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A Low-Return World

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It’s the elephant in the room that no-one wants to face up to. We are living in a world of low-return. While brokers, bankers and financial advisers are not overly keen to admit it to you, this austere world economy does not offer huge opportunities for investors to make money at present, and may not do so for many years. Or rather I should say, at least not within the usual round of suspects in the investment world.

This is not based on anecdotal evidence, but authoritative reports released by respected organisations who have done their due diligence. In February of last year, the London Business School released its predictions for a variety of asset classes over the next thirty years. Of course, predicting such potentially fluctuating information over a period of decades is notoriously difficult. Early experiments with weather prediction by Edward Lorenz’s which led to the mathematical discovery of chaos theory and the notion that complex systems are inherently unpredictable and unstable. Perhaps economists are to the economy as weather reporters are to the storms but the prediction of the London Business School make sobering reading for investors. They are emphatically bearish.

According to the London Business School, term deposits, will actually lose investors about 0.5 per cent a year between now and 2043, once inflation has been factored into the calculation.[1] While this is a rather dismal prognosis – far from making you money, these investments will ensure that you have less than you started with! (And there is a rather a lot of cash residing in such investment mechanisms) Self-managed super funds still held 28.6 per cent of their total $474 billion in cash and term deposits as of December 2012.

But if you think that’s the only less than stellar news for investors – guess again. The London Business School forecasts for other investments make equally gloomy reading. Government bonds will make you zero in real terms according to the school’s long-term analysis, while they were no more enthusiastic about the potential of listed shares of this three decade period.

 

 

[1] Business Review Weekly – Hunt for growth: How to make money in a low-return world: http://www.brw.com.au/p/investing/hunt_for_growth_how_world_make_money_IcZQcRAUpBceRriYpNLZUK