The Good, The Bad and The Ugly: Returns Going Forward

Morningstar has a good video of Rob Arnott discussing the returns environment for many major asset classes. If you don't know Rob, he is the chairman of Research Affiliates, and he's also the former editor of the Financial Analysts Journal. The link is here.

A highlight (or lowlight) from his video interview:

And yields on stocks--they've doubled in the last 10 years, because it was such a horrific decade. They're still half what they've been historically.

So the yields on stocks are low. The yields on bonds, and an array of other asset classes, are low. People need to ratchet down their return expectations. If you're expecting double-digit returns on your investments, then I'm a bear. I think you're not going to get there.

If you're expecting 5% return on your investments and you're well diversified and you're taking advantage of an array of alternative markets--yeah, that's not just achievable, but reasonably easily achievable. 6% or 8% is possible.

In my opinion, if you are successful timing in to and out of asset classes (this is really what Arnott is suggesting), 6-8% is possible. If you have the usual two-class equities and bond orientation and less than a ten year horizon, getting to 3-4% real returns is going to be a challenge. Not investment advice.