It may be time for investors to lower their expectations, as the forces that have driven exceptional investment returns over the past 30 years are not only weakening, but in some cases, reversing, according to a report by the McKinsey Global Institute released last week, “Diminishing returns: Why investors may need to lower their sights.”

The “Golden Age” for investors, the period between 1985 and 2014 in which total returns on equities and bonds in the United States and Western Europe were significantly higher than the long-term average, may soon be ending, according to the report.

“The big decline in interest rates and inflation is reaching its limits, global GDP growth will be lower as populations in the developed world and China age, and the outlook for corporate profits is cloudier,” the authors wrote.

“While digitization and disruptive technologies could boost margins for some companies, the big North American and Western European firms that took the largest share of the global profit pool in the past 30 years face new competitive pressures from emerging-market companies, technology giants, and digital platform-enabled smaller rivals. These forces may curtail margins going forward.”

The report, written in collaboration with McKinsey’s strategy and corporate finance practice, estimates that for equities in the United States and Europe, average annual returns could be anywhere from about 150 to 400 basis points lower. For fixed-income, the drop could be even larger, with average annual returns between 300 to 500 basis points lower.

“These lower rates of return could have a profound effect on all investors — both individual and institutional — and, by extension, on governments more generally,” the authors wrote. “For example, a two-percentage-point difference in average annual returns over an extended period would mean that a 30-year-old today would have to work seven years longer or almost double her savings to live as well in retirement.”

While the authors mentioned alternative, more positive scenarios, they nevertheless cautioned both individual and institutional investors “to manage their own expectations and the expectations of the people who will be affected by their investment decisions.”

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