Athar Hussain/Reuters/File
A man counts one-hundred-dollar U.S. bills at a money changer in Karachi in this file photo. Because of new, lower interest rates set by the Federal Reserve, returns on traditional investments are lower than before.

Investment returns getting lower. How to profit?

With investment returns getting lower and lower, professional help in managing portfolios is more important than ever.

An interesting take on what the investor class needs to wrap its collective head around given the some new realities from Jean L. P. Brunel, chief investment officer at GenSpring Family Office:

Mr. Brunel argues that the classic link among the return premiums for bonds over cash and stocks over bonds still holds, but they are substantially lower because of the low interest rates set by the Federal Reserve.

Here is how it works. The return on cash is typically the expected rate of inflation plus some real interest rate that is derived from the rate a central bank sets to promote growth. The return on bonds is cash plus some additional amount to account for the duration of the bond. The return on equities is the bond returns plus some premium for the risk associated with stocks.

He noted that cash typically had a return of 4 percent, putting bonds at 6 percent and stocks at 8 to 9 percent. With cash now yielding zero, that has lowered bonds’ return to 2 to 2.5 percent and stocks to 5 percent. The problem, as he sees it, is that too many people are stuck on the old numbers.

“I don’t want you to read into this that we have precise information on real returns,” he said. “I could be wrong. It wouldn’t be the first time. But whichever way you cut it, the environment is radically different."

The above comes from a New York Times story.  Brunel is from the family office world so you can bet the portfolios he allocates (or oversees) are as plain vanilla and buy-and-hold oriented as possible.

In my view, there are two ways for affluent investors to get around these new low return expectations, each comes with its own set of risks:

1.  Tactical Asset Management (Maximizing the market's upside potential at the right time and missing as much of its downside as possible when the trend changes - this can be done but most do not have the tools)

2.  Alternative Strategies and Asset Classes (This could encompass hedge funds or hedge fund-like vehicles that are truly non-correlated, master limited partnerships, futures, real estate, fine art, gemstones)

But again, these are not necessarily easy for the average investor to research, choose between and then deploy.  Which is where professional help comes in.  If 5% returns are to be the new norm for stocks, this kind of help will be more important than ever.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Investment returns getting lower. How to profit?
Read this article in
QR Code to Subscription page
Start your subscription today