What Kind of Returns to Expect Going Forward
In a nutshell, some stocks and all government bonds are expensive today, probably because interest rates are so low. That pushes investors to buy stocks and bonds which means that future returns will probably be lower than they were in the past 25 years.
Canadian and European stocks are actually not too over valued especially compared to US stocks. Canadian goverment bonds however are really where we should expect reduced returns in the future. So if you are investing your retirement savings in our recommended way (1/3 Canadian stocks, 1/3 World stocks, 1/3 Canada governement bonds), what kind of returns should you expect? Look at the chart below and you see a 60% equity, 40% bond mix should return about 5.5% before inflation. Since our preferred portfolio includes 66% stocks vs. 33% bonds, somewhere around 5.8% is a reasonable expectation.
Canadian Couch Potato just released their view on future returns. Here are their expectations and I think they make a lot of sense.
To summarize, here are some highlights.
Estimated long-term returns
Asset class Expected return
Canadian bonds 3.30%
Canadian equities 6.50%
U.S. equities 5.00%
International developed equities 7.20%
Emerging markets equities 9.80%
Equities/Bonds Expected Total Return (before inflation)
0% / 100% 3.30%
10% / 90% 3.60%
20% / 80% 4.00%
30% / 70% 4.40%
40% / 60% 4.80%
50% / 50% 5.10%
60% / 40% 5.50%
70% / 30% 5.90%
80% / 20% 6.30%
90% / 10% 6.70%
100% / 0% 7.00%
Source: PWL Capital
I’m a department head for a high school in Toronto. I graduated from the Ivey School of Business at Western University and have been a DIY investor for over 20 years.