High Returns: Where Will They Come From Going Forward?

Have investors gotten spoiled with the strong stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market returns last year? And can investors count on continued double-digit returns from equitiesThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid.? Vice President Steve Johnson dipped his toe into the expectations game in our recent webinar, DiversificationA strategy for managing investment risk by investing in a mixture of different investments. Since different asset classes face different risks, even if one type of asset declines in value, others may not. Is Dead…and Other Modern Myths.*

Please enjoy the excerpt below and click here for the full webinar replay with more informed insights you can use. 

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Steve Johnson:

Where will high returns come from over the next five years? Being the resident bear here, I don’t know if I’m the right person to answer queries about robust returns going forward. One of the things all of us who’ve been investing for a very long time know is this: We have been spoiled because last year we didn’t encounter any part of a correction. It’s been smooth sailing, and every decline has been met with a very sharp rebound.

So, we can only look at history. And I can’t predict whether or not we’re going to see a 10% to 12% return expectation over the next few years. But one thing we do know is that the U.S. market has had a very good run over these last 10 years. Valuations are not extreme, but they are a bit high.

And with bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. yieldsYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. where they are, we know mathematically that it’s going to be hard to match those 6% to 8% returns that we’ve seen in the bond market. That means we all have to adjust our expectations. Probably 10% to 12% might be a little optimistic. Look at your financial plan, look at your spending, and perhaps be a little bit more conservative so that if we don’t get those over the next few years, you’ll be able to achieve your financial plan.

There are a lot of things to invest in over the next five years. We as investors are very optimistic about the future, despite the geopolitical risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. now. We’ve talked about interest-rate riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.. There’s a lot to be worried about today, but we are long-term investors and, in the end, growth and optimism prevail.

Consider a diversified portfolio with a healthy allocation to equities—yes, that includes small companies and midsize companies. And international. That’s going to give you a very good probability of success in achieving your returns over the next five years. Obviously, the next five minutes and the next five months may be volatile, but by understanding the market cycle for the next five years, owning a diversified portfolio and sticking to that plan and discipline of investing, we think you’ll be very successful.

Click here for a replay of Diversification Is Dead…and Other Modern Myths. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.