“Past performance is no guarantee of future results” is a phrase we all have read a thousand times now. It’s standard fare at the bottom of every whitepaper, mutual fund or ETF prospectus. It appears every time a fund company or bank runs a commercial during a sporting event. And yet, we tend to rely on past performance when guiding our investment decisions.
And that could be a problem going forward.
Investors may be thinking a tad bit optimistically about expected portfolio returns in the future. Several factors have come together that have some investment strategists worried about the future. And that could mean investors need to save even more and adjust their portfolios accordingly to have enough money to meet their goals.
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According to a Goldman Sach’s survey published back in 2015, the 50 largest U.S. defined benefit plans – groups like CalPERS, CalSTERs, and NYSLRS – are pretty optimistic about the markets. On average, the pension giants all assume that stocks will provide an expected return of 7% per year. Corporate pension plans have similar return expectations, while retail investors are even a bit more optimistic, with expected returns coming in at the 9% to 10% range.