Morgan Stanley sees market returns tumbling over next 10 years

A weak environment for economic growth and inflation, paired with low bond yields, portends anemic returns from a typical stock-bond portfolio over the next decade, according to Morgan Stanley.

A traditional fund — split 60% equities and 40% fixed income — will see an annual gain of just 2.8% over that time, about half the average over the last two decades, the firm’s strategists estimate. That’s based on the S&P 500 Index returning 4.9% per annum and 10-year Treasuries handing investors 2.1% a year for a dollar-denominated investor.

[Recommended video: Ed Slott: Share these two planning ideas before 2019 ends] ​

Not only will the returns be below what investors are used to, but lower sovereign-bond yields will dampen the ability of fixed-income securities to offset large declines in equities, the Morgan strategists said.

[More: Lower bond yields leave advisers pursuing controversial income strategy]

“The return outlook over the next decade is sobering,” according to strategists including Serena Tang and Andrew Sheets. “Investors face a lower and flatter frontier compared with prior decades, and especially compared to the 10 years post-[global financial crisis], when risk-asset prices were sustained by extraordinary monetary policies that are in the process of being unwound.”

The assessment comes with a caveat that in the past, low return expectations failed to materialize because central bank intervention pushed up asset prices.

The analysts see the U.K. having the highest return potential for equities, followed by emerging-market shares.

[More: Advisers scramble to help retirees navigate looming Fed rate cut]​

Related Topics: Morgan Stanley & Co.