Investors are likely to be disappointed if they are counting on 7 per cent returns from equities over the next decade, says Standard Life Investments' head of global strategy, Andrew Milligan.
Speaking in Sydney, Mr Milligan said investors will be lucky to get returns of 6.5 per cent over the next 10 years.
The "inextricable decline" in inflation, inflation expectations and interest rates over the course of the past 30 years has created a "world of low numbers", Mr Milligan said.
"So investors have to decide: 'How do I cope with this? Do I save more and spend less?'," he said.
However, all of the incentives from governments around the world are aimed at "keeping global growth going", Mr Milligan said – with reductions in interest rates and other incentives to "spend today".
The alternative for investors is to work for an additional 10 years in order to build up the "pension pot" they need to retire, he said – or, more dangerously, to "trade more".
"These are very difficult situations indeed, and it certainly comes down to educating clients," Mr Milligan said.
"Clients need to be very wary indeed of the fact that if you get 4-5 per cent that’s a good return."
Once bonds, property and cash are added to the mix to create a balanced portfolio, the returns could be even lower, Mr Milligan warned.
"Company after company [in the US] is saying in their reports and accounts, 'Of course we’re going to achieve 7.5 per cent'. That’s not the world of low numbers," he said.