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Are You a "Que Sera Sera" Investor? Thumbnail

Are You a "Que Sera Sera" Investor?

David Rappaport

Que Sera, Sera (Whatever Will Be, Will Be) is a classic song, made famous by Doris Day in Alfred Hitchcock's film, The Man Who Knew Too Much.

Are you a Que Sera, Sera investor?  Accepting that whatever will be, will be?  A better idea is to plan for a future that may look much different from the past. While nobody has an accurate crystal ball, we may see investment returns much lower going forward.

Looking in the rear view mirror, if you have been a disciplined investor over the last 30 years, you have done pretty well.  A globally balanced portfolio with 60% stocks and 40% bonds returned about 8.3%.1

Do you expect to get 8% annualized returns from your portfolio over the next three decades?  We don’t.

A big part of that 8% came from interest rates that were much higher than today.  As those rates came down, bond prices rose. If you invested in a 10 year Treasury bond in 1990, your yield would have been about 8.7%.2  Today, it’s more like 0.75%.  So it’s pretty clear that bonds are not going to give your portfolio that kind of a boost going forward.

So what can investors do to ensure their plans will be successful if returns are lower? Here’s where to start:

  • Be conservative in your projections.  Vanguard projects that over the next ten years that U.S. stocks will return 3.9% to 5.9%, and U.S. bonds will return 0.7% to 1.7%.3
  • Stay diversified. While U.S. stocks have been the clear winner recently, the story may be different going forward. Vanguard’s return estimate for international stocks is 7.4% to 9.4%.3  The lesson--diversify by investing globally. 
  • Keep your costs low. Index and market tracking funds have rock bottom expenses, which increases the probability of better returns relative to higher cost actively managed funds.
  • Focus on what you can control.  While you can’t control investment returns, you do have a say in three of the most important factors in financial planning – how much you save while working, when you retire, and how much you spend during retirement.  Consider boosting your savings as much as possible while working. Give some thought to working a few additional years - it can make a big difference in the success of a plan.  And, when you do retire, make sure that your spending is conservative relative to your portfolio.                                                                                                                                                                                                                                                                                                               

So if the future does bring lower returns, don't be a Que Sera Sera investor. A well-thought out plan will still allow you to achieve your goals.  

Can we help with your financial planning? Please connect with us.

1: Source: Yahoo Finance
2. Source: Dimensional Fund Advisors. Globally Balanced Portfolio Construction:  Monthly 10/1/1990 - 9/30/2020. Bloomberg Barclays U.S. Aggregate Bond Index 40.0%, MSCI World ex USA Index (net div.) 18.00%, Russell 3000 Index 42.00%.  Rebalanced monthly.    Performance for periods greater than one year are annualized unless marked with an asterisk (*). Selection of funds, indices and time periods presented chosen by advisor. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. 
Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end access our website at us.dimensional.com. Average annual total returns include reinvestment of dividends and capital gains. 
Model portfolios are constructed in the Returns Program using past data of funds or indices as of a specific date, assigning weights to those funds or indices to equal 100%. The model portfolios constructed are hypothetical and are not representative of actual portfolios. Their performance is hypothetical, for illustrative purposes only and is subject to limitations. Unless otherwise specified by the user, the hypothetical performance is gross of fees and is rebalanced monthly. The performance presented does not replace an advisor's actual model portfolio performance. Past and hypothetical results are no guarantee of future results.
The model performance is based on model/back tested asset allocations. The performance was achieved with the retroactive application of a model designed with the benefit of hindsight; it does not represent actual investment performance. Back-tested model performance is hypothetical (does not reflect trading in actual portfolios) and may not reflect the impact that economic and market factors may have had on advisor's decision-making if the advisor were actually managing client money. Material is not to be considered a recommendation or investment advice to buy or sell any security. 
3. Source: Vanguard Investment Strategy Group Market Perspectives October 2020. The projections or other information generated by the Vanguard Capital Markets Model® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from the VCMM are derived from 10,000 simulations for each modeled asset class. Simulations are as of June 30, 2020. Results from the model may vary with each use and over time. These probabilistic return assumptions depend on current market conditions and, as such, may change over time. The VCMM projections are based on a statistical analysis of historical data. Future returns may behave differently from the historical patterns captured in the VCMM. More important, the VCMM may be underestimating extreme negative scenarios unobserved in the historical period on which the model estimation is based. All investing is subject to risk, including possible loss of principal.
RRCM Disclosure
The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only.  Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.