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Finding Opportunities in a Low Return Environment

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​Like others, we see certain equity markets near all-time highs, interest rates at head-scratching lows, and some asset classes about to encounter the laws of financial gravity.

Summary

Markets rarely move in a straight line fashion and current indicators point to a future of lower returns as compared to recent years. Nobody knows precisely what the low return environment will look like, how severe it may be, or how long it will last. However, with prudent expectations and some forethought, your portfolio and your family can ride out the rougher periods and achieve long-term success.

In this issue of the Abbot Downing newsletter, we analyze the impact of a low return environment on equity and fixed income investments. Equally important, we provide pointers to help family members keep the situation in perspective. And finally, despite the less-than-rosy forecast, we share advice on how to find pockets of opportunity and include specific estate and tax planning strategies to consider.

KEY TAKEAWAYS

  • After several years of strong equity market performance, market valuations have become very rich. We know that the further markets move away from fair value, the nearer the course correction gets and the sooner we approach the moment when valuations invariably start to impose their will.    
  • While we expect bonds to have lower returns, they do offer some advantages. Bonds have positive cash flow and tend not to exhibit much volatility. The predictability element inherent in bonds can be the invaluable ballast in a portfolio during those gut check times when markets aren’t cooperating.    
  • During periods of low returns, it is crucial to take steps to minimize taxes and examine fees to find areas for improvement. At times like these, every little bit helps.    
  • It is also important to address how low returns can affect your family and/or foundation and discuss immediate concerns and the long-term outlook with appropriate individuals. Taking these steps will help you build on your strategic plan and create a stronger family vision.

DISCLOSURES

Wells Fargo & Company and its affiliates do not render tax or legal advice.

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