Twice a year we update our long-term returns projection for the major asset classes. It is worth nothing a few key points reflecting the difficulty of today’s valuations and the likely economic and inflation environment over the next decade:
– A poor starting point heralds historically-low real returns on global balanced portfolios of equities, fixed-income, commodities and cash. Bonds will be the main constraint on aggregate returns.
– Investors should maintain a structural overweight toward equities and credit versus government bonds and commodities.
– A decade out, stock prices are projected to be only marginally higher than today in real terms, but decent dividend yields will significantly bolster total returns.
– Tactical asset allocation to limit downdrafts ahead of and during a likely recession in the next few years will be important given the expected limited absolute returns available over the coming decade.