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Writer's pictureJulie Skye

This 2nd Week of May thoughts... Capital Market Assumptions

Updated: Sep 23, 2022




THERE IS NO EDUCATION LIKE ADVERSITY,” said Benjamin Disraeli, the 19th-century British statesman and prime minister. As the pandemic-battered global economy proved far more resilient than many had expected, investors must now navigate economies and markets that are in many ways transformed


Corporate Actions & Lawsuits: Remember getting notices from a company you owned that is now involved in a lawsuit? Rarely did you recover a cent. One of the learning curves ☹ I’ve been on this Quarter is Proxy Voting and Asset Recovery. Industry leader, Broadridge, now votes our proxies in keeping with our ESG Values…but it also represents you when there are lawsuits. Attached to this week’s Thoughts are upcoming recovery services for consumer antitrust class actions, with a brief summary of each case. Most will never impact you, but this illustrates how the service works.


If you see some large purchases placed today…don’t have a heart attack: these are the Schwab Value Advantage Money Market…SWVXX…that should have a higher yield as the year moves on! I did not invest in stocks or bonds!



Every year I input the Capital Market Assumptions…the 10-year expected annual return for the different sectors in portfolios, into Right Capital, our financial planning software. This is your future, but in numbers! Not only are there returns for the various asset classes, there is also the risk we expect, measured by standard deviation. We can never forget the risk and volatility we will be exposed to when we set our asset allocation. This is where my risk tolerance software, TOTUM Risk comes in.


Print out Vanguard’s 10-year, annualized, expected return projections, found on the next page. Wonder how we will build wealth and support your retirement on these numbers? The column on the far right is sobering as you need to double each number…to get the potential variance, up AND down…that the higher-returning sectors are expected to deliver.


Pictures tell the best stories below is a curve all finance students know by heart: the Efficient Frontier. It is also a walk down memory lane as gone are the days of a balanced portfolio earning a 7%+ return. The top curve is what 2008 looked like and below it are the 2021 and 2022 expected returns. If you do not reset your expectations you will not adjust your thinking about what is realistic for markets to return!


We do have some good news, though: if we buy bonds while they are selling below par…we have room to move back up to par: we have the chance of capital gains.



Why does this matter to you? Your total return are the dividends paid out and your gain or loss from what you paid for initial purchase. The expected returns above paint a bleak picture of the gasoline in “the engine” that will drive your financial plan. Times like this bring opportunities we can capitalize on and the cash I’ve now invested in SWVXX is waiting for stock and bonds.


The expense ratio for SWVXX is .35%...so until the 7-Day-Yield is higher than the expenses of the fund (for a few months) you’ll still be earning nada; zilch; zero. 😊Why does this matter to you?Just remember the number “46”: the average maturity of the securities in SWVXX. As securities “roll off” and new, higher-yielding ones come into SWVXX…yields should rise. A similar thing is happening in other bond funds as well.

Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice and is informational and entertainment purposes. It is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.

Julie is an Investment Advisor Representative of Sustainable Advisors Alliance, LLC (SAA, LLC): Advisory services are provided by SAA, LLC.

Registration with the SEC does not imply a certain level of skill or training.

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