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A smart phone shows a stock chart with stock charts on a large screen in the background.TERADAT SANTIVIVUT/Getty Images/iStockphoto

Don't let record highs for U.S. stocks distract you from the reality of subdued investment returns ahead.

A fresh batch of investment return guidelines for financial planners have just been issued and they're quite the reality check at a time when U.S. stocks are soaring. The guidelines were issued by the Financial Planning Standards Council (FPSC) and Institut Québécois de planification financière (IQPF) and were developed by actuarial and financial planning professionals. The idea is to give planners unbiased numbers they can use for long-term projections.

The assumption guidelines for 2016 are as follows:

  • Inflation: 2.1 per cent
  • Short-term interest rates (T-bills and such): 3 per cent
  • Bonds: 4 per cent
  • Canadian stocks: 6.4 per cent
  • Foreign developed market stocks: 6.8 per cent
  • Emerging market stocks: 7.7 per cent

The guidelines include projected returns for three types of investors:

  • Conservative (5 per cent short term, 70 per cent bonds, 25 per cent Canadian stocks): gross returns of 4.55 per cent and net returns of 3.3 per cent after fees estimated at 1.25 per cent.
  • Balanced (5 per cent short term, 45 per cent bonds, 40 per cent Canadian stocks and 10 per cent international stocks): gross return of 5.19 per cent, net return of 3.94 per cent.
  • Aggressive (5 per cent short term, 20 per cent bonds, 35 per cent Canadian stocks, 25 per cent international stocks and 15 per cent emerging market stocks): gross return of 6.05 per cent, net return of 4.8 per cent.

These projections are especially sobering when you consider that they're based on higher returns from cash and bonds than are available right now. The projections are designed to reflect a long-term perspective – five years and longer, so at least there's hope in some quarters that rates will rise in the years ahead. Also, the fees factored into these projects are on the modest side. A fee-based adviser might easily charge a 1.25-per-cent advice fee – you'd have to add the cost of investments to that for an all-in cost. ETFs might run you an extra 0.25 to 0.5 of a percentage point, and F-class mutual funds even more than that.

In a recent column, I noted how low bond yields are constraining investment returns. The investment return guidelines for planners suggest modest returns for diversified portfolios aren't just an issue of the moment. They may, in fact, be the new normal.