It’s probably time to repeat myself on something I’ve been saying for a couple of years now. I believe low returns are with us for the foreseeable future.

On April 19th, 2016, Investment News printed an article* where Blackrock, Inc.’s chief global investment strategist, Richard Turnill said, “We see a global portfolio made up of 60% equities and 40% fixed income producing annual returns of just 3.3% before inflation over the next five years.” He also said the same mix of U.S. based assets would do slightly worse at 3%.

I have expressed this same opinion for a couple of years. Mr. Trunill’s reasons center on earnings projections and price to earnings multiples, and based on what I’ve read, I would concur with him but also add the overwhelming national debt and aging population as contributing to the problem.

So how does that translate to your particular situation? Projections are based on assumptions and one of those assumptions is rate of return. For example, an old rule of thumb was that you could spend between 3% and 6% of your portfolio value each year during retirement and your portfolio would likely last through a 30 year retirement period. That was during a time when we were projecting more normal financial market returns in the mid-single digits. What do returns projected to be in the lower single digits do to those projections? One might have to lower that rule of thumb to spending between 1% and 3% of the portfolio value or risk having your nest egg run out before you do.

For people who are accumulating for retirement a period of lower than normal returns translates into having to make larger contributions to make up the difference or work longer to make up the difference.

We are used to returns that fluctuate from year to year, but a prolonged period of lower than normal returns means that adjustments to your financial plan are necessary.




Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.

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