By Kevin Slater, CEO, SoundView Advisors
There is somebody, somewhere that has a knack for attaching dates to random things. National Cat Day (October 29) or National Doughnut Day (November 5). January 1st must be both “Set Overly Optimistic Resolutions Day” and “Ask Someone to Predict this Year’s Stock Returns Day”.
In honor of the latter, here are SoundView Advisor’s 2021 Projections by asset class:
US Stocks: We have absolutely no idea
International Stocks: Higher or Lower than US Stocks
US Bonds: Lower or Higher than US Stocks
Gold, Bitcoin, Real Estate: Lower than the most enthusiastic promoter suggests
We do not know the future and we want to plan wisely for it.
While those phrases may seem at odds with one another at first glance, we do not believe they are. No one has shown the ability to consistently predict short-term returns. However, it is possible and important to make reasonable long-term estimates (10 years) of the range of returns. These inform financial projections and how we manage portfolios.
We depend on firms with sophisticated research departments (JP Morgan, Vanguard, State Street, BlackRock, Invesco) to create our estimates. Below are some of their combined prognosticators.
We expect generally lower average returns in the US going forward. The combination of low-interest rates, elevated US stock price ratios and concerns about the speed of economic recovery and debt lead us there. Meanwhile, lower price ratios and a falling dollar provide greater hope in international markets.
None of this is particularly surprising nor greatly concerning to us, although it does have an impact on our work, namely with regard to financial plan projections and portfolio construction.
The projected returns we use in financial plans will be lower but not wildly so. We tend to be conservative in our projections anyway. That said, with the slightly lower estimates, we need to review whether you can achieve your goals at your portfolio’s current level of risk.
For some clients, changes may be in order. This may mean taking more risk or reducing your expectations for spending in the future or no meaningful change. Your advisor will discuss this with you.
In any case, you can anticipate changes in your portfolio in the coming weeks. We will restructure the bond allocation to reduce the negative impact of potentially rising interest rates and swap out a few managers in the process. In equities, we will slightly increase the allocation to international equities and swap the international small-cap index out for an active international small-cap manager.
For some, these changes will be imperceptible. For others, more noticeable. In either case, we are here to serve you for your best outcome. We look forward to the conversations ahead. Happy New Year!