Alternative Thinking
2021 Capital Market Assumptions for Major Asset Classes
Q1 2021
Topics - Asset Allocation Strategic Asset Allocation Portfolio Construction
This article updates our estimates of medium-term (5- to 10-year) expected returns for major asset classes. It also includes a section on the stock-bond correlation. Selected estimates are summarized in Exhibit 1. After a volatile 2020, both equity and bond expected returns ended the year lower. The expected real return of a U.S. 60/40 portfolio is just 1.4%, 1 1 Close Based on historical real yields for U.S. large-cap equities and 10-year Treasuries, using a simpler methodology that allows long-term historical comparisons; methodology and sources described in Appendix. a fraction of its long-term average of nearly 5% (since 1900).
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We thank Alfie Brixton, Thomas Maloney, Nick McQuinn and Jason Mellone for their work on this paper. We also thank Pete Hecht, Antti Ilmanen and Kris Laursen for their helpful comments.
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