Below is an interesting article on the “new and revised” rates of returns on investment expectations for the next few decades, based on a report by the C.D. Howe Institute.
A long term expectation of 1% rate of real return on risk free investments “— which would be well ahead of where rates are today” and 4-6% returns on balanced diversified portfolios will definitely have an impact on all the baby boomer who were budgeting 8%+ returns less than a decade ago. Worse, they are no longer in a position to do anything about it, as they are embarking on their retirement years in record numbers today.
“What it is telling you is that returns on a balanced diversified portfolio could be something in the range of four to six per cent and that’s probably lower than many pension funds are hoping for.”…
As for the rest of us unsuspecting Canadians, what this means is that we need to save even more than now than ever before or assume higher risk to achieve the same expected returns as our parents and grandparents.
“The report noted that an investor hoping to earn a seven per cent annual return won’t be able to do that without taking at least some risk. And with a lower risk-free rate than in the past, that means taking more risk to earn the same return.”
More importantly, it means that it will take many more years to achieve financial freedom for those who still believe the “common wisdom” of working hard for someone else and investing in a diversified portfolio of mutual funds, stocks and bonds.
For the vast majority of Canadians, I really hope the authors of the articles, which includes Craig Alexander, the former chief economist at TD Bank, are wrong. Indeed, I am concerned that even a 1% long term rate of real return may be to liberal.
Investing in great cash flowing homes in great areas is yet another thing I am thankful for doing with my family, friends and clients this Thanksgiving!
Wishing you and your families an awesome Thanksgiving! I am truly thankful and blessed to have you all in my life!
Here is the article:
Felix Vortsman, CPA CA CIA