Investment Opportunities on the Rise in the Coming Decade

This year, investors have been subjected to a near-daily barrage of market-moving news depicting weakening economic growth, increasing inflation, and waning fiscal and monetary assistance. This has resulted in the S&P 500 index dropping more than 22% from its all-time high. Meanwhile, bonds have lost approximately 14% since January. A deluge of reports makes it easy for investors to get caught up in the here and now – from monthly inflation and job data to practically every statement of Federal Reserve officials.

However, long-term investment success is most consistently obtained, which is why most investors should emphasize taking the long view. 

With stock and bond indexes expected to return in the low single digits throughout the next market cycle, a long-term portfolio should look considerably different than it did in the previous ten years. Rather than deploying passive indexes, engaging in active stock, selecting or purchasing funds that do so, adding alternatives, and adding to fixed income might be recommended.

In fact, following the portfolio’s worst start to a year ever in 2022, the 60/40 stock/bond split seems tempting once again. A 55/35/10 portfolio makes sense for investors who wish to spice things up with alternative asset classes that do not correspond with equities and bonds (private equity or atypical credit strategies are common themes).

The coming decade for investors is going to be exciting, says Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. It appears to be considerably different from the previous 14 years, and the prospects are significantly more diverse and extensive.

Buying Cheap

The truth is that, regardless of how you divide your portfolio among asset classes, the market slump makes this a far more attractive starting place for investors eager to put new money to work. After a grueling nine months of results, several stock sectors are significantly cheaper than they have been in years, while fixed income delivers meaningful income for the first time in about a decade and a half.

The starting value of an asset is one of the most vital indicators of future performance across asset classes, says Jason Draho, head of the asset allocation for the Americas at UBS Global Wealth Management. For the first time in years, fixed income seems quite appealing. And several equities are getting appealing, particularly with a 10-year perspective.


To understand the market drivers of the coming decade, it is necessary to examine the previous cycle. Following the 2008-09 financial crisis, central banks characterized the U.S. economy by poor economic growth, low inflation, ultra-low interest rates, and global quantitative easing. It was a Goldilocks climate, especially for longer-term financial assets—those having a more considerable proportion of their cash flows happening far in the future. Long-term government and corporate bonds are included, as are shares of growth-oriented enterprises.

That atmosphere supported a tiny set of equities, which blasted the market for most of the previous cycle and grew to dominate key market indexes, particularly the Big Tech behemoths and other fast-growing, but not consistently profitable enterprises.

In the period beginning in 2009 and ending in 2021, the S&P 500 returned 16% each year. During that time, the technology and consumer discretionary sectors increased more than 20% per year, while energy stocks returned 4% per year, financials 13%, and industrials 14%. The safer end of the bond market produced little to nothing.

The recipe that worked for the last decade was passive, U.S. growth, and mega-cap. Shalett believes that over the next decade, that formula will fail.

Our current situation

Cash-Generating investments will be prevalent during the next decade. A higher interest rate not only increases uncertainty in future forecasts but also means that cash flows in the future are worth less now, and obtaining finance is more expensive. This dynamic broadens the pool of possibly successful equities to value-oriented industries, reintroducing bonds as a viable option.

However, don’t anticipate a smooth ride. Over the next decade, strategists and fund managers predict more significant inflation and interest rates. That doesn’t imply we’ll have 8% annual inflation in 2024, but anything around 3% looks realistic for the foreseeable future. The Federal Reserve will remain laser-focused on keeping inflation low, and investors will be unable to rely on a “Fed put” as a market floor, nor will they be able to rely on the liquidity flooded markets as a result of quantitative easing.

Time will tell if the monetary policy will continue to drag on equities in the coming decade, as it currently is in 2022. However, it will not deliver as much lift as it did in the previous cycle. The bulk of the gain investors experienced from stocks [during the last cycle] came through valuation expansion, says Cresset Capital’s chief investment officer, Jack Ablin. In a world where the Q.E. tailwind is fading and may even become a headwind, we must now pay much closer attention to profit growth and dividend yields.

Select Wisely

Value stocks and firms that generate the most cash while providing the highest shareholder returns are likely to be competitive. The S&P 500 remains overweight from winners of the previous cycle; the average stock in the index might outperform the index’s overall performance, which is heavily impacted by its largest market-cap components.

Stockpickers will have possibilities in inventive new frontiers. Labor constraints and a possible change in supply chains closer to home will drive investments in industries that rely increasingly on robotics and automation. Renewable energy generation will displace fossil fuel generation. Genomics, telemedicine, and Big Data will change how people get healthcare. Artificial intelligence applications will grow more pervasive across enterprises and industries, whether in predictive analytics, natural language processing, computer vision, or another field.

The corporations who create the technology will be successful, but so will those that use it to become more productive, efficient, and competitive. That contrasts with the previous 14 years, which were entirely focused on one ecology, Shalett explains. That was the smartphone-centric e-commerce and social media environment. Moving forward, the future winners will be the tech takers rather than the tech developers.

Banks, such as JPMorgan Chase (ticker: JPM) and Bank of America (BAC), might fall under this category. A.I. will minimize time spent on labor-intensive tasks, similar to how automated teller machines reduced the need for back-office staff in the 1980s. More sophisticated mobile apps will result in fewer physical bank branches, lowering real estate costs.

Healthcare will become paperless, benefitting CVS Health (CVS) and UnitedHealth Group (UNH). Farming will become increasingly automated—think Deere (D.E.); and restaurant ordering and delivery will become more digital, boosting Chipotle Mexican Grill (CMG) and Wingstop (Wingstop) (WING). Further out, the space economy, driverless cars, and genetic improvements have the potential to be revolutionary investments; however, many firms associated with these sectors are now private.

Numerous distinct megatrends will emerge or accelerate during the next decade. Strategists are optimistic about the possibilities of participating in the green energy transition through vehicles such as the iShares Global Clean Energy exchange-traded fund (ICLN), which contains shares of utilities and energy firms that employ solar, wind, or other renewables.

But, experts warn, don’t write out fossil fuels just yet. “There is a scarcity factor,” says Spenser Lerner, head of Harbor Capital Advisors’ multi-asset solutions team. During the last cycle, we had abundant energy commodities, mainly owing to fracking and shale production in the United States. Energy executive teams will prioritize capital returns above increasing output levels, and it’s a significant adjustment in mindset.

Geopolitical concerns, particularly Russia’s war in Ukraine, will remain potential drivers of rising oil and gas prices. The Energy Select Sector SPDR ETF (XLE) invests in energy firms in the S&P 500. In contrast, the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) invests in upstream oil and gas businesses. For the next decade, a barbell approach combining clean and dirty energy may be the way to go.

Overseas Possibilities

“Deglobalization” is another megatrend for the coming decade. Rethinking fragile, global supply chains is already underway, and industries judged to be of national importance, such as semiconductors, are receiving government assistance to bring production back home.

For the past 30 years, globalization has been a tailwind to multinationals and decreased inflation worldwide, says Jim Besaw, chief investment officer of GenTrust. He adds that we’re no longer in that world and attempting to regionalize supply networks into blocs.

That represents a long-term potential for nations such as Mexico, Vietnam, and the Philippines, which might benefit from more economic activity, better incomes, and increased consumer spending power. It is possible, however, that non-US markets will outperform in general once the Fed has completed its current rate-hiking cycle.

Stock values are lower in most non-US locations, and the dollar cannot continue to rise in value indefinitely. Other emerging economies, excluding China, might be a solid option since they have more favorable demographic trends than the developed world and are frequently commodities exporters. An alternative is the iShares MSCI Emerging Markets ex-China ETF (EMXC).

There is always the risk that Ukraine, Taiwan, or other geopolitical flashpoints will escalate into something far more hazardous for the rest of the globe. But if that happens, we’ll all have larger issues than our investments.

Bonds are regaining popularity in the face of these dangers. With rates on low-risk short-term Treasuries reaching or above 4%, it makes sense to invest a portion of your portfolio in the safety of U.S. government bonds.