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Add another voice to the chorus advising investors to cool it on their expectations for future gains.

“Over the next decade, we believe that investors should prepare for lower annual portfolio returns,” TD Economics said in a recent report. TD’s view of the future sounds a lot like the one found in financial assumptions produced for Canadian financial planners to use in their projections for clients. The common thread is diminished expectations.

But that’s to come. For now, let’s consider just how well the markets have performed and then assess how well our portfolios have captured these gains. Given how fixated Canadians are on the housing market, it’s possible people have missed the news about how strong stocks and bonds have been for the long-term investors who held through the past 10 years.

Here’s a quick market scorecard: The FTSE Canada Universe Bond Index averaged 4.5 per cent annually over the 10 years to June 30, while the S&P/TSX Composite Index averaged 7.8 per cent and the S&P 500 averaged 13.6 per cent in U.S. dollars. All figures are total returns, which means bond interest or dividends plus changes in bond or stock prices.

Both stocks and bonds are kicking butt lately, which is unusual. Then again, unusual developments have become usual in the 10 years since the global financial status quo was smashed in a combination recession and stock-market meltdown. For the first six months of this year, bonds delivered a total return of 6.5 per cent and Canadian stocks soared 16 per cent.

Let’s turn it over to TD Economics to explain why this won’t last. TD says that with central banks expected to maintain rates around current levels, bond-market gains will be more subdued in the years ahead. Bonds are at their best when rates are falling.

On stocks, TD says the Canadian and U.S. markets are projected to return between 4 per cent and 7 per cent on an average annual basis as global economic growth slows. One small bit of positive news is that cash returns, such as from Treasury bills, are expected to be somewhat higher than they were in the past decade.

Backing up TD’s view is the most recent set of return projections from the FP Canada Standards Council, which oversees the certified financial planner (CFP) designation in Canada. I wrote about these projections not too long ago – to quickly recap, a balanced portfolio with a cash/bonds/stocks weighting of 5/45/50 is projected to produce an average annual 3.74 per cent over the long term, after fees estimated at 1.25 per cent.

Both houses and the stock and bond market have had a pretty great decade. It’s quite possible all these assets take a breather in the years ahead.

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