally straightforward low-risk alternative would be.

William Green I think that's already getting high.