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Schwab will not store or use the information you provide above for any purpose except in sending the email on your behalf. Market returns on stocks and bonds over the next decade are expected to fall short of historical averages, according to estimates by the market analysts at Charles Schwab Investment Advisory, Inc. This article provides a broad overview of the methodology used for calculating our market return estimates and highlights the importance of maintaining long-term financial objectives that are based on reasonable expectations.

These are anticipated to act as long-term drags on returns and yields. The reduced outlook follows an extended period of double-digit returns for some asset classes, as shown in the chart below.

As such, now may be a good time for investors to review, and consider resetting, long-term financial goals to ensure that they are based on projections grounded in disciplined methodology and not historical averages. Our estimates show that, over the next 10 years, stocks and bonds will likely fall short of their annualized returns from to The estimated annual expected return for U.

Small-cap stocks, international large-cap stocks, core bonds and cash investments also are projected to post lower returns through Why do you expect long-term returns to be lower than historical averages? A sound financial plan serves as a road map to help investors reach long-term financial goals. To get there, investors need reasonable expectations for long-term market returns. Return expectations that are too optimistic, for example, could lead to a delayed retirement or make it difficult to pay for a big expense such as a college education.

If return expectations are overly pessimistic, too much may be saved in the nest egg at the expense of everyday living. The long-term estimates cover a year time horizon. We take a forward-looking approach to forecasting returns, rather than basing our estimates on historical averages. Recurring investment income earnings ; and 2. To arrive at a return estimate, we answer the question: What returns would investors make if they bought these assets at the current price level to obtain these forecasted future cash flows?

Treasury note, a risk-free rate, and a corporate credit risk premium. YTM is the return an investor can expect to receive if the bond is held until its maturity date.

Although cash yields are currently negligible, we believe cash will keep up with the rate of inflation over the long run. Three primary factors are behind the forecast for reduced returns: Returns could exceed our expectations if the U. This would likely lead to higher earnings growth, likely driving stock returns and core bond yields higher.

The years were an example of an expansionary period when the U. Corresponding returns from U. Historically, some of the best periods for investors to receive higher returns have been when they simply stayed in the market or even invested more money during market downturns. In recent times we have seen examples of this, especially soon after the financial crisis. During this period, the stock market sell-off was disproportionately larger than the earnings downturn, creating attractive valuations, and in our view making it an opportune time to invest in stocks because of the subsequent sharp rebound.

Thanks to the power of compound returns, what investors do or don't do today can have big implications on their ability to meet their long-term goals. Here are a few things to consider doing. First, if you don't have a long-term financial plan, now is a good time to put one together.

Second, try to minimize fees and taxes, particularly in a lower-return environment. And last but not least: Build a well-diversified portfolio. I hope this enhanced your understanding of how we calculate market return estimates and why these are important for investors to consider when setting their long-term financial objectives.

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Charles Schwab Investment Advisory, Inc. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Data here are obtained from what are considered reliable sources; its accuracy, completeness or reliability, however, cannot be guaranteed.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets. It consists of widely traded stocks that are chosen for market size, liquidity, and industry group representation. The MSCI EAFE Index consists of the following 22 country indices: Australia, Austria, Belgium, Denmark, France, Finland, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U. Aggregate rolls up into other Barclays flagship indices, such as the multi-currency Global Aggregate Index and the U.

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Universal Index, which includes high yield and emerging markets debt. Aggregate Index was created in , with index history backfilled to January 1, Barclays Global Aggregate Bond Index provides a broad-based measure of the global investment-grade fixed-rate debt markets.

The three major components of this index are the U. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices.

The Global Aggregate Bond Index ex US excludes the U. Cash Investments This index measures the total return equivalent of 3-month U. The index consists of the last three 3-month Treasury bill issues, based on the month-end rate.

Returns for the index are calculated on a monthly basis only. The index is published by Citigroup Index LLC. Indexes are unmanaged, do not incur management fees, costs, or expenses and cannot be invested in directly. Any written feedback or comments collected on this page will not be published.

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Find a branch Contact Us. Midweek Market Trend for June 14, Fed Raises Rates, Sticks With Plans for One More Hike This Year Are bonds signaling a major stock market peak? You can do this in two ways: Select your online service with one of these buttons. Copy the URL in the box below to your preferred feed reader. CAIA, Senior Manager, Quantitative Investment Management Research, Charles Schwab Investment Advisory, Inc. Key Points Market returns on stocks and bonds over the next decade are expected to fall short of historical averages.

It is important to maintain long-term financial objectives that are based on reasonable expectations. Next Steps To discuss how this article might affect your investment decisions: Call Schwab anytime at Talk to a Schwab Financial Consultant at your local branch. Please try again in a few minutes. Investing involves risk including loss of principal.