Get in balance

Messages in Focus

Get in balance

In our base case, we expect bonds, stocks, and alternatives to all deliver good returns over the next 6–12 months and over the longer term. But investors should review portfolios to ensure an effective balance across asset classes to manage potential risks and ensure that returns are durable. Professionally managed solutions can enhance investors’ ability to systematically rebalance, diversify, reinvest, and access attractive underlying investments.

We expect decent returns across major asset classes over the next 6–12 months. We expect stock total returns of 8–10% across MSCI developed and emerging market indexes, as the US economy avoids recession, investors look past the current weakness in earnings, and as fears of even higher interest rates recede. We forecast high-quality bonds to deliver total returns of 10–15% in US dollars, British pounds, and Euros over the same time period, as central banks end their rate hiking cycles, inflation falls closer to target, and investors begin to anticipate future interest rate cuts. Good performance from underlying assets should also support returns for alternative assets.

The longer-term outlook also looks appealing. While we expect currently high interest rates on cash to drop within the next 12 months, we expect more durable returns for bonds, stocks, and alternatives. Overall, we forecast cumulative cash returns of just 5–14% over the next five years, versus cumulative returns of 15–25% for bonds, 40–55% for stocks, and 25–65% for alternatives.*

Balancing equities, bonds, and alternatives in a portfolio can increase the dependability of returns. Combining these assets can help lower overall portfolio swings or volatility, reducing the drag on compound returns.

While we have a positive return outlook for each major asset class individually, diversification across asset classes is key for effective risk management. For example, if economic growth disappoints, equity markets could fall but bonds could rally. The reverse also holds true: if economic growth surpasses expectations, bond markets could suffer but equities should be better supported. And both asset classes may underperform if sticky inflation leads to fears of higher interest rates, but alternatives could help insulate portfolios in such a scenario.

By developing a ‘core’ allocation of investments, one that is carefully balanced across asset classes, we believe investors can both position themselves to earn attractive returns over the short and longer term and effectively protect against potential market risks. This approach can also provide investors the freedom to pursue ‘satellite’ opportunities, or passion investments, while staying on track to grow wealth steadily over time.

Professionally managed solutions are an option for investors looking to maintain exposure to a balanced portfolio in a convenient, systematic, and disciplined way. Professional solutions can provide a better risk-return trade-off due to systematic portfolio rebalancing, broader diversification, and access to attractive underlying investments.

Investors can also tailor portfolio approaches to suit their individual needs, for example by tilting toward strategies which generate higher income, or by exchanging lower liquidity for potentially higher returns.

* In US dollars, British pounds, and euros. Bond expectations are based on indexes from Bloomberg, ICE BofA, JP Morgan, Bloomberg Barclays, Solactive, and S&P LCD. For more details on how we derive these return estimates, please consult our Capital Market Assumptions.

Key takeaways

  • While currently high rates on cash are likely to fall in the years ahead, we expect attractive returns across stocks, bonds, and alternatives both over the next six to twelve months, and over the longer-term.
  • By ensuring that investments are balanced carefully across asset classes, we believe investors can both position themselves to earn returns and protect against potential market risks.
  • As well as convenience, professionally managed balanced portfolio solutions provide systematic portfolio rebalancing, broader diversification, and access to attractive underlying investments.

Additional key investment ideas