This article updates our estimates of medium-term (5- to 10-year) expected returns for major asset classes. It also includes an analysis that attempts to reconcile ever-lower expected returns with ever-higher realized returns and suggests practical strategic steps to boost portfolio expected returns. U.S. equity and bond expected returns both moved lower in 2021, while changes to their global counterparts were mixed. The expected real return of a 60/40 portfolio remains around 2%, less than half its long-term average of nearly 5% (since 1900 1 1 Close Historical comparison is based on a simpler methodology than main estimates, due to data availability; methodology described in Appendix. ).
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We thank Alfie Brixton, Pete Hecht, Thomas Maloney and Nick McQuinn for their work on this paper. We also thank Antti Ilmanen for helpful comments.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.