The world has changed since early ‘08 or even ‘09. The next 10 years will involve deleveraging, re-regulation, and deglobalization. Countries will become more protective in terms of mild tariffs or currency devaluation. The result is a “new normal” of slower growth in the U.S. and global economies.
If an economy grew at 3% to 4% annually over the last 10 years, then it’ll grow at 1.5% to 2% over the next 10. We expect returns will be half of what they were in the past decade.
If you lump stocks, bonds, and real estate into one pot, we’re looking at 5% to 6%, not including inflation, as opposed to 10% to 12% returns. We think over the next 10 years the U.S. will experience 2% to 3% inflation, so real returns will probably be 2% to 3%.
Instead of a speculative Nasdaq stock at a 50 P/E, investors in the next 10 years should consider, say, an NYSE utilities stock that yields 5%. Focus on dividend income in terms of stocks, as opposed to growth and investment-grade income from bonds. You can generate a portfolio that yields 4% to 5% and that is in some fashion protected against inflation.
If you’re looking for growth, you should venture outside the U.S. Brazil and China and other Asia equities are the cherry on top of the melting sundae. It’s not only their internal economies; they’re in better shape from the standpoint of reserves and balances. Ten years ago Brazil was a basket case and beggar. Now it has hundreds of billions of dollar reserves.