As we move closer to the New Year, many people begin setting personal goals and resolutions. Among the most common ones is the decision to get serious about retirement planning. It’s something people often promise themselves each year — to save more, invest better, and prepare for a comfortable future.
In theory, the formula for financial success sounds simple: pay off high-interest debt, reduce unnecessary spending, save consistently, and invest wisely. However, when it comes to actually doing it, the process becomes far more complex. People are often faced with difficult questions like:
- How much money do I really need to save for retirement?
- What are the best investment options for me?
- What kind of returns should I expect from my investments?
While the first two questions depend heavily on your personal situation — your lifestyle expectations, spending habits, and risk tolerance — they cannot be answered without understanding the third question: expected investment returns. So, let’s start by looking at that.
What Returns Can You Expect?
The truth is, no one can predict the future, and the shorter your investment period, the more uncertain your returns become. Markets fluctuate due to interest rates, inflation, politics, and investor sentiment — all factors outside of your control.
Bonds
Bonds are often considered safer than stocks, but even they are not risk-free. When you buy a bond and hold it until it matures — and assuming the issuer doesn’t default — you can calculate exactly what you’ll earn. But in the short term, bond prices can rise or fall significantly.
A good example of this was in 2022, when inflation increased sharply, forcing central banks to raise interest rates. As a result, bond yields rose, but bond prices fell. Investors who sold bonds early that year faced losses, even though those who held until maturity eventually recovered their money.
For long-term expectations, a practical rule of thumb is to take the bond’s yield and subtract about 1.5% to 2.5% to account for potential defaults. The exact amount depends on how risky the bond is — bonds issued by strong, stable governments are safer than those issued by companies with uncertain financial health.
Equities (Stocks)
Stocks offer higher potential returns than bonds, but they also come with higher risk. Predicting short-term stock performance is especially difficult.
For instance, as of now, 11 analysts who track the US S&P 500 index predict different outcomes for the end of 2026 — ranging from 5750 points (a 17% drop from current levels) to 7950 points (a 15% rise). That wide range shows just how unpredictable short-term markets can be.
However, long-term forecasts are more stable. According to research from 10 major investment firms, the average annual expected return for equities over the next 10 years ranges between 3.6% and 7.8%. This might seem like a small difference, but compounding makes it huge over time:
- A 3.6% annual return means a total growth of about 42% over 10 years.
- A 7.8% annual return means a total growth of about 112% in the same period.
This is why long-term investing matters — small differences in annual return rates can have a massive impact on your wealth over time.
The Narrowing Gap Between Bonds and Equities
In recent years, the gap between expected stock and bond returns has narrowed. There are two main reasons for this:
- Bond yields rose sharply in 2022, which increased expected future returns for bonds.
- Stock prices have become more expensive, especially in the US, meaning the potential for future gains might be smaller.
At the moment, our 5-year projections are:
- Global equities (stocks): 7% annual return
- Global bonds: 4.7% annual return
This still suggests that equities should outperform bonds over the long term, but the smaller gap means bonds are becoming more attractive for conservative investors. Bonds can help reduce volatility in your portfolio — meaning fewer sharp ups and downs.
The Role of Inflation
Inflation is one of the most important factors to consider when investing. It affects both your purchasing power and your investment returns.
Globally, inflation is expected to stay under control, but in the United States, inflation may remain higher — possibly above 3% for the next several years. This is a major change from the period between 2009 and 2020, when the US Federal Reserve actually struggled to raise inflation to its 2% target.
Even though the difference between 2% and 3% may sound small, it matters a lot. A 1% to 1.5% increase in inflation can reduce your real returns (after adjusting for inflation) significantly.
How Inflation Affects Bonds and Stocks
- Bonds: Most bonds offer fixed interest payments, so when inflation rises, the real value of those payments falls. If prices go up by 10% over a few years, the bond’s true (inflation-adjusted) value drops, and you permanently lose purchasing power.
- Equities: Stocks, on the other hand, tend to adjust better over time. As prices rise, companies usually earn more revenue and profits, which supports higher share prices and dividends. This means that over long periods — five to ten years — equities generally protect investors better against inflation than bonds.
For this reason, if you expect inflation to stay high, it makes sense to hold a larger share of equities in your portfolio.
The Role of Gold and Alternative Assets
Gold is another way to protect your wealth from inflation. It doesn’t produce income like stocks or bonds, but it has historically served as a store of value during times of economic uncertainty or high inflation.
However, because gold doesn’t pay interest or dividends, it’s hard to predict its long-term returns. For this reason, many financial models suggest keeping a small portion of your portfolio in gold — usually between 5% and 10%.
At present, we maintain a 7% allocation to gold in our portfolios. This has performed well recently, and although we expected a short-term decline earlier this month, we believe the long-term reasons for holding gold remain strong. Therefore, we plan to keep a slightly higher-than-average allocation for now.
Beyond gold, there are other investment areas that can enhance portfolio performance or reduce risk:
- Private equity: typically earns over 10% annually.
- Private credit: offers around 8.5% annual returns.
- Hedge funds: expected to return between 4% and 7%, providing steady performance with less market volatility.
These “alternative assets” can make a portfolio more diverse and resilient during uncertain times.
Bringing It All Together
Expected returns are only one part of building a strong investment plan. You must also consider the level of risk and volatility you can handle. A well-balanced portfolio combines different asset classes — equities, bonds, gold, and private assets — to achieve growth while minimizing potential losses.
It’s also wise to seek professional financial advice. A qualified advisor can help you design an investment strategy that matches your income, goals, and risk appetite. While you’ll pay a fee for these services, the long-term benefit of having a clear, well-structured plan is invaluable.
In the end, retirement planning isn’t just about saving — it’s about making informed, consistent decisions. The earlier you start and the better you understand your investments, the easier it becomes to achieve financial freedom and a comfortable retirement.
