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What return should we expect for 6-10 year period?

our plan is a medical office with 20 employees

Nov 23, 2013 by Richard from Beachwood, OH in  |  Flag
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3 votes

The best answer, as already mentioned, is to determine a level of risk you are comfortable with. Nobody knows for certain where the market is heading. You can control the risk of the portfolio, the amount you invest and fees/expenses - focus on this and not the unpredictability of market returns.

Comment   |  Flag   |  Nov 25, 2013 from Uniontown, OH

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There are many factors that impact the return an investor can expect to receive on their portfolio.

First, is the general direction of the overall economy, both here in the US and overseas. When economies are doing well businesses tend to do well, resulting in rising stock prices.

At a personal level there are several factors that will impact your returns over an above the markets in general.

The first factor is what do you expect of your portfolio? Are you in the wealth accumulation stage of your life with a fairly long timeline before you expect to access your holdings? Are you looking to access your investments for retirement or even some other life event fairly soon?

What is your risk tolerance? Generally speaking the greater the risk the higher the returns. However, you also face a greater chance sustaining significant losses. If you are a conservative investor you have to expect lower returns as your risk tolerance is lower.

These factors determine your portfolio's composition. Based on your goals, timeline, risk tolerance, etc. you would look at the various asset classes (i.e. stocks, bonds) and sub asset classes (i.e. growth stocks, value stocks, treasury bonds corporate bonds). From here you would construct the appropriate portfolio for you.

Studies have shown that over time the greatest factor in determining portfolio return is asset class selection.

I recommend that you find an advisor you are comfortable with, discuss your goals and expectations to ensure your plan has an appropriate portfolio to fit you.

Comment   |  Flag   |  Nov 23, 2013 from Sierra Vista, AZ

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J.P. Morgan Asset Management publishes their Long-term Capital Market Return Assumptions each year around this time. You can access their September 30, 2012, outlook for the 10-15 year period beyond 2013 via this link:


Their publication includes a wide range of fixed income, equity, and alternative asset classes, including correlations (if you're into that sort of thing).

Obviously these are assumptions, and neither J.P. Morgan nor I can offer any real assurance that these assumptions will actually play out.

But it may provide you with another data point in terms of what at least one major financial institution is assuming going forward.

Good luck with your own crystal ball!

1 Comment   |  Flag   |  Nov 24, 2013 from Morristown, NJ
Prateek Mehrotra, MBA, CFA®, CAIA®

Every large wire house firm and many other similar firms publish their Capital Market Return Assumptions. From my experience, what I have found, these are too generic to be useful. However, they do serve as broad guidelines when looking to build portfolios for the long term. When looking at a shorter time horizon like less than 10 years, it is more challenging to be accurate. One can also look at the Secular backdrop i.e. are we in a longer term secular and/or cyclical bear or bull market. There is always a point of entry risk when entering the market, that can mitigated to some extent by dollar cost averaging and broader asset allocation.

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Flag |  Nov 24, 2013 near Appleton, WI

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George Cones, JD Level 20


In a 401(k) plan each person should have an asset allocation that reflects their individual risk tolerance and years to retirement. In order to evaluate a portfolio's return, one has to figure out a valid benchmark. Benchmarks will differ based on the portfolio holdings. Evaluating a portfolio has gotten easier with returns based analysis tools and platforms like Morningstar. Anyone can use Morningstar to look at mutual funds individually and look at a portfolio of mutual funds to glean some of the information you seek.

That said, there are some very gross (as opposed to fine) methods of estimating expected return, which we have found useful. Over thirty years ago, I was introduced to a book called "Stocks, Bonds, Bills, and Inflation", Ibbotson. They publish a yearbook annually, updating the information. I would recommend going to the library and spending some time with it. You will see that returns for the various markets over the longer-term are relatively consistent, but there can be tremendous short term volatility, especially in stocks. You will also see that there are many rolling 5 and some rolling 10 year periods when certain areas of the markets were down. Recognizing that taking on more risk should bring you higher long-term returns, the downside risk is also increased. If you have a diversified portfolio and hang on for the ride though, the risk you take should pay off long-term.

If you start with the basic asset allocation assumptions, based on almost 90 years of data from the book, large stocks indices (S&P 500 for example) have returned about 10% annualized. Small stocks (like the Russell 2000 index) have returned a few percent points more. For purposed of this example, let's say bonds have returned 5% annualized.

For a portfolio that is 50% large stocks and 50% bonds, then: 0.5 (1/2) x 10% (large cap stock returns) plus 0.5 x 5% (bond returns) = 5% + 2.5% = 7.5%.

This rule of thumb model can be further refined using international stocks, emerging markets, cash, high-yield bonds and so on. Multiply the percentage of the asset class in in the portfolio times the expected return of each asset class, then add them up.

Another book to check out is, “The Investment Answer”, by Goldie and Murray. They attempt to help people learn how to understand the investment process; this book is compact but crammed full of important information.

1 Comment   |  Flag   |  Nov 25, 2013 from Wilmington, DE
Glen Hahlen, CFP®, AIF®

Based on the initial question I assumed this was a trustee-directed plan and each employee did not have their own individual account...Different fiduciary standards apply in regards to investment allocation, I'm sure.

Flag |  Nov 25, 2013 near Uniontown, OH

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What you are asking is a very difficult question, as you know it requires making a prediction and as Yogi Berra said, Prediction is very hard, especially about the future!!!

Anyway, with that caveat, I follow many market gurus who do this routinely. One of them is Jeremy Grantham of GMO who puts out a seven year asset class real return forecast. I have posted this chart on our blog at:


As you can see, he is predicting the highest returns from Emerging Market Equities and Timber. Overall, it is a outlier forecast, given that US stocks and other Developed Market stocks have gone up double digits this year and are reaching new highs. Bonds are expected to produce flat to negative returns at best.

Jeremy has a pretty good track record and is a very successful money manager. There are many others I follow as well. If you would like to discuss further, feel free to give us a call.

Hope this helps.

Prateek Mehrotra Chief Investment Officer Endowment Wealth Management, Inc. www.EndowmentWM.com

Comment   |  Flag   |  Nov 24, 2013 from Appleton, WI

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There have been many answers to your question and I have not bothered to take the time to read them all, so if I am repeating anything forgive me. However, the good news I have for you is that making successful investment choices based on crystal ball gazing and predictions which may or may not come to fruition are unnecessary if attaining your personal financial goals is your ultimate desire. An independent financial plan that guarantees, or at least gets you closer to guarantees on the future income needs and legacy outcomes you desire is your first step. Fortunately, there are tools to do that available for you.

1 Comment   |  Flag   |  Dec 13, 2013 from Peoria, IL
Robert Joseph Miller

But to have a little fun and prognosticate despite that fact, if you have a 5-7 year outlook and assuming all investment possibilities are open game, here you go: FDIC principal insured structured notes that are tied to domestic, international, and emerging market equities, high yield corporate / emerging market bonds, global real estate, commodities, precious metals and natural resources, with the ability to get conservative when volatility calls for it (by the managers - not your call), would be high on my recommendation list. Within the structure of the CD you will find the specific areas I feel have more upside than downside risk, without the principal guarantee of the SN, should also answer your question. Obviously, I would not make any recommendation without understanding your detailed financial situation, liquidity needs, tolerance for fluctuation, and long term goals. And, as said in my prior post, there are other products that may get you to your goal in an even better way, but this is Brightscope, not my office chair (which is quite comfortable, I might add). And yes, I did leave out a few other 5-7 year investments I feel are compelling - quite compelling, in fact. Can't give it ALL away. Hope this helps.

Flag |  Dec 13, 2013 near Peoria, IL

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Oops - never gave a bottom line expectation for return: If done this way, I believe you could be looking at 5-6% net minimum, with above average predictability; if using the FDIC insured note that would include a principal guarantee, with no upside limits. Without the principal guarantee I find the mixture providing a return potential that is attractive compared to a more typical and traditional Stocks / US Govt Bonds / Cash approach.

Comment   |  Flag   |  Dec 13, 2013 from Peoria, IL

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