As of Friday morning, markets are finishing the month on a positive note. The Fed’s favorite inflation measure (PCE, or Personal Consumption Expenditures price index) for July 2024 was published today by the Bureau of Economic Analysis. It showed that prices increased 0.2% in July, which was in line with expectations. This makes it a near certainty the first Fed rate cut will come in September, with a 70% chance it will be a 0.25% cut, and a 30% chance of a 0.50% rate cut.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
If you’re in the business of retirement planning, you must make certain assumptions about the future behavior of the markets. Every year Horizon Actuarial Services, a pension fund consultant, conducts a survey to gather market forecasts from major financial firms. 41 companies participated this year and the results were published this month. The annual publications are available to the public and easy to read. The latest edition can be found here – https://www.horizonactuarial.com/survey-of-capital-market-assumptions
While some companies may be more optimistic, and others more pessimistic, the individual responses are kept confidential and only the averages are published. Here are some highlighted 10-year expected returns from this year’s publication –
Large US stocks: 6.46%
Non-US stocks (Developed countries): 7.08%
US Bonds (Core): 4.93%
Hedge Funds: 5.90%
Cash Equivalents: 3.68%
Inflation: 2.42%
It’s important to remember that these figures are just forecasts. No one has a crystal ball. However, as these figures represent the analysis performed by 41 major financial firms, we feel they provide a useful input to our retirement planning process. Specifically, we use them to ensure the forecasts we use from Raymond James are reasonable, and we’re happy to report they are.
We also find it interesting that combining the most popular investment asset classes of US large cap stocks and US bonds doesn’t give investors much variation in their forecasted returns.
40% US large cap stocks / 60% US Bonds = 5.54%
50% US large cap stocks / 50% US Bonds = 5.70%
60% US large cap stocks / 40% US Bonds = 5.85%
70% US large cap stocks / 30% US Bonds = 6.00%
80% US large cap stocks / 20% US Bonds = 6.15%
These combinations represent a wide range of risk, but a narrow range of expected returns. If these forecasts are close to being accurate, investors should consider broadening their investment mix beyond what has worked so well in the past decade.
Have a great holiday weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
Harmon Financial Advisors, Inc. is an independent, fee-based financial planning firm and an independent Registered Investment Advisor. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. and Harmon Financial Advisors, Inc. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Harmon Financial Advisors, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.
Keep in mind that individuals cannot invest directly in any index. Past performance does not guarantee future results. Individual investors’ results will vary.
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