NEW YORK (TheStreet) -- Investors hoping that their portfolios will be able to pay for retirement are about to be sorely disappointed, according to legendary bond king Bill Gross.
Recent market volatility, including wild gyrations on the Dow Jones Industrial Average and S&P 500 as China's economy slows, point to a fundamental problem in the global economy, Gross, who cofounded Pimco and is now lead portfolio manager at Janus Capital Group (JNS) , said in his monthly investment outlook.
Changing course will be a time-consuming endeavor, he says: It requires China, the world's second-largest economy, to shift more quickly to a consumer-based system and necessitates the developed world abandoning its "destructive emphasis on fiscal austerity." In the interim, investors are likely to receive lackluster returns, which makes paying for college educations and funding a comfortable requirement more difficult.
The timing and size of the Federal Reserve's interest-rate increase, which may occur as early as this month, will play a role, too. Interest rates have been held to nearly zero since the financial crisis of 2008, and while Gross has long advocated starting to raise them, such a move "now seems to be destined to be labeled 'too little, too late,'" he said.
Low rates hurt savers because interest on deposits is limited or nonexistent. And with fewer incentives to save, Gross argues there are fewer incentives to invest, which could hurt long-term productivity.
"Finance based capitalism with its zero-bound interest rates has now produced global imbalances that impair productive growth and with it the chances for 'old normal" prosperity,' Gross says.