Lower for longer

Investors should be realistic – but not pessimistic – about the low-growth climate, says Jeffrey Johnson, head of investment strategy for Vanguard Asia-Pacific.

Vanguard’s capital market model estimates returns will be between 6% and 9% a year over the next 10 years, for a portfolio made up of 50% Australian shares and 50% unhedged international, developed market shares. This is down from its 10-year forecast of 7%-10%pa made in 2015.

Vanguard’s fixed-income forecast is 1%-3%pa over the next decade.

“Although forecast returns are lower from 2017 onward, the message to investors remains to stay balanced and stay diversified,” says Johnson. “We expect to see volatility continue, and having a portfolio built to weather market ups and downs in line with an investor’s tolerance for risk continues to be essential. The next five years are likely to be tougher for investors than the last five years, so having realistic expectations and the discipline to stay the course will be valuable qualities.”