Long Term expected returns
Estimating long-term expected returns – the key step for portfolio management
Most of our investors are long-term oriented and choose their so-called strategic asset allocation in accordance with their risk tolerance. To choose this optimal allocation, estimating the long-term expected return for each asset class is the key step. Estimating long-term expected returns is about looking beyond the short-term economic environment and thus the ability of central banks to stabilize inflation around their target and estimating long-term economic growth that is in accordance with the central bank targets. The past year has seen a huge change as interest rates and bond yields have witnessed a rise rarely seen in history. Long-term expected returns are generally more than 1% higher especially for bonds and some equity markets such as the eurozone and the UK.