Long-term Returns: A More Challenging Investment Climate – November 21, 2022

A just-published report updated our 10-year projections for all the major global asset categories. Although the long-term outlook for a balanced portfolio has improved following this year’s steep price declines, the end of the 40-year downtrend in interest rates heralds a more challenging investment climate than has prevailed in recent decades.

Setting realistic return expectations will be difficult because capital will no longer be cheap, liquidity no longer assured, and a central bank “put” option no longer reliable. In other words, past returns will no longer be a good guide to prospective returns, even over the longer term.

Specifically, a balanced portfolio of global equities, G7 government bonds, commodities and cash is expected to generate an annual real return of approximately 3% over the next decade. The real return on bonds will be very low given projected inflation. Moreover, equity market returns will be below average by the standards of the past four decades, although a structural overweight on stocks in a balanced portfolio is warranted. Regional relative outperformance should shift from the U.S. to non-U.S. markets, most notably Europe and select emerging markets.


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