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Don't Let McKinsey Scare You, Millennials

Poor millennials. Up to their ears in student debt. Facing stagnant wages. Beset by obscene housing costs in the big cities where they are most likely to land a job – if they can land a job, that is.

And now a high-profile consulting firm, McKinsey & Co., is adding to millennials’ woes with a Debbie Downer report that warns that millennials will have to work seven years longer or save twice as much in order to live as well in retirement as their parents. The reason, according to McKinsey, is that returns for U.S. and Western European stocks and bonds will be far lower over the next 20 years than they were over the previous 30 years.

Well, take heart Millennial Investors. Your futures are better than McKinsey would have you believe.

McKinsey is right that the expected returns from U.S. stocks and bonds -- as well as Western European bonds -- aren't encouraging from today’s vantage point. Interest rates are low in the U.S. and Western Europe, and U.S. stock valuations are high –- both famously bearish signals.

But, of course, those aren't the only regions you should consider, Millennial Investors.

Let’s start with the obvious fact that the investible world is much bigger than just the U.S. and Western Europe, and today the highest expected returns are found in those other regions. A common and straightforward way to estimate expected return is to look at current yields for bonds and normalized earnings yields for stocks.

On that basis, it’s true that expected bond returns in developed markets, including the U.S., are downright depressing. The yield...