If you’re one of the many investors counting on a 7% average yearly return from your portfolio—or better—you’re putting your retirement at risk.
You’ve probably heard this 7% figure before. It’s gospel for many financial planners, and even Warren Buffett brings it up from time to time. It’s the S&P 500’s average annual return, adjusted for inflation, between 1928 and 2014.
With a time frame like that, it seems like a safe bet, right?
Wrong. Because over the next several decades, we’re way more likely see average yearly returns of 4% to 6%—and probably toward the lower end of that range.
I’m not the only one who thinks so. Consulting firm McKinsey & Co. just released an alarming study saying exactly the same thing. And if you think a 2% drop isn’t a big deal, consider this: according to McKinsey, a 30-year-old today would have to work for seven more years to enjoy a similar quality of retirement.
Why the pessimism? Because as McKinsey points out, if you look back at just the last three decades, you’ll see a market and global economy driven by a younger workforce, a big drop in interest rates and massive productivity gains as technology leapfrogged ahead.
But now we’re facing the reverse: aging workers in the U.S., Europe, China and Japan, and inflation and interest rates that have pretty much bottomed out.
Meantime, S&P 500 companies are getting squeezed as nimble upstarts and big tech firms, like Apple (AAPL) and Alphabet (GOOGL) turn whole industries upside down. According to Goldman Sachs (GS), the IT sector accounted for more than half of the S&P 500’s margin expansion since 2009.
The Key to Beating Slow Growth and Retiring Rich
The tech sector’s a little pricey for my taste right now, so I’m zeroing in on a handful of bargain investments yielding upwards of 4.0%. That lets you lock in most of the return McKinsey says we should expect right out of the gate.
I’ll name two high-yielding dividend growers my proven investing system just uncovered a little further on. But first, let’s talk about two dangerous dividends you need to keep out of your retirement portfolio.
A “Steady” Stock That’s Anything But
Plenty of investors flock to Kimberly Clark (KMB) because of the tissue maker’s 2.9% dividend yield and its status as a Dividend Aristocrat (meaning it’s raised its payout for 25 straight years). But that doesn’t mean it will hike its dividend forever.