In a new report, “2018 Long-Term Capital Market Assumptions,” the $1.6 trillion asset manager explains that the long-term return of a traditional 60/40 stock/bond portfolio, which is “a reasonable proxy for the average asset allocation over a typical participant’s life span,” has declined to 5.25% annually from 5.50% last year.
“With modest global economic growth estimates broadly unchanged and return assumptions for many major asset classes lower than last year’s, participants face an undiminished challenge as they look to ensure a financially secure retirement,” according to the report.
It expects bond returns will improve due to an “anticipated slow road to normalization,” but “elevated valuations … [will] constrain equity returns.”
Given this outlook, J.P. Morgan recommends three “concrete steps” that plan sponsors can take to improve outcomes for participants in retirement plans — steps that advisors working with defined contribution plans can accommodate.
1. Encourage more savings.
“Saving more is the most obvious and effective way to improve retirement outcomes,” the report states. With that in mind it recommends that plan options include automatic enrollment and automatic escalation of contributions.
Most plan participants support such measures, according to J.P. Morgan Asset Management, and its research indicates a majority of DC plans implemented auto enrollment and half include automatic escalation of contributions.
2. Make portfolio diversification easier.