Bar chart showing the strategic (long-term) expected annualized return and the historical annualized average return from January 1990 to December 2023 for the following asset classes. Cash Alternatives: strategic (2.5%) and historical (2.3%). U.S. Taxable Investment Grade Fixed Income: strategic (3.9%) and historical (5.1%). Developed Mkt ex-U.S. Fixed Income: strategic (2.7%) and historical (4.2%). U.S. Large Cap Equities: strategic (7.8%) and historical (10.2%). Developed Mkt ex-U.S. Equities: strategic (6.9%) and historical (5.0%). Emerging Mkt Equities: strategic (8.0%) and historical (7.4%). Commodities: strategic (7.5%) and historical (2.9%).
Risks
Equity securities are subject to market risk which means their value may fluctuate in response to general economic and market conditions and the perception of individual issuers. Investments in equity securities are generally more volatile than other types of securities. Foreign investing has additional risks including currency, transaction, volatility and political and regulatory uncertainty. These risks are heightened in emerging markets. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Investing in commodities is not appropriate for all investors and may subject an investment to greater share price volatility than an investment in traditional equity or debt securities.
Definitions
Bloomberg U.S. Treasury Bills (1-3M) Index is representative of money markets.
Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S.-dollar-denominated, fixed-rate taxable bond market.
Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually, weighted two-thirds by trading volume and one-third by world production, and weight-caps are applied at the commodity, sector, and group level for diversification.
JPMorgan GBI Global ex-U.S. Index (Unhedged) in USD is an unmanaged index market representative of the total return performance in U.S. dollars on an unhedged basis of major non-U.S. bond markets.
MSCI EAFE (DM) and MSCI Emerging Markets (EM) indexes are equity indexes which capture large and mid cap representation across DM countries (excluding Canada and the U.S.) and EM countries around the world.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
S&P 500 Index is a market capitalization-weighted index generally considered representative of the U.S. stock market. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions.
Sources: Bloomberg and Wells Fargo Investment Institute. Historical average returns are for data from January 1, 1990 to December 31, 2023. Strategic (long-term) return assumptions are as of July 18, 2023. Forecasts are based on certain assumptions and on views of market and economic conditions which are subject to change. Strategic expected returns are forward-looking geometric return estimates from Wells Fargo Investment Institute of how asset classes and combinations of classes may respond during various market environments. Expected returns do not represent the returns that an investor should expect in any particular year. They are not designed to predict actual performance and may differ greatly from actual performance. There are no assurances that any estimates given will be achieved. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Indexes in order represented by Bloomberg U.S. Treasury Bill (1–3 Month) Index, Bloomberg U.S. Aggregate Bond Index, JP Morgan GBI Global Ex U.S. Index, S&P 500 Index, MSCI EAFE Index, MSCI Emerging Markets Index, Bloomberg Commodity Index. See “Index Definitions and Asset Class Risk Disclosures” link above for index definitions and risks.
Key Takeaways
- Our long-term return expectations for most asset classes fall below long-term historical average returns.
- Investors may need to consider saving more or spending less in this environment to reach their financial goals.