Key points
- While 2022 was challenging, with both global equity and fixed income markets falling in tandem, the future may bring higher expected returns but also higher volatility.
- We believe that investors should consider five ways to adapt to the new investment world. We explain each of these in detail in the following article.
- We believe that a well‑managed, well‑diversified multi‑asset strategy could be an efficient one‑stop solution to potentially benefit from all five suggested approaches.
Introduction: 2022—A Difficult Year for Investors
This year has been disappointing for investors in public markets. Equity and fixed income investments across the globe have fallen sharply after strong returns, particular to equity markets, leading up to and after the coronavirus pandemic. What made 2022 especially challenging was that both equity and fixed income markets fell in tandem, making it very difficult to diversify portfolios. Figure 1 illustrates this, using returns of US equities and US Treasuries for calendar years since 1928. This year is a clear outlier in a historical context.
Calendar Year Total Returns of the S&P 500 and US 10‑Year Treasury
(Fig. 1) For the period 1928 through 2022 (to 30 September)
As of 30 September 2022. Past performance is not a reliable indicator of future performance. Based on annual total returns measured in US dollars (USD). Sources: S&P 500 Index and US 10‑year Treasury (see Additional Disclosures). Analysis by T. Rowe Price.
Figure 2 highlights the five worst years since 1992 for a portfolio of 50% global equities and 50% global bonds. We consider portfolios made up solely of global equities and global bonds, represented by the MSCI All Country World Index (ACWI) measured in sterling (GBP) and the Bloomberg Global Aggregate Index hedged to GBP, respectively, throughout this paper. While many other investment types are possible within a multi‑asset portfolio, we believe the overall findings would be generally similar.
Returns of Global Equities, Global Bonds and a 50/50 Mix
(Fig. 2) For selected years 1992-2022
As of 31 October 2022. Past performance is not a reliable indicator of future performance. Global equities—MSCI ACWI in GBP, global bonds—Bloomberg Global Aggregate Index hedged to GBP.A 50/50 mix portfolio is assumed to rebalance annually. Sources: Index data sourced from Bloomberg and MSCI (see Additional Disclosures). Analysis by T. Rowe Price.
It is noticeable that the losses on such a supposedly ‘balanced' portfolio in 2022 would have been close to those seen in 2008 during the depths of the global financial crisis. Unlike other difficult years, the decline in 2022 hit both global equities and global bonds.
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