Why Brickley Wealth Uses Capital Market Assumptions in Financial Plans
At Brickley Wealth, we believe a great financial plan should be built on a foundation of thoughtful, informed assumptions. That’s why we rely on Capital Market Assumptions (CMAs)—forward-looking forecasts about investment performance—rather than solely using historical averages.
Why does investment performance matter so much to your financial plan? Because your plan isn’t just about numbers on a page; it’s about achieving real-life goals like funding retirement, buying a home, or leaving a legacy for your family. The returns your investments generate play a key role in determining how quickly and effectively you can reach those goals.
CMAs reflect today’s market conditions and help us plan for the world as it is now. This approach allows us to create financial plans that are adaptable and tailored to your unique needs.
What Are Capital Market Assumptions?
Capital Market Assumptions (CMAs) are forward-looking estimates that predict how different types of investments—such as stocks, bonds, or real estate—are likely to perform over time. These assumptions are based on a variety of factors, including:
- Current interest rates
- Inflation expectations
- Economic growth trends
- Stock market valuations
Unlike historical averages, which only show how markets have performed in the past, CMAs consider what might lie ahead. For example, they might account for today’s interest rate environment or shifts in global economic growth.
To ensure the quality and reliability of the CMAs we use, we draw on the expertise of actuarial consulting firms and industry resources. These firms aggregate data from a wide range of sources, including surveys of top investment and research organizations known for their thought leadership in this space. By leveraging these insights, we can ground your financial plan in a well-rounded, objective view of the market outlook. This approach helps us create plans that are thoughtful, realistic, and aligned with the latest market expectations.
Why Not Use Historical Averages?
It might seem logical to base financial plans on historical averages—after all, they reflect real returns from the past. But when it comes to planning your financial future, historical averages fall short in a few important ways.
Overestimating Returns
Certain time periods, like the rapid stock market growth of the 1990s or the post-WWII economic boom, heavily influence historical averages, making them seem higher than what we might realistically expect moving forward. This can lead to overly optimistic projections that don’t prepare you for more moderate market performance.
Current Valuations Matter
Historical averages don’t consider current market conditions. For instance, if stocks are priced at historically high levels (as measured by metrics like price-to-earnings ratios), it’s likely that future returns will be lower than average. Ignoring this would be like planning for a road trip using a gas price from decades ago—it just doesn’t reflect today’s reality.
Markets Have Changed
The economic conditions we see today are very different from those of 20 or 30 years ago. For example, interest rates have remained historically low for over a decade, which affects the returns you can expect from bonds and other fixed-income investments. Using historical averages that include periods of much higher rates could paint an unrealistic picture.
One-Size-Fits-All Doesn’t Work
Historical averages are broad and generic, treating every investor as though they have the same goals, time horizons, and risk tolerance. Financial planning, on the other hand, needs to be personalized. A retiree planning to draw income from their portfolio has very different needs than a young professional saving for the future.
How Capital Market Assumptions Shape Your Plan
Capital Market Assumptions (CMAs) are an important tool we use to build your financial plan, but it’s worth noting that they’re not perfect—and they’re not meant to be. The reality is that no one can predict exactly how markets will perform in the future. CMAs are estimates, and like any forecast, they will likely be wrong in some way. But that doesn’t make them any less valuable.
Why Use CMAs if They Aren’t Perfect?
The purpose of CMAs isn’t to provide flawless predictions; it’s to create a framework for planning. Here’s how they help shape your financial plan:
- Set Realistic Expectations:
CMAs give us a thoughtful starting point for estimating how your investments might grow over time. While they are not exact, they’re grounded in current market conditions and provide a more realistic view than simply assuming historical returns will repeat. - Plan for Uncertainty:
Financial planning is as much about preparing for the unexpected as it is about achieving goals. CMAs help us design a plan that’s flexible and adaptable, so we can adjust course if markets perform better or worse than expected. - Tailor Strategies to Your Goals:
CMAs allow us to personalize your financial plan based on the best available insights about what the future might hold. This means your plan is designed for your specific timeline, risk tolerance, and objectives—not a generic "one-size-fits-all" approach.
A Framework for the Future
While CMAs are unlikely to predict the future perfectly, they serve as a thoughtful and informed guide. By updating them annually, we ensure that your financial plan evolves alongside the market and remains grounded in the most current data available. This approach isn’t about being right all the time—it’s about creating a roadmap that keeps you moving toward your goals, no matter what the future holds.
A Final Thought
At Brickley Wealth, we understand that financial planning is about preparing for the future—not repeating the past. By using Capital Market Assumptions, we aim to build plans that are flexible, realistic, and tailored to your unique goals. While no forecast is perfect, CMAs provide a thoughtful framework that helps us adapt as markets change and ensures your plan stays on course.
If you’d like to learn more about how we create and update your financial plan, or if you have questions about your own goals, we’re here to help. Let’s plan for the future together.
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