Investment returns over the next 10 years are likely to be more than 2% lower per year than they have been over the past 20 years, according to a new report from BMO Capital Markets.

The report, which looks at Canada’s future economic growth prospects, predicts that average returns will be meaningfully lower in the years ahead. It foresees lower returns on all major assets — cash, bonds and stocks — and suggests that a simple portfolio comprised of 55% stocks, 40% bonds and 5% cash will average a 5.6% annual return over the next decade, compared with 7.8% for the past 20 years.

“While more than two percentage points below the past two decades, that’s still a healthy 3.5% above expected inflation,” the report notes; adding that even though the recovery has been painfully slow to get going, “the positive aspect for financial markets is that it likely will be quite long-lived.”

Bond returns are seen at just 4.0% over the next 10 years, down from 7.0%; and stock returns are expected to decline to 7.0% on average, from 8.8%. Even cash returns are expected to be a bit lower in the years ahead. The report explains that these more modest returns can be expected in a climate of slower gross domestic product (GDP) growth and continued low interest rates.

Indeed, it predicts that growth rates will be slower in the future; which actually continues a trend that has been in place since the 1960s. From nearly 6% average real GDP gains in the 1960s, growth rates have steadily cooled “to the point where 2% is now seen as nearly normal”, it says. Looking ahead, that is expected to decline further to closer to 1.5% in the 2020s, it says.

This decline is being driven primarily by demographics, specifically the aging of the population, and the accompanying slowing in the growth of the working age population; coupled with stubbornly modest productivity gains.

As a result, on a global basis, Canada is expected to slip a bit to below a 2% weight in the global economy; whereas emerging markets will continue to rise. Fast-growing emerging nations with larger populations, such as Indonesia and Korea, will pass Canada in the global rankings, it says.