‘Lost Decade’ Risk Remains For 60/40 Portfolios: Goldman
The outlook remains challenging for 60/40 portfolios.
That was the message from Goldman's Christian Mueller-Glissmann, Cecilia Mariotti and Andrea Ferrario who, in note published Tuesday, cautioned that equity valuations "remain elevated" which, when "coupled with little cyclical upside and continued policy tightening, results in a continued poor risk/reward for 60/40 portfolios with less potential for a strong recovery and still above-average drawdown risk."
What a bummer, right? An entire ge
It’s not hard to imagine a lost decade given how many tailwinds equities and bonds had over the last several decades that are now not so favorable or neutral – the internet, rates and taxes consistently trending down, the Fed Put being all but confirmed, favorable demographics with the baby boomer generation, relative international stability, the rise of cheap labor in China.
If you read personal finance subreddits, it’s taken as gospel that an index fund will always be your best bet over the long-term, but to your point, that strikes me as recency bias and was a function of the aforementioned highly favorable tailwinds. If we’ve exhausted those, there might not be much gas in the tank to keep driving assets higher.
That being said, I’m obviously bullish on AI and I still think we are generally trending toward the zero bound in the medium-to-long term. Also, what are the alternatives other than throwing darts to pick stocks?
Ten years of forecast damage to bonds from changes in rates has been more than paid for by the 40 year bond bull, during which time there were 34 years of dead money in the stock market. We also seem to forget that inflation doesn’t only damage bond returns. It lowers the purchasing power of all investment returns to the same degree. The data shows that the idea of stocks as an inflation hedge is more myth than reality in several decades.