The following chart shows 10 Year Capital Market Assumptions by Asset Class. It clearly shows that over time long term returns of equity asset classes outperform and are expected to continue to outperform bond and fixed income securities. This is a trend that has been established for well over 100 years. However, as many Canadians are approaching retirement, or are already in retirement that may very well last longer than their working carrier, this is a significant concept to understand and to deal with.
If long term bond and fixed income securities are expected to return under 3% over the next decade, and many investors plan on drawing out 4% of their assets, they may run out of money before they pass away. This is a very risky strategy. Clearly a “safe” investment like bonds is not a safe strategy if you have a very high likelihood of outliving your money.
If you have more volatile asset classes — like diversified equity holdings — your long term return can be above the 4% withdrawal rate, meaning that you are less likely to run out of your money and you have a strategy to fight inflation over your retirement.
Volatility can work for you if you have a disciplined strategic game plan to manage the it and not to avoid it. I have worked with my clients for the past 25 years based on this principle and have developed the Financial Peace of Mind Program to manage volatility. If you would like to learn more about this strategy, or to obtain a detailed research report, contact me at firstname.lastname@example.org.