Retirement Portfolio Growth Will Be Lower

JP Morgan researchers suggest 7% or 8% annual return assumptions have very little chance of holding out in coming years and decades.

By John Manganaro | March 07, 2016
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JP Morgan Asset Management’s Global Head of Retirement Solutions Anne Lester has a pretty clear warning for any institutional or individual retirement savers doing predictions with a 7% or 8% annual return assumption baked in.

“Looking at the themes that have come to define the investing markets of the last several years, and looking forward to what we know will be the case in the coming decade, achieving a 7% or 8% annual return target will be a very challenging, if not impossible, objective for portfolios to achieve,” Lester says. “Anyone still expecting to get 8% returns per year is likely to be disappointed.”

Lester, who was recognized as Morningstar's 2015 Fund Manager of the Year, points to a by-now familiar laundry list of global factors weighing down macroeconomic growth. Whether talking about challenging tax and demographic issues in developed economies or stalling growth in emerging markets and China, there is no shortage of headwinds to account for, she explains, “such that growth will almost certainly be lower in the coming decade than the past decade.”  

It’s not all bad news, though. Lester predicts some aspects of the near- and medium-term economic future will be unpleasant for most investors to face, “but it won’t be terrible.” Another way to put it, “6% will be the new 8%.”

Chief Retirement Strategist Katherine Roy agrees, noting that in the 2016 Guide to Retirement publication—the fourth update in the major research project—all return assumptions have been notched down, from “a somewhat conservative 7% for a traditional 60/40 portfolio to an even more conservative 6.5%.”

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