Once upon a time, in a place where the United States was the center of the Universe, you could put 60% of your portfolio into a widely diversified set of equities and the remainder in various corporate and government bonds. Expecting a reasonable return on your investments wasn’t out of the question.
In today’s World, a lot of factors could inhibit traditional expectations for normal returns that history cannot account for let alone predict. There is a reason you see “past performance does not indicate future results” at the bottom of nearly any return projection. Globalization, automation, persistent low interest rates and a lot of expectation already baked into current stock prices could reduce the level of return we may anticipate for several years. There is no return to normalcy as we knew it in the 1990s Economy.
To potentially exceed expectations, we would need to see much higher GDP growth for stocks going forward to justify already high valuations. In addition, persistent and low interest rates keep bonds from adding to better returns on a diversified portfolio. This combination, plus low inflation, could keep gains lower for longer.
Logic says a viable alternative is to get better at investing and execute at a lower cost. You could keep more of your money by investing in only index funds or simply be better than most at selecting investments (active management). For a variety of reasons, too many to discuss in this article, exclusively indexing or exclusively using active management may not be the best option. Using a combination of both, strategically, may make more sense. However, keeping the cost of active management to a minimum is very important to a positive (or less negative) outcome. The active side should focus on areas where low correlation between assets can be exploited.
And, remember….past performance does not indicate future results.