More recently, in order to stimulate economic growth and reflate asset prices after the Financial Crisis, the Fed turned to unconventional monetary tools such as three rounds of large-scale asset purchases (“Quantitative Easing”) and a maturity extension program (“Operation Twist”).

Much attention has been focused on the recent Fed actions and asset price reflation. However, one should conceivably step back from more recent events and look at the broader secular context since 1981. From this broader context, investors and their financial planners may be anchoring financial plans to the much longer trend of declining interest rates and resultant return numbers.

Consider the following chart of returns[2], noting the large relative numbers for the 1981-2015 timeframe.  Also, note the large S&P 500 returns since the recent Fed intervention from 2009-2015.

Nominal Geometric Mean ReturnsS&P 500 Index10 Year Treasury Bonds 


60/40 “Balanced” Portfolio

(60% S&P 500 Index/40% 10 Year Treasury bonds)

As mentioned, many investors and planners might be anchoring plans to mean “Balanced” returns of 9-10%, consistent with 1981-2015. Considering that the extreme long-term return series from 1928-2015 and the more or less opposite interest rate regime from 1961-1981 have produced significantly lower returns, one could reasonably argue that financial plans should be built on lower assumed returns than the 1981-2015 experience. Further, given how low current interest rates are today, it would seem reasonable to assume a conservative 4-6% range for Balanced investors looking forward.  If it is the case that many investors and planners are assuming 9-10% returns, they may be suffering from Conservatism bias.   They should likely follow these three steps to correct the bias:

  1. Shock current plans with lower expected returns to check for potential savings shortfalls. With lower expected returns, investors will likely have to focus on saving more and spending less.
  2. Focus on fees paid to actively managed mutual funds. Paying fees of 1% or more to actively managed mutual funds with a gross return of 5% means losing 20% or more of returns to fees. Plus, active managers typically underperform their benchmarks[3].  Low cost ETFs will likely take much less bite out of future returns.
  3. Stay diversified and don’t try to time the markets. There are many studies highlighting the fallacies of market timing[4], which may only be amplified in a lower return environment.  Investors should trust that these studies are true and maintain a disciplined, diversified strategy.  Investors cannot control or predict the markets, but they can control their emotions and personal cash flows.

Chad Roope is Vice President-Investment Management of TOPS/ValMark Advisers, a participant in the ETF Strategist Channel.

Important Disclosure:  ValMark Advisers, Inc. (“ValMark”) is a federally registered investment adviser located in Akron, Ohio. ValMark and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally covered investment advisers by those states in which ValMark maintains clients. For registration or additional information about ValMark, including its services and fees, a copy of our Form ADV is available upon request by contacting ValMark at 1-800-765-5201.  This article provides commentary on current economic and market conditions and is not directly relevant to any particular client account. The information contained herein should not be construed as personalized investment advice or recommendations to buy or sell any security. There can be no assurance that the views and opinions expressed in this article will come to pass. Investing involves the risk of loss, including the loss of principal. Past performance is no guarantee of future results. Information contained herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.  Indexes are unmanaged and cannot be directly invested in.  TOPS® is a registered trademark of ValMark Advisers, Inc.  Diversification does prevent or guarantee against loss.
[1] Behavioral Finance and Wealth Management 2nd Edition, Michael Pompian, 2012, pg 63
[2] Data obtained at:
[3] SPIVA U.S. Scorecards-S&P Dow Jones Indices.
[4] For one example:  These are professional managers.  Imagine how low the chances are for advisors or individuals.