Investment Returns: Dealing With the "New Numbers"

An interesting take on what the investor class needs to wrap its collective head around given the some new realities from Jean L. P. Brunel, chief investment officer at GenSpring Family Office:

Mr. Brunel argues that the classic link among the return premiums for bonds over cash and stocks over bonds still holds, but they are substantially lower because of the low interest rates set by the Federal Reserve.

Here is how it works. The return on cash is typically the expected rate of inflation plus some real interest rate that is derived from the rate a central bank sets to promote growth. The return on bonds is cash plus some additional amount to account for the duration of the bond. The return on equities is the bond returns plus some premium for the risk associated with stocks.

He noted that cash typically had a return of 4 percent, putting bonds at 6 percent and stocks at 8 to 9 percent. With cash now yielding zero, that has lowered bonds’ return to 2 to 2.5 percent and stocks to 5 percent. The problem, as he sees it, is that too many people are stuck on the old numbers.

“I don’t want you to read into this that we have precise information on real returns,” he said. “I could be wrong. It wouldn’t be the first time. But whichever way you cut it, the environment is radically different.”

The above comes from a New York Times story.  Brunel is from the family office world so you can bet the portfolios he allocates (or oversees) are as plain vanilla and buy-and-hold oriented as possible.

In my view, there are two ways for affluent investors to get around these new low return expectations, each comes with its own set of risks:

1.  Tactical Asset Management (Maximizing the market’s upside potential at the right time and missing as much of its downside as possible when the trend changes – this can be done but most do not have the tools)

2.  Alternative Strategies and Asset Classes (This could encompass hedge funds or hedge fund-like vehicles that are truly non-correlated, master limited partnerships, futures, real estate, fine art, gemstones)

But again, these are not necessarily easy for the average investor to research, choose between and then deploy.  Which is where professional help comes in.  If 5% returns are to be the new norm for stocks, this kind of help will be more important than ever.


A Forecast for Low Returns, and Advice for Investors (NYT)



This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. w88 commented on Sep 21

    … [Trackback]

    […] Find More Info here on that Topic: […]

  2. Immediate Edge Review 2020 commented on Sep 23

    … [Trackback]

    […] Find More on on that Topic: […]

  3. Sweet hampers commented on Sep 29

    … [Trackback]

    […] Find More on to that Topic: […]

  4. DevOps services commented on Nov 18

    … [Trackback]

    […] There you will find 70449 more Info to that Topic: […]

  5. sex dolls store near me commented on Dec 08

    … [Trackback]

    […] Info to that Topic: […]

  6. fraction calculator commented on Jan 06

    … [Trackback]

    […] There you can find 4406 additional Information on that Topic: […]

  7. Broan QTXE080FLT manuals commented on Jan 21

    … [Trackback]

    […] Read More on on that Topic: […]