It doesn't seem like much to ask for—a 5 percent return. But theodds of making even that on traditional investmentsin the next 10 years are slim, according to a new report frominvestment advisory firm Research Affiliates.

The company looked at the default settings of 11retirement calculators, robo-advisers, and surveys of institutionalinvestors. Their average annualized long-term expected return?6.2 percent. After 1.6 percent was shaved off to allow for adecade of inflation, the number dropped to 4.6 percent,which was rounded up. Voilà.

So on average we all expect a 5 percent; the report tells us weshould start getting used to disappointment. To show how amainstream stock and bond portfolio would do underResearch Affiliates' 10-year model, the report looks at thetypical balanced portfolio of 60 percent stocks and 40 percentbonds. An example would be the $29.6 billion VanguardBalanced Index Fund (VBINX). For the decade ended Sept. 30,VBINX had an average annual performance of 6.6 percent,and that's before inflation. Over the next decade, according to thereport, “the ubiquitous 60/40 U.S. portfolio has a 0% probabilityof achieving a 5% or greater annualized real return.”

One message that John West, head of client strategies atResearch Affiliates and a co-author of the report, hopes peoplewill take away is that the high returns of the past came with aprice: lower returns in the future.

“If the retirement calculators say we'll make 6 percent or 7percent, and people saved based on that but only make 3 percent,they're going to have a massive shortfall,” he said. “They'll haveto work longer or retire with a substantially different standard ofliving than they thought they would have.”

Research Affiliates' forecasts for the stock market rely on thecyclically adjusted price-earnings ratio, known as the CAPE orShiller P/E. It looks at P/Es over 10 years, rather than one, toaccount for volatility and short-term considerations, among otherthings.

The firm's website lets people enter their portfolio's assetallocation into an interactive calculator and see what their ownodds are, as well as how their portfolio might fare ifinvested in less-mainstream assets (which the company tends tospecialize in). The point isn't to steer people to higher risk,according to West. To get higher returns, you have to take onwhat the firm calls “maverick” risk, and that means holding aportfolio that can look very different from those of peers. “It'shard to stick with being wrong and alone in the short term,” Westsaid.

At least as hard, though, is seeing the level of return thecalculator spits out for traditional assetclasses. Splitting a portfolio evenly among U.S.large-cap equities, U.S. small-cap equities,emerging-market equities, short-term U.S. Treasuries, and aglobal core bond portfolio produced an expected return of 2.3percent. Taking 20 percent out of short-term U.S. Treasuriesand putting 10 percent of that into emerging-market currencies, and10 percent into U.S. Treasury Inflation Protected Securities,lifted the return to 2.7 percent. Shifting the 20 percent U.S.large-cap chunk into 10 percent commodities and 10 percenthigh-yield pushed the expected return up to 2.9 percent. Not apretty picture.

Moral of the story: Since most people's risk toleranceisn't likely to change dramatically, the amount theysave may have to.

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