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Wednesday, September 30, 2009

Lower return expected in the future

QUOTE
Sept. 30 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross says investors should expect total returns on equities of about 5 percent annually as consumers curb spending and increase savings.

“Returns mimic nominal” gross domestic product, Gross, manager of the world’s biggest bond fund, said in an interview yesterday with Bloomberg Radio. “Nominal GDP is the growth rate of wealth on an annual basis. The new normal is 2 to 3 percent GDP and real growth of 1 to 2 percent.”
UNQUOTE


If total return on equity is 5% p.a., the return on a diversified fund will be lower, say 3% p.a. If the financial product gives a reduction in yield of 2%, the net return will only be 1%.

With low return, it is important for the financial product to have lower reduction in yield, i.e. lower the marketing and other charges.

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