{"id":1265,"date":"2020-02-26T20:14:54","date_gmt":"2020-02-26T20:14:54","guid":{"rendered":"https:\/\/www.keystonefinancial.com\/?p=1265"},"modified":"2020-11-13T11:26:47","modified_gmt":"2020-11-13T11:26:47","slug":"answers-to-3-big-questions-on-clients-minds","status":"publish","type":"oi_article","link":"https:\/\/www.keystonefinancial.com\/articles\/answers-to-3-big-questions-on-clients-minds","title":{"rendered":"Answers to 3 Big Questions on Clients\u2019 Minds"},"content":{"rendered":"\n
The start of the year is the season for market updates. Financial advisors often host events for their clients during the winter months, providing presentations and, even better, investment experts to deliver the presentation and answer questions that clients might have about the markets.<\/p>\n\n\n\n
I like every part of the presentation experience. Meeting the clients is motivating. I enjoy sharing what recently happened in markets, speaking to the current situation, and educating clients about future opportunities and risks. What I enjoy most is answering clients\u2019 questions.<\/p>\n\n\n\n
These are some questions that have been on clients\u2019 minds and a shortened version of the answers I shared.<\/p>\n\n\n\n
U.S. stock markets have historically gone up around 10% per year over the long run. Should we anticipate similar returns in the future?<\/strong><\/p>\n\n\n\n Investors should temper their expectations for future stock returns. From 1970 through 2019, the S&P 500 rose 10.5%. Global developed stocks, represented by the MSCI World, rose 9.7%. Over that period, inflation was nearly 4% most of the time. Using 10% as a rough estimation for global stocks and 4% for inflation, stocks real return \u2013 or the return above inflation \u2013 was about 6%. Currently inflation is below 2%. Assuming inflation reaches 2% in the future, a consistent real return of 6% would pull estimates down to 8%.<\/p>\n\n\n\n Valuations are also pushing our expectations lower for future returns. Twenty-one times in the past 12 months earnings, the S&P 500 looked more expensive than average. Valuations can act as a restrictor on the pace of returns. While not extremely expensive, it seems reasonable to slice a little off future returns.<\/p>\n\n\n\n The long-term expected returns for stocks will likely be lower than the historical nominal level. Even with some discounts for lower inflation and higher valuations, we still see stocks as the key long-term investment for growing wealth above the rate of inflation.<\/p>\n\n\n\n How will the ballooning U.S. deficit affect markets?<\/strong><\/p>\n\n\n\n Hardly anyone seems to care about the deficit. The Republicans don\u2019t care. The Democrats don\u2019t care. The bond market doesn\u2019t care. That may be a reason to worry even more, but other countries, like Japan<\/a>, have run much larger budget deficits relative to their economy, and rates remain very low.<\/p>\n\n\n\n