I believe equities will likely do very well over the next 20 years, but if not, I take comfort in knowing that it doesn’t necessarily mean that my portfolio needs to remain stuck in neutral.
DShort has produced a series of charts showing the 5, 10, 20, and 30-year total real returns of the S&P Composite (U.S. equity returns) that could be a great resource for a financial advisor who is talking to their clients about the advantages of an adaptive multi-asset class strategy.
(Click to Enlarge)
Unfortunately, a 20-year time horizon is no guarantee that a cap-weighted indexing approach will result in meaningful portfolio gains. Let me first say, that this is not an argument not to have equity exposure! Of course, most investors should have equity exposure. However, this reality should make you think about the flexibility that will be needed as part of your asset allocation.
There have been 20-year periods where the real annualized returns of equities have been over 13% and others where they have been slightly negative. The advantage of a “global macro” approach is that we don’t have to fret about whether or not the next 20 years are going to be rewarding for equity investors. If equities ultimately do well over the next couple of decades, global tactical asset allocation strategies are likely to have significant exposure to this asset class. However, I believe today’s investors will appreciate knowing that they have some other options (like commodities, real estate, fixed income, currencies, or even inverse equities) if equities don’t do well.
Click here to watch a video presentation on our approach to multi-asset class investing.
Click here and here for disclosures. Past performance is no guarantee of future returns.
