Discover the latest insights on the revised long-term performance forecast for the Global Market Index (GMI) in August. The forecast has fallen again, signaling a second consecutive decline in expected return for the GMI, which represents an unmanaged benchmark encompassing all major asset classes (excluding cash) based on market weights via ETF proxies.
The long-term estimate for GMI now stands at an annualized 6.8% performance, down from 7.0% previously, as per the average of three models utilized for forecasting (explained below).
Notably, US equities continue to stand out in terms of expected return compared to historical performance and other asset classes within the GMI. The forecast for American shares is notably lower than its trailing 10-year return, suggesting that US stocks may deliver lower results in the foreseeable future.
On the other hand, most major asset classes are expected to outperform their trailing 10-year records. This implies that a globally diversified portfolio may offer more attractive returns in the coming years compared to the past decade.
GMI serves as a theoretical benchmark for an “optimal” portfolio tailored for the average investor with an infinite time horizon. It provides a foundation for customizing asset allocation and portfolio design based on individual expectations, objectives, and risk tolerance. GMI’s historical performance indicates that it is competitive with active asset-allocation strategies after factoring in risk, trading costs, and taxes.
While the forecasts above may vary to some extent, GMI’s projections are expected to be relatively more reliable compared to those for its individual components. Predictions for specific markets such as US stocks and commodities are subject to greater volatility and tracking error, highlighting the benefits of aggregating forecasts into the GMI estimate over time.
Overall, these forecasts can serve as a baseline for refining expectations and optimizing investment strategies for the future.
For more context on GMI’s historical total return trends, refer to the chart below comparing GMI’s performance with US stocks and bonds over the past decade. GMI’s current 10-year return of 7.1% is moderate relative to recent history.
Here’s a summary of how the forecasts are generated and definitions of the metrics used:
- BB: Building Block model based on historical returns
- EQ: Equilibrium model based on risk metrics
- ADJ: Equilibrium model with adjustments for momentum and mean reversion factors
- Avg: Simple average of the three forecasts
- 10yr Ret: Trailing 10-year annualized total return
- Spread: Average-model forecast minus trailing 10-year return
By analyzing these forecasts and historical trends, investors can gain valuable insights into potential market performance and optimize their investment strategies accordingly.
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