future market returns

Based on the title of this article you may think that I have a crystal ball that can tell me what the markets are going to do, so I’m sorry to disappoint you and admit that I don’t. The reality is that nobody knows what future returns will be. That said, there has been a general sense in the investment industry that future returns may be harder to come by than historical returns. This is based on a number of factors including slow global growth, historically low interest rates and the headwinds of government debt and future liabilities.


The chart below appeared in a recent article and summarizes research by Callan Associates, a consulting company for institutional investors. The take away is that in structuring a portfolio with an objective of earning 7.5% they believe exposure to much more volatile assets will be required compared to 10 and 20 years ago.





A real world example of how information such as this is being taken into account can be seen when looking at the nation’s two largest pension providers, CalPERS and CalSTRS. CalPERS is in the process of lowering their long-term average return target from 7.5% to 6.5%, keep in mind, that is an average and won’t always be met year after year. Both fell short of their return targets in 2015, with CalSTRS earning 1.5%. They are also increasingly holding riskier assets to try to achieve their return targets. CalSTRS asset allocation to bonds as of 6/30/2016 is 16%, which is fairly in-line with what Callan shows above.


Though you may not find this information all that encouraging, I do believe that information is our friend and needs to be taken into account in financial planning and structuring an investment strategy. I often say that financial planning isn’t a one-time event but an ongoing process that needs reviewing and updating. Information such as this can have a large impact on your ability to meet your financial objectives or have a successful retirement.



Advisory services offered through Arbor Point Advisors. Securities offered through Securities America Inc., Member FINRA/SIPC. Arbor Point and Securities America are separate companies. CA Insurance #0E88557

Rancho Bernardo Financial Planner