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A trader works on the floor of the New York Stock Exchange shortly after the opening bell in New York
A trader works on the floor of the New York Stock Exchange shortly after the opening bell in New York, January 2, 2018.
Lucas Jackson—Reuters

When it comes to investing their retirement savings, investors have had it easy in recent years. Last year, U.S. stocks gained nearly 22%, which is about double the historic average. And since the beginning of 2009, the year the market bottomed out in the wake of the financial crisis, equities have gained an annualized 15%.

But with stock valuations stretched and the Federal Reserve expected to hike short-term interest rates three times over the coming year, experts warn that we could be in for significantly lower returns in the years ahead.

Which makes it all the more important that you re-assess your investing strategy to ensure it's based on realistic assumptions and that your portfolio is well-positioned for the long term, regardless of which direction the financial markets take this year.

Toward that end, here are three moves you should make now.

1. Tamp down your expectations.

When the market delivers double-digit gains almost like clockwork, as it has over the past nine or so years, investors often assume the good times will continue to roll.

And, indeed, when BlackRock surveyed 401(k) participants last year, the asset manager found that many retirement investors are counting on just that. Of the more than 1,400 people polled, two thirds said they expected that gains over the next decade would be in line with those of the past, while nearly 20% thought returns would come in even higher.

Based on the returns major investment firms like J.P. Morgan and Vanguard are projecting, however, those expectations would appear to be far too rosy.

In its 2018 economic and market outlook, for example, Vanguard describes its investment outlook for 2018 and beyond as "one of higher risks and lower returns."

Specifically, the fund giant estimates that U.S. stocks will gain in the neighborhood of 3% to 5% a year over the next 10 years with foreign stocks doing somewhat better, while bonds are expected to return an annualized 2.5% to 3.5%.

J.P. Morgan's 2018 report detailing its long-term capital market assumptions is more upbeat about stocks' potential, projecting 5.5% annualized gains for large-company stocks over the next 10-plus years, although its outlook for bonds is similar to Vanguard's.

Clearly, these are projections, so you shouldn't take them as guarantees of future performance. Still, financial markets don't churn out above-average returns ad infinitum.

2. Reassess your stock-bond mix.

With returns on stocks far outpacing those on bonds in recent years, your retirement savings may be a lot more stock-heavy than you think. That's especially true, if, like many investors, you haven't been rebalancing your portfolio periodically—that is, selling off some stock holdings and placing the proceeds in bonds.

For example, if you started with a portfolio that was 60% in stocks and 40% in bonds five years ago and just re-invested all gains, your portfolio would have ended this year with a far more aggressive mix of 75% of assets in stocks and 25% in bonds.

Having a growing share of your holdings in stocks may work out just fine as long as stock prices continue to climb.

But if this aging bull market gives way to a devastating bear during which stock prices tumble by upwards of 50% or more — as they did during the early 2000s dot-com crash and the 2008 financial crisis — allowing the equity share of your portfolio to balloon could leave you vulnerable to bigger losses than you're financially, and perhaps emotionally, able to handle.

That's why now is a good time to ensure that your stocks-bonds mix still accurately reflects the balance of risk vs. reward you're comfortable taking with your retirement savings.

You can do that by completing to Vanguard's free online risk tolerance-asset allocation questionnaire, which you can access in the Retirement Investing section of RealDealRetirement's Retirement Toolbox.

Just answer 11 questions designed to gauge, among other things, how long plan to keep your money invested and how you might react to a major setback in the market, and you'll come away with a recommended percentage of stocks and bonds.

Click on the "Compare your percentages with other allocation mixes" link, and you can see how your recommended mix and others more conservative and aggressive have performed on average in the past, including each allocation's best and worst year and the number of years it has posted a loss.

3. Take a hard look at costs.

You can't do anything to boost the returns that the financial markets deliver. But you can improve your odds of getting as big a share of those returns as possible by focusing on funds and ETFs with low fees.

Reducing the amount you pay in costs is especially important these days given the outlook for lower returns in the years ahead.

Over the course of a career the payoff from paring investment fees even by as little as a half a percentage point a year can be impressive, potentially boosting the eventual size of your nest egg by 10% or more.

And even if you're already retired, lowering what you pay in investment fees can allow you to draw more from your savings each year without increasing the risk of running through your assets too soon.

The easiest way to reap the advantages of lower fees is to invest as much as possible in low-cost index funds. According to Morningstar's latest study on fund fees, investors in index funds paid just 0.17% of assets in annual costs vs. 0.75% for investors in actively managed funds. And it's not uncommon for many actively managed funds to charge upwards of 1% a year or more.

That's not to say you have to limit yourself entirely to index funds (although I wouldn't discourage anyone from doing so). But if you want to include actively managed funds among your holdings, it's still a good idea to stick to ones with lower fees. You can find low-cost funds and ETFs of all types by going to Morningstar's basic fund or ETF screener or by checking out the Money 50 list of the best mutual funds and ETFs.

Bottom line: You can't eliminate uncertainty from investing. But by taking the steps outlined above you'll be better able to deal with it, and better position your retirement portfolio to thrive over the long term, whatever the coming year may bring.

Walter Updegrave is the editor of If you have a question on retirement or investing that you would like Walter to answer online, send it to him at You can tweet Walter at @RealDealRetire.

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