Investors should not expect the same yields on their stock and bond portfolios for several years, said Bill Gross, the investment guru who runs the world's biggest bond fund at Pimco.
Investors should plan on receiving about half of the previous normal of 8 percent, Gross says.
"And that means, ultimately in terms of risk assets, whether it's stocks or high-yield bonds or even bonds themselves, that those types of returns will reflect a slower rate of growth," he says. "In other words, instead of 8 to 10 percent in terms of return for risk assets, you should expect 4 to 6 percent. Reduce your expectations,” he told CNBC.
Gross said investors need to get ready to receive much smaller returns from their investments.
“We should expect less as opposed to more — new normal as opposed to old normal. We should expect that the private economy is delivering on a global basis. That means consumption and household income growth will be less than it has in prior years,” he said.
Since the 10-year Treasury note is only yielding just below 4 percent, investors should expect that to be the new rate of growth, Gross said.
“A company like Pimco hopefully can produce something beyond that because that's our historical track record and that's something investors look for us to do,” he said.
Jack Bogle, founder of the Vanguard funds group, predicts the market will produce slightly better returns than Gross’ forecast.
“We ought to be able to get from these earnings levels maybe earnings growth of 6 percent and total returns from stocks a little bit over 8 percent, and I think that's a reasonable forecast," he said.
"The fundamentals of stock returns ought to be about 8 percent and 4 percent in the bond market. When you compound those numbers of 10 years, that's almost 100 percent for stocks and 50 percent for bonds. That's a big difference."
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