Higher Rates and Lower Returns: What Investors Can Expect in the 2020s
• Interest rates will remain high compared to pre-2008 levels, impacting borrowing costs, fiscal policy, and asset returns.
• Tighter monetary policy in 2024 will likely cause a mild recession in the U.S. to bring down inflation. Policy rates will eventually be cut but settle at a higher level.
• Higher real interest rates are here to stay, driven by demographic and productivity trends. This benefits diversified investors long-term but brings near-term volatility.
• Bonds are more attractive, with expected annualized returns of 4.8%-5.8% in the U.S. over the next decade. The case for a 60/40 portfolio is stronger.
• Global equities look overvalued. U.S. stocks face lower expected returns of 4.2%-6.2% annualized over 10 years. Non-U.S. developed and emerging markets offer better opportunities.