CIO believes that holding a balanced portfolio is the most effective way for investors to preserve and grow wealth. (UBS)

Resilient economic momentum is supportive of US earnings growth.

  • The improved US macroeconomic outlook increases our degree of certainty about our positive view on US equities.
  • Global stocks (MSCI All Country World Index) have climbed around 18% year to date, while US stocks (S&P 500 Index) have rallied roughly 24%.

But uncertainty remains, potentially threatening concentrated portfolios.

  • The geopolitical landscape remains tense, with ongoing conflicts in Eastern Europe and the Middle East.
  • With the US election less than two weeks away, opinion polls indicate that the presidential race is still too close to call.

So we believe balanced portfolios can diversify returns and smooth portfolios amid today's challenges.

  • Investors who diversify, have a long-term perspective, and a clear idea of what they plan to buy and sell have a better chance of navigating and taking advantage of volatility.
  • Our capital market assumptions expect balanced portfolios (45% stocks, 35% bonds, 20% alternatives) to beat cash by around five percentage points each year over the long term.

Did you know?

  • Of the 1,173 12-month rolling return periods since December 1925, only 26 periods experienced losses for US stocks (S&P 500 Index) and US bonds (intermediate Treasuries) in tandem; moreover, 11 of those occurred in 2021 and 2022.
  • Looking at the annual returns of 14 major asset class returns since 1999, last year's best-performing asset class has had a roughly 40% chance of experiencing a loss this year versus 27% for a randomly chosen asset class and 31% for a well-diversified portfolio.

Investment view
By diversifying across asset classes, regions, and sectors, investors can position for potential near-term gains, mitigate volatility, and take advantage of the long-term compounding effects of staying consistently invested. Those considering alternative assets should be aware of the associated risks—including illiquidity and less transparency.

Main contributors: Vincent Heaney, Matthew Carter, Jon Gordon, Daisy Tseng, Julian Wee

Original report: Why invest in a balanced portfolio now?, 28 October 2024.

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