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Global synchronized growth, combined with muted inflation and low interest rates, propelled stocks to new highs in 2017.

Globally, stocks returned 20.4% in 2017, with every major region contributing. Emerging markets led with a stellar 30.4% return, followed by North America’s 20.6% and international (or Europe/Australasia/Far East) stocks’ gain of 17.1%. (All returns are expressed as MSCI Inc.’s gross returns in local currency.)

Not surprising, optimism among investors has skyrocketed. Bullish sentiment in the American Association of Individual Investors Sentiment Survey hit a seven-year high on Jan. 4. In fact, this level of bullishness has been matched or exceeded in only 46 weeks in the 30-plus years covered by the survey.

Elevated optimism “today” has, for many investors, led to buoyant expectations for returns “tomorrow.” London, U.K.-based Schroders PLC, a global investment manager, conducted a separate survey of 22,100 investors around the globe in June 2017. That survey found that investors, on average, expect an annual return of 10.2% on their investments over the next five years. One subset was particularly bullish: 13% of investors surveyed expect annual returns of at least 20% in their investment portfolios.

Future return optimism correlates with age. Investors in the 18-to-35 age group are by far the most optimistic, with an 11.7% return expectation. They’re followed by the 36-to-50 age group, who anticipate a 9.8% return. Investors aged 51 to 69 expect an 8.6% return, while investors aged 70 and over are the most conservative, with an anticipated 8.1% return.

Return expectations were pervasively bullish across geographies. North American and Asian investors tied for most optimistic, expecting an 11.7% average return, while European investors, the most conservative, still anticipated a rewarding 8.7% return. Canadians’ expectations were similar to their European counterparts, with an 8.6% return expectation, although 29% of Canadians – almost one in three – expected annual returns of 10% or better.

Unfortunately, these return expectations of the typical investor are unrealistic. To the extent that any portfolio contains investment-grade bonds, today’s abysmal yields mean the return from this asset class is likely to be in the low single digits. With global stocks currently trading at a rich 21.6 price/earnings ratio and a meagre 2.2% dividend yield, future stock returns are likely to be mediocre. The cyclical nature of the stock market eventually will assert itself and profits, valuations and prices will tumble during the next inevitable recession. Then, rising valuations and growing profits normally take several years to lift stocks to new peaks.

Blue-chip portfolio managers incorporate this cyclical reality into their outlooks. Robeco Institutional Asset Management BV, a Netherlands-based global investment manager, just released its equities market forecasts for the next five years. The firm forecasts 5% and 6.25% annual returns for stocks in developed countries and emerging market stocks, respectively.

Schroders is more pessimistic, forecasting a 4.2% annual return for equities globally over the next seven years.

As a financial advisor, you need to ensure your clients’ expectations are in tune with the low return prospects of today’s capital markets so clients remain committed to sensible investment plans even in the face of subpar portfolio returns.

Retirees, in particular, need to budget their cash flows using realistic return numbers. Reducing cost drag by using ETFs and low-cost active portfolio managers is crucial.

Michael Nairne is president of Tacita Capital Inc. of Toronto, a private family office and investment-counselling firm.