This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http: David Blanchett is the head of retirement research for Morningstar Investment Management. An army of analysts, economists, financial advisers, portfolio managers, hedge-fund managers, etc. Some of these forecasters eventually will be proved correct, but most will be proved wrong. While you may roll your eyes at the idea that someone may be able to predict where stocks are heading, a financial plan uses—and in many ways is itself—a prediction of the future.

So we have to have the right mind-set about forecasting. The long-term average annual compounded realized return on U. But a financial plan is a predication about the future because clients use the analysis to figure out how much to save for retirement, when they can retire, etc.

This is very important when thinking about expected returns on stocks. The degree to which stocks outperform bonds is known as the equity risk premium. The idea is simple: Stocks are riskier than bonds, so stocks have achieved a higher return but with more risk than have bonds historically.

In other words, the returns of stocks in the U. If we assume inflation of 2. More In Wealth Management Investment Blogs You Should be Reading The Hidden Costs of Changing Financial Advisers Four Things I've Learned About the Finances of a Surviving Spouse Why Your Teen Should Work Part Time During the School Year You Have a Donor-Advised Fund.

How Much Financial Knowledge Do People Acquire as They Age? This low return on stocks has significant implications for retirees and near-retirees. One of the biggest drivers of outcomes in any kind of financial plan is the assumed return, and most return assumptions these days are probably too high. First, and perhaps most importantly, is to have a diversified portfolio.

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For example, you may want to consider a portfolio with a mix of stock types, such as smaller companies, international companies, emerging markets, etc. Diversification is the only free lunch when it comes to investing. US stocks have been doing zero for quite sometime and are deemed overvalued. So what abut doing zero for a few more years? The value is overseas so it makes sense to have healthy allocations there.

This time is never different. The risk is in longevity, not dying early.

What am I missing? Given the author's 2. When interest rates finally pop higher, whether in 5 or 10 years, stocks will suddenly look expensive compared to safe bonds and CDs John Hussman says negative Now I know why I don't invest in Husman Funds.

If you can't explain something in a few paragraphs one has to wonder. If I was that pessimistic I'd buy old refrigerator packing boxes and move in. I've been doing this for 40 years. Forex mlm cull companies whose fortunes look unpromising about every quarter. Jackson Kings He is a bit verbose, but the charts are compelling Gross Value Added to Market Cap.

Real returns on stocks depend on macroeconomic events which to a considerable extent depend on politics. Is today more like or more like ? With an avowed socialist making a serious run for POTUS, I am not hopeful. I call baloney on that one. Corporate earnings drive the market over the long term.

Politics is a nit. Nominal earnings were not bad in the 's. Inflation and tax accounting are all the result of government, and government is the result of politics. I handwriting jobs from home in bhubaneswar the Smoot-Hawley Tariff played a significant role in the Depression.

If Blanchette's thesis is correct, prospects for accumulating and maintaining assets look dire. Low growth translates to lower tax revenues which means more pressure to increase taxes on income and wealth. We have yet to feel the full weight of Obama's expansion of the entitlement state on top of the Boomer retirement surge. When those pressures reach full force, an opportunistic left will be peddling taxation and redistribution with a vengeance.

Nothing will be safe. The left believes the existence of personal savings is evidence that one was not sufficiently taxed.

Declining revenues and rising deficits is just the ticket to justify asset confiscation. I agree also with the author.

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The sample size for historical returns is too small to be meaningful. Be careful out there! Don't believe the financial planners. Believe what common sense tells you. You need to save scarface the world is yours money trainer for 1.0 lot. You can tame the inflation effect by taming your living standard. Only the super rich should assume they can live in retirement as they do during earning years.

Continue to work long after Diversify your holdings - real estate, stocks, and bonds. Annuities are just part of that strategy. Insurance companies can fail, you know. Adopt a gifting program for your children. I'll let you compute that one.

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Previous Why Most Retirement-Income Plans Lead to Over-Saving and Over-Working Next Reader Tips on Dealing With Aging Parents' Finances - At A Glance. SHOW COMMENTS HIDE COMMENTS Failed to load comments. What does it all matter.

In the long run, we are all dead! I also greatly limit investment fees.

Compound them and see how they clobber returns. Never a bad night. I agree also with the author that return assumptions should be muted. The sample size for historical returns is too small to be meaningful, for one thing. Commenting on WSJ Close. Click to agree to the terms and continue Confirm.

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