Equity risk premium
InvestingDefinition
The expected return of equities ABOVE the risk-free rate. The single most-debated number in finance.
Realized historical ERP (1928-2024): ~5.5%/year. Implied forward ERP (using Damodaran's method): ~4.5% as of 2025. Lower forward ERPs imply lower expected stock returns — a key reason 60/40 future returns are forecast in the 5-7% range vs the 10%+ of the past century.
Realized historical ERP (1928-2024): ~5.5%/year. Implied forward ERP (using Damodaran's method): ~4.5% as of 2025. Lower forward ERPs imply lower expected stock returns — a key reason 60/40 future returns are forecast in the 5-7% range vs the 10%+ of the past century.