Pimco's Bill Gross: The Days of 10% Returns Are Gone

Bad News for Investors: The Days of 10% Returns Are GoneMany investors have been wondering what combination of stocks and bonds in their portfolios will allow them to retire comfortably in this era of low interest rates. Bill Gross, who presides over the world's largest bond fund at Pimco investments, has some bad news for them: It isn't going to happen.

"A future of low investment returns, and a heap of trouble for those expecting more, is what lies ahead," Gross said in his monthly investment outlook commentary.

Gross says bond returns are likely to be in the 2.5% to 3% range in the near future. Returns on equities, historically around 12% over the last 30 years, are most unlikely to exceed single-digit returns in the current era of 2% to 3% GDP growth. Gross also predicts the Federal Reserve will try to return the country to something like 4% to 5% economic growth by the old "coin shaving trick" of fueling inflation at 2% to 3% a year.

The Fed will accomplish that by buying hundreds of billions of dollars of Treasury bonds, which will drive interest rates lower in a process called quantitative easing. That will force investors looking for decent returns to jump into the stock market, bidding up prices of higher-yielding stocks, he says.

But Gross doesn't think the situation is hopeless for investors.

Look for Opportunities Outside the U.S.

Speaking on CBNC, he urged investors to seek higher returns outside of the United States, putting their money in places like China and other Asian countries where the currencies are stronger than the dollar and the growth rates are higher than in the developed world.

"Bonds are only yielding 2.5% and the very slow growth for equities means that you can't produce those old 10% returns that many households are expecting for retirement," Gross said. "Investors should be looking outside the United States, especially if the dollar is declining and reducing your standard of living and purchasing power."

Gross says that many pension funds are still operating on the mistaken assumption that they will see 8% annual returns to pay the pensions coming due for new retirees. But with bonds returning only 2% to 3%, he says, stocks would have to return upwards of 12% a year to achieve this goal, and there are no stocks producing those levels.

"Pensioners need to start contributing more or retiring at a later date," Gross says.

He says that if the Fed is successful in reflating the economy, stocks will once again be the favored investment vehicles. But that depends on 2% to 3% GDP growth and 2% to 3% inflation, both of which seem far-fetched at this point in the economic cycle.

The Federal Reserve is expected to start buying bonds again following its next meeting in November.

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You can't afford retirement, college or government propped-up housing because Bernanke..ruff ruff...grrrr....doesn't want deflation. Even Communist China looks down on what passes for "free markets" in America nowadays.

October 04 2010 at 11:53 PM Report abuse rate up rate down Reply

10%-HAH!!!. What with Ben Bernanke solving all money problems by giving it away returns have fallen into the basement and thrift habits made obsolete. Banks overlook how easily they can double their money: borrow from the Fed at 1% and lend at 2%. Joe Cowan, San Diego County

September 30 2010 at 3:24 PM Report abuse rate up rate down Reply

i don't think i want pimco or bill gross to manage my money.....

September 30 2010 at 2:46 PM Report abuse rate up rate down Reply

Just print the money and be damned. http://dailyreckoning.com/print-money-and-be-damned/ We can inflate our way out of this crisis, as we join with the other countries in a race to the bottom with our currencies.

September 30 2010 at 11:56 AM Report abuse rate up rate down Reply

"Pensioners need to start contributing more or retiring at a later date," Gross says. Well, I guess that's it then. I'm never going to retire. Social Insecurity and Medicare is going bust as well, so the Federalies are going to default on that Contract with America too. We are doing life without parole to support the leaches on Wall Street and in Washington. I'm getting mad as hell about all this. Maybe I'll just drag-up and quit supporting this system. It looks like the folks on welfare and food stamps have it figured out.

September 30 2010 at 11:05 AM Report abuse +1 rate up rate down Reply

Invest everything in Rocket Company stock. It's bound to go up! ;^)

September 30 2010 at 10:54 AM Report abuse rate up rate down Reply
Darrell & Donna

Get rid of the fed;send greenspan to China and he can take Ben with him;;They control the money supply in the us;we dont need the fed get rid of most fed and state employees;;

September 30 2010 at 7:20 AM Report abuse +3 rate up rate down Reply
Robert & Lisa

Our socialized schools don't teach our kids how to THINK. Our government is trying to run our businesses. Maybe Glenn Beck's advice to buy gold isn't a bad idea. It is up over 400% in less than 10 years and hitting new highs almost every day.

September 30 2010 at 6:21 AM Report abuse rate up rate down Reply

I'm not going to put my head in the oven just because one blow hard so called expert cries the sky is falling!! Who made him God that he can predict returns so accurately!! Once the clowns in D.C. are reduced in strength by conservatives, the economy will begin to regain confidence. We are here because the electorate was naive and uninterested. Let's get smart and reign in the D.C. thugs so we can get our economy back!!

September 30 2010 at 4:17 AM Report abuse rate up rate down Reply
Barack Obama

Interest rates are not going to stay low no matter what the Fed does. They are monetizing the debt to such an extent that inflation will be rampant. The interest rates must reflect inflation plus some sort of return. That is just plain math, no economic genius there.

September 30 2010 at 1:53 AM Report abuse +2 rate up rate down Reply