One of the key things a financial planner does is make sure a client is using appropriate assumptions given the current environment.  We use sophisticated planning software to predict the probability of a client achieving their goals.  These applications go a long way in projecting all the possible outcomes, but the models are only as good as the assumptions behind them.  Most of the best analysts and top investment firms are predicating lower rates of return going forward.  This has to do with a few factors which include demographics, high stock valuations and low interest rate earnings on bonds. Historically, over the last 90 years, a balanced portfolio of 50% U.S. stocks and 50% U.S. bonds has earned a rate of return of approximately 7.8%*.  In today’s environment, most analysts would use 4.25% for that same portfolio.  Take a look at the capital market assumptions going forward from J.P. Morgan, PIMCO and BlackRock: 

Asset Class J.P Morgan PIMCO BlackRock
U.S. Large Stocks 6.25% 4.6% 5.9%
Europe/Asia Stocks 6.75% 5.1% 6.5%
Emerging Market Stocks 9.25% 7.3% 5.6%
Private Equity 8.0% —- 6.5%
Real Estate 6.0% 5.7% 4.1%
U.S. Aggregate Bonds 3.0% 2.9% 3.1%
Balanced U.S. 50/50 Portfolio 4.6% 3.75% 4.5%
Balanced Global with Alternatives Portfolio 6.1% 5.0% 5.2%

Source: PIMCO. Asset Allocation Outlook 2017, Trails and Transitions. J.P. Morgan. 2017 Long-Term Capital Market Assumptions, 21st Annual Edition. BlackRock. Strategic Perspectives, Capital Market Assumptions and a Toolkit for Asset Allocation. August 2017.   

So, what is one to do?  Personally, I am a big believer in taking what the market is giving you.  If you believe there is wisdom in the above assumptions, it would be wise to increase your allocation to non-U.S. stocks, real estate and private equity.  This is what the Balanced Global with Alternative Portfolio represents, with an estimated return of 5-6%.  If you assume a 5% return with a withdrawal rate of 4.5% after-taxes, there is a high probability that your money will last 35 years.  This means that if you have an investment portfolio of $2,000,000, you could spend $7,500 a month after-taxes and be reasonably confident your money will last 35 years.  This would be an appropriate assumption for a 62-year-old married couple, given the fact that people are living much longer these days.  With lower returns, it becomes necessary to look for other strategies to improve our odds.  Everyone should look at having a strategic plan in place to protect assets, maximize benefits and minimize debt and taxes.  It is more important than ever to look at your assumptions, asset allocation, and withdrawal plan to make sure you are using reasonable assumptions and not pining away for the good old days.


*2016 Morningstar Andex Chart, balanced portfolio consisting of 50% large stocks, 50% bonds

IMPORTANT NOTE: The materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. Investing in alternative investments may not be suitable for all investors and involves special risks, such as risk associated with leveraging the investment, adverse market forces, regulatory changes, and illiquidity. There is no assurance that the investment objective will be attained.  Asset allocation programs do not assure a profit or protect against loss in declining markets. No program can guarantee that any objective or goal will be achieved. Investments are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Talk to your financial advisor before making any investing decisions. Due to industry regulations, comments are not permitted on this blog. If you would like to contact the author, please email us at

Bruce Horowitz is a Registered Representative with/and offers Securities and Advisory Services through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. CA Insurance License # 0B66129. Innovative Wealth Strategists is located at 6767 Forest Lawn Drive, Suite 120, Los Angeles, CA 90068.  This communication is strictly intended for individuals residing in the states of AK,CA,CO,CT,FL,HI,NV,TN,WA. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services. Please review our Terms of Use here: