Connections

INSIGHTS FOR NONPROFITS

MAY 4, 2016  
CONNECT
Director of Nonprofit
888.918.3565     

 

www.eidebailly.com
  
View our profile on LinkedIn Blogs Watch Us on YouTube Find us on Facebook Twitter

Eide Bailly Mobile
  

SERVICES

Forensic & Valuation

  
ABOUT US
Eide Bailly is a top 25 CPA firm in the nation, has worked with nonprofits since 1917 and currently services more than 1,600 organizations across the nation.
 
Connections is published on a regular basis to keep our clients and friends informed of current news impacting nonprofits.
New McKinsey Report: Investors Should Expect Lower Returns for the Next 20 Years

In a just released report, the McKinsey Global Institute is warning investors they may need to lower their expectations anywhere from approximately 150 to 400 basis points on equities, and 300 to 500 basis points on fixed income investments-and in some cases even lower than that-as the forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing. 

End of an Era
Given the waves of turbulence that have swept through financial markets in recent years, including the 2000 dot-com meltdown and the 2008 financial crisis, it may sound odd to describe the past three decades as a golden age for investors. But the reality is that total returns on equities and bonds in the United States and Western Europe from 1985 to 2014 were significantly higher than the long-term average. 

An extraordinary confluence of favorable economic and business fundamentals created those returns. Inflation and interest rates declined sharply from peaks in the late 1970s and 1980s, and strong global economic growth was fueled by positive demographics, productivity gains, and rapid growth in China. Corporate-profit growth was even stronger, reflecting revenue gains in new markets, declining corporate taxes, and advances in automation and global supply chains that helped rein in costs. 

The golden era has now ended. 

The big decline in interest rates and inflation is reaching its limits, global GDP growth will be lower as populations in the developed world and China age, and the outlook for corporate profits is cloudier. While digitization and disruptive technologies could boost margins for some companies, the big North American and Western European firms that took the largest share of the global profit pool in the past 30 years face new competitive pressures from emerging-market companies, technology giants, and digital platform-enabled smaller rivals. These forces may curtail margins going forward, and could have profound effects on all investors, both individual and institutional. It is therefore critical for investors of all types to start managing their own expectations and the expectations of the people who will be affected by their investment decisions.
 

  Tim McCutcheon    

 

Tim McCutcheon
Partner

303.459.6760
This publication is produced and published by Eide Bailly and distributed with the understanding that the information contained does not constitute legal, accounting or other professional advice. It is not intended to be responsive to any individual situation or concerns as the contents of the publication are intended for general informational purposes only. Readers are urged not to act upon the information contained in this publication without first consulting competent legal, accounting or other professional advice regarding implications of a particular factual situation. Questions and information for publication can be submitted to your Eide Bailly representative. To request reprints of this publication, send a written request to permissions@eidebailly.com. Copyright Eide Bailly 2015