Speaking at Vanguard’s adviser roadshow, the company’s global chief economist Joseph Davis said the firm’s investment outlook was bearish.
“For the next five years, the financial market returns that we are anticipating for all asset classes globally are the most guarded that we have generated since 2006, though not at the low levels we were anticipating at that time,” Mr Davis said.
“In my mind, the investment numbers for the next five years are going to be more challenging than they have been for the previous five, despite the fact that we are seven years into the global economic recovery.”
With that in mind, Mr Davis said investors will have to become accustomed to this kind of environment and find savings where they can.
“Decreasing investment costs is very powerful. You see the return on capital tenfold in the power of return relative to asset allocation,” he said.
“Working longer, saving longer is a very effective antidote in an environment of low returns [even though] it may not be the most compelling thing that we may want to do. It’s always nice when the financial markets do a great deal of the heavy lifting and they have done a lot over the last five or six years.”
Pointing to US President Donald Trump’s proposed threats to free trade, Mr Davis said raising trade barriers is not the way to resurrect sectors in decline.
“This is a misdiagnosis of the problem. No matter how high you raise tariff rates, they will not change trade deficits,” he said
“It is not globalisation that has been the primary reason why manufacturing jobs have declined over the last few years, it is technology.”
Mr Davis predicted that the current trend is only indicative of more to come in the way of automation and increasing wage inequality.
“Unless the computer is a complement to the job you do, rather than a substitute, there’s going to be an increasing threat of automation going forward,” he said.
“My point here is not to be bearish. We will see productivity return, but it does mean we will continue to see income inequality rise on a secular basis.”