Investors have had an incredible ride in the past decade. Stock markets soared, portfolios swelled.
It’s tempting to get complacent and expect this to be the new normal. Some investors may come to expect double-digit stock gains year after year. They may even reduce their savings or build lofty expectations of an early retirement.
Tap the breaks—the coming years are likely to be less generous.
Twice a year, PWL Capital updates our long-term view for how stocks and bonds are expected to perform over the coming 30 years. Our latest update found that investors can expect a 4.5% annual return for global stocks after inflation, and 1% for bonds.
The figure for stocks is far lower than the 8-12% real returns that many investors and advisors expect, according to a recent Natixis survey.
Such rosy investor expectations aren’t realistic, says PWL Senior Researcher Raymond Kerzérho. He co-authored the PWL update and discussed the findings on our latest Capital Topics podcast.
Raymond cautions that his figures aren’t a prediction, but rather a planning assumption. We use these numbers to help prepare long-term financial plans and retirement projections for our clients. The figures are also subject to a substantial margin of error. No one can predict the future!
That said, Raymond’s nominal return estimates are:
Raymond also expects long-term inflation of 2.5%. In other words, real returns for equities are likely to be far below what investors and advisors expect.
Equities are likely to face headwinds because valuations are historically high. The S&P 500 has returned 15% annually over the past decade, “far in excess of its long-term annualized return of 10.3%,” Wall Street Journal columnist Jason Zweig recently noted.
Taking high returns for granted can leave you with “a severe shortfall” if markets stumble, Zweig said.
The problem, he said, “is that a booming stock market breeds complacency. Huge returns make a comfy retirement for everyone seem within reach, without effort or sacrifice. And that’s a dangerous delusion.”
Real estate isn’t immune from overly lofty expectations. Most people have a lot of money tied up in their principal residence. But in another eye-opener, Raymond expects a long-term annual price appreciation of just 1% for houses after inflation. This doesn’t even include home ownership costs such as taxes, insurance and maintenance.
The 1% figure may come as a surprise to Canadians used to skyrocketing house prices. As Raymond points out, the recent outperformance has been the exception, not the rule.
“When compared to stocks over the long term, housing does not compare well,” he told our podcast. “If you account for inflation and all the money you reinvested in it, the return on a personal residence is not great.”
PWL isn’t the only one warning of lower future returns. In fact, our expectations are more optimistic than those of other major investment firms.
As Raymond noted last year, our long-term expectations for Canadian bonds and most equity markets are higher than those of four other firms we studied.
“Listeners may think we’re too conservative with our expected return assumptions, but in reality, we’re a bit more optimistic than some major investment firms,” Raymond said.
The sobering warnings stand in sharp contrast to investor expectations. Buoyed by years of high-flying stock gains, investors expect 10.7% annual after-inflation returns over the long term in stocks globally, according to the 2025 Natixis Global Survey of Individual Investors.
Expectations are even higher for U.S. stocks—12.6% annually. Even advisors expect 8.3% after inflation, the survey found.
“I was shocked when I read that,” Raymond said of the survey results. “That’s nonsense…. A 10.7% real return is not going to happen. Maybe for short periods it can happen, but in the long run, no way….
“It is your advisor’s job to educate you about the expected return of your portfolio. If your advisor has not set reasonable expectations with you, I think you should consider a change.”
The final verdict: The past doesn’t predict the future. You don’t drive a car by looking in the rear-view mirror. You shouldn’t make investing decisions that way either.
Be disciplined about sticking to your long-term investing plan. You or your advisor should periodically rebalance your holdings to align with your target allocations. Enjoy the gains of the past, by all means. But don’t build your future on them continuing.
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Model portfolios and market statistics can be found on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website. Also find more commentary and insights on personal finance and investing in our podcast, past blog posts and eBooks.
