Test Your Expectations Against Long-Term Goals

Creating a sound financial plan, and having the discipline to stay with it, is an important part of meeting your long-term goals. It is not, however, the only part.

Your expectation about the growth of your investments may be the very reason why you will either succeed or fail. The main culprit will be the assumption that historical performance is a reliable indicator of future returns. And it is not.

Conventional wisdom holds that because the S&P 500 has provided a compounded annual return of 7.4% since 1950, its safe to create a long-term investment strategy using that same return. A lot of your future well-being depends on that one critical number.

Are you comfortable with taking that risk?

In the current market environment, where bond yields are low and stock valuations are stretched at the high end, what were once considered reasonable expectations, may no longer best serve your long-term goals.

It is not improbable that long-term gains fall far short of historic returns. Over a 10-year time horizon, expected real returns from a portfolio holding 60% US Large Cap stocks and 40% US Core fixed-income may well be just 1.4%*.

Does your investment strategy incorporate that?

Not only individuals, but investment professionals as well, tend to overestimate investment returns. Its understandable. After all, some kind of assumptions do need to be made. Just be sure you’re using the right ones.

At Sequoia Wealth we encourage you to review your expectation of investment returns, on a regular basis, with your advisor. While your long-term goals may remain the same, investment returns are a continually changing landscape. The correct allocation of assets, and underlying asset classes, may be all you need to ensure your plan for a comfortable future.

If you’d like more information on how we manage investment risk, and therefore portfolio returns, please Contact Us.

*Research Affiliates, Newport Beach, CA; researchaffiliates.com, Expected Returns (as of 09/30/2015).