We build multi-decade financial projections for each of our clients to help quantify the long-term impact of near-term decisions.  Doing so requires us to make long-term assumptions for equities, fixed income, and inflation.

There are numerous methodologies for calculating return assumptions; each carries its own trade-offs.  Some use forward-looking market prices^[1] to develop short to medium-term forecasts, which are intellectually appealing but, from a planning perspective, can make long-term projections too volatile.  We favor stable, historical-based long-term return estimates to better inform decision-making^[2].

As of Q1 2026, our long-term assumptions^[3] are:

• Global equities: 9.1%
• Fixed income: 5.0%
• Inflation: 2.6%

Equities

Our equity assumptions begin with the historical average annualized return for global stocks (10.8%^[4]).  By using all developed markets rather than just the U.S., we reduce the risk of biasing our plans based on a “lucky” run in any single geography.

Furthermore, we intentionally exclude the impact of valuation changes (“multiple expansion”) that have occurred over the past fifty years.  In the historical sample, returns have been boosted (by approximately 1.7% annualized^[5]) by investors simply being willing to pay more for a dollar of earnings.  Since we cannot rationally rely on ever-increasing valuations in perpetuity, we strip this impact out of our expected return assumption.

While we build portfolios with the objective to outperform through “factors” (such as value or small-cap tilts), we do not rely on these expected excess returns in financial planning.  Factor exposure can vary by client, and while academic research^[6] suggests the potential for long-term outperformance, it cannot be relied upon over any short-term horizon.  Therefore, we conservatively project no factor “premiums,” and we would consider any outperformance due to factor premiums as an additional benefit.

Fixed Income

Similar to our equity approach, we look to global historical averages for fixed income across developed markets.  This assumes that, over the long term, diversified bond investors have been and will continue to be appropriately compensated for the risks they take.  Our 5.0% long-term assumption reflects the historical average^[7] for the approximate term length and credit risk profile of our fixed-income portfolios.  By using historical averages rather than current “point-in-time” yields, we avoid the volatility of interest rate changes.

Inflation

We base our inflation assumptions on U.S. data since 2012—the year the Federal Reserve officially adopted its 2% inflation target.  This “modern era” approach filters out obsolete economic regimes (such as the Gold Standard) and reflects today’s central bank realities.  Annualized inflation since 2012 has been 2.6%.

While these assumptions are built for the long haul, our Investment Committee formally reviews them periodically, ensuring that our financial projections remain an effective tool for financial decision-making.

^[1] Financial theory suggests that market prices reflect the market’s collective expectations of future growth.  But our experience is that relying on current market prices (rather than long-term structural trends) introduces too much “noise” into the planning process as these prices fluctuate with new information.

^[2] These are assumptions used for making projections, and are not intended to be a guarantee of actual future investment performance.

^[3] These assumptions are gross of fees.  Geometric’s investment advisory fees are modeled separately as an expense (i.e., coming out of cash flows) within our financial planning software (eMoney).

^[4] This is an equally-weighted, gross of fees return of both the Fama/French Total US Market Research Index and Fama/French International Market Index from July 1, 1975 through December 31, 2025, representing the earliest point of concurrent data for the two series.  Investors cannot invest directly in an index benchmark.

^[5] This adjustment is made by holding valuation multiples constant from July 1, 1975 through December 31, 2025.

^[6] Fama, Eugene F., and Kenneth R.  French.  “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33 (1993): 3–56.

^[7] This is a weighted, gross of fees return of the Bloomberg U.S.  Aggregate Bond Index, the FTSE World Government Bond Index 1-5 Years (hedged to USD), One-Month US Treasury Bills, and the ICE BofA 1-Year US Treasury Note Index from January 1, 1985 through December 31, 2025, representing the earliest point of concurrent data for the series.  Investors cannot invest directly in an index benchmark.  Actual client portfolios may contain different length and credit risk profiles than the weighted benchmarks used.