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Your 401(k) Will Suffer Over the Next 10 Years – Here’s What You Can Do About It

25 November, 2016

Your 401k Will Suffer Over the Next 10 Years

A mere 5 percent return might not seem like a lot to demand out of a long-term investment, but in today’s volatile market, the odds of hitting even that ultra-low number have become increasingly unlikely. According to Bloomberg, investment advisory firm Research Affiliates expects 401(k) returns to plummet over the next ten years after evaluating the default settings of 11 retirement calculators, robo-advisers and surveys conducted by institutional investors.

“The next 10 years will be ugly for your 401(k).” - Bloomberg

Although their average annualized long-term expected return was 6.2 percent,after factoring in a decade of inflation (-1.6 percent) that number drops to 4.6 percent – which many firms choose to round up. This means that an average return of 5 percent is – at best – what most investors with IRA or 401(k) retirement accounts can expect to see.

The problem is, most people are planning to retire at 65 based on receiving 6-7% returns, but that number will actually be at least 30% - and up to 50% less, which can spell out serious trouble during your golden years. To demonstrate this, Research Affiliates also looked at the typical mainstream“ balanced portfolio” model most investors aim for, which contains 60 percent stocks and 40 percent bonds.

“A typical balanced fund with 60 percent stocks and 40 percent bonds has a zero chance of returning 5 percent or more over the next 10 years,” - Bloomberg

To see how this plays out,one need only to look back at the 10-year performance of the Dow Jones Industrial Average market index, which shows only a 4.61 percent return, or the S&P 500, which has only realized a return of 4.71 percent annual profit over the last decade.

Dow Jones Annual Returns - S&P 500 Annual Returns

The average returns for a decade is only 4.6% for the DOW and 4.71% for the S&P 500.

Look back 20 years and the picture doesn’t get much better. During the 25-year period between 1987 and 2012, the Dow Jones Industrial Average only delivered a paltry growth rate of 7.55% - before inflation. The compounded annual return for the Dow during the 91-year period before 1987? About 4.3 percent. As for the S&P 500, on average 20 years of performance amounts to around 10% returns, but again that’s without inflation factored in so the “real number” is actually several points lower.

Goldman Sachs agrees, with respected analyst David Kostin telling the media that he doesn’t expect to see much growth in the near future during a press conference earlier this year in reference to how he expects the market to behave based on current trends.

“Flat is the new up, only six percent of the time during the last 40 years has the median stock traded at a P-E multiple higher than it does today.” - Kostin

What many investors still don’t know, however, is that it is possible to use an IRA to purchase secure, non-traditional investment vehicles, such as real estate. This provides the opportunity to realize a much greater return on investment (ROI) while also experiencing a great deal less volatility than stocks and bonds, if you invest wisely in a strong rental market.

Annual Returns - Real Estate vs Dow vs S&P 500

Comparison of the average returns of real estate with a 10% income from rentals compared to the DOW and S&P 500.

For example, compounding the 10% return from real estate vs the other markets gives you 50%+ more income. You can get returns of 8-14% in a conservative real estate market in Mexico’s most popular destinations, with the added benefit of gaining a luxury vacation home in the process. How? Innovative new developments offer luxury condos and resort-style living, which means investors also get to enjoy access to their very own vacation home for as much as they would like, remembering though that the more you use it the less you will make. But the best part is that the units are professionally managed and offer strong rental income that covers all costs and maintenance, while providing added ROI.

Compounded Annual Returns

Real estate vs the other markets gives you 50%+ more income. With the S&P500,your $250,000 investment would be worth $424,680 at the end of 10 years,whereas real estate with 10% rental income would be worth $648,436.

If you’re ready to ditch the volatile ups and downs of a traditional stock market portfolio and invest in real estate where you can experience strong ROI from vacation rentals instead, you need a No Worries No Hassles property that won’t make ownership a full-time job! Click the link below to see how buying real estate in one of the world’s top vacation destinations can have a positive impact on your bottom line and provide ongoing return on investment.

Which is the better investment? Real Estate or Stock | Discover why real estate beats the stock market in our free guide

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Topics: Real Estate Investment 401k

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