Future Investment Returns: Due To Disappoint?

dog birthday2013 was clearly a great year for investors in the U.S. stock market.

But should we expect more of the same for 2014?

Hitting those high marks again might be difficult, especially for those with a diversified or balanced portfolio.  Here’s why.

With interest rates on the upswing, the bond portion of your portfolio may return less than you would like, and less than bonds have earned in the past.

That will dampen your overall portfolio return, which is simply the weighted average return of all the different components in your portfolio.

Listen to the concerns of Mark Willoughby, chief investment officer at Boston-based Modera Wealth Management, during a recent Wall Street Journal interview:

“We look at the bond market as maybe returning 2% to 4% and the global stock market returning maybe 7% to 8%. So if you do a typical 60-40 portfolio, 60% stock, 40% bonds, expect a rate of return for a diversified portfolio going forward of 5% to 6%. So investors should not expect the returns from their portfolios to bail them out of not saving enough.”

 So here’s the takeaway: It’s great when the market does well, but it’s not something you can depend on year-to-year. You need to do your part by steadily saving 10% to 15% of income. Oh, and don’t be disappointed if portfolio returns do start out lower than they have been in past decades.  It’s always a possibility given where interest rates and stock valuations are starting off the new year.


About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

No comments yet.

Leave a Reply