Why the best case scenario is lower returns

Investors expecting returns over the next two decades similar to those of the past 20 years are likely to be disappointed, argues Steve Johnson of Forager Funds. Here’s what to do about it.

In April 1992, Australian Government Bonds yielded over 13.5%. The annualised inflation reading for the March quarter of that year was 8.7%. It had been well north of 5% for most of the previous 20 years and, given 13% government bond yields, there was an expectation that it would stay that way.

Fast forward 25 years and the world couldn’t look more different. In April 2015, the same 10-year bond yielded 2.5%. Despite interest rates approaching zero, inflation expectations have fallen dramatically.

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