Looking forward…to lower investment returns?

18th September 2018

I’m always very wary when it comes to talking about possible future investment returns. It is my firm belief that anyone who tries to tell you how and when markets will move is more than likely a complete charlatan. But I also believe it is important to try and set realistic expectations.So, although it is impossible to try and guess what markets will do tomorrow or even next year, it becomes slightly easier when we think in terms of decades.

Since the financial crisis investment returns have been stellar and this can’t continue forever. At some point in the future returns will be pulled back towards long-term averages.

This view is succinctly expressed in the following commentary recently released by Vanguard.

Against a backdrop of continued economic uncertainty what can investors expect from financial markets?

They are predicting global equity (stocks and shares) returns of between 2.5% and 4.5% p.a. over the coming years (compared to 16% p.a. since the financial crisis!). Of course, this doesn’t mean that some years won’t be better….or that some years won’t be a lot worse.

I think this is a realistic assumption and, therefore, will be making sure that my clients are prepared for lower future returns than we’ve got used to in the last few years. The important thing is that the financial plans are stuck to and that we don’t go seeking higher returns from riskier investments.

Sign up to our Monday Musings newsletter

Contact Us