Be prepared for lower returns on your investments for retirement

MAKING your money work harder has been relatively challenging ever since the global financial crisis in 2008. And subsequent events such as the European debt crisis and China's economic slowdown have created so much volatility and uncertainty in equity markets that many investors have found it hard to stay invested and, ultimately, to make decent returns.

It might be even more difficult to make decent returns in future. The McKinsey Global Institute, a private-sector think tank, has released a report suggesting that while US and European equities averaged 7.9 per cent a year in real returns over the past 30 years, they may deliver only 4.0-6.5 per cent a year and 4.5-6 per cent a year in real returns respectively over the next 20 years.

The prediction for bonds is more dire: US and European bonds averaged 5.0 per cent a year and 5.9 per cent a year real returns over the past 30 years, but are forecasted to deliver real returns of 0-2.0 per cent a year over the next 20 years. Real returns are adjusted for inflation.