Asset Class | Strategic (10-15 Year) Hypothetical Return |
Hypothetical Strategic Standard Deviation (Risk) |
WFII Estimated Risk/Return Tradeoff |
---|---|---|---|
U.S. Taxable Investment Grade Fixed Income |
3.1% | 4.5% | Neutral |
Potential Asset-Class Rewards: Event risk mitigation |
Potential Asset-Class Risks: Interest rate risk Duration risk Credit risk |
||
High Yield Taxable Fixed Income | 6.1% | 12.0% | Unfavorable |
Potential Asset-Class Rewards: High income |
Potential Asset-Class Risks: Interest rate risk Duration risk Credit risk |
||
Developed Market ex-U.S. Fixed Income |
2.8% | 9.0% | Unfavorable |
Potential Asset-Class Rewards: Event risk mitigation Global diversification |
Potential Asset-Class Risks: Interest rate risk Duration risk Credit risk Currency risk |
||
Emerging Market Fixed Income | 6.8% | 12.0% | Neutral |
Potential Asset-Class Rewards: Global diversification High income |
Potential Asset-Class Risks: Interest rate risk Duration risk Credit risk Currency risk Geopolitical risk |
||
U.S. Equities | 7.7% | 16.5% | Neutral |
Potential Asset-Class Rewards: Inflation hedge |
Potential Asset-Class Risks: Volatility risk |
||
Developed Market ex-U.S. Equities | 7.5% | 17.5% | Neutral |
Potential Asset-Class Rewards: Inflation hedge Global diversification |
Potential Asset-Class Risks: Volatility risk Currency risk |
||
Emerging Market Equities | 9.0% | 24.0% | Neutral |
Potential Asset-Class Rewards: Inflation hedge Global diversification |
Potential Asset-Class Risks: Volatility risk Currency risk |
||
Real Estate Investment Trusts | 7.2% | 18.0% | Favorable |
Potential Asset-Class Rewards: High income Inflation hedge |
Potential Asset-Class Risks: Volatility risk Interest rate risk Real estate market risk |
||
Commodities | 4.4% | 15.0% | Unfavorable |
Potential Asset-Class Rewards: Inflation hedge |
Potential Asset-Class Risks: Volatility risk Commodity bear-market supercycle risk |
||
Hedge Funds | 5.1% | 5.8%-8.8% | Favorable |
Potential Asset-Class Rewards: Absolute return potential Diversification |
Potential Asset-Class Risks: Liquidity risk Leverage risk Event risk Transparency risk Operational risk Short sales Derivatives |
Source: Wells Fargo Investment Institute, as of December 31, 2017. Strategic (10- to 15-year) hypothetical returns are forward-looking estimates from Wells Fargo Investment Institute of how asset classes and combinations of classes may respond during various market environments. Hypothetical returns do not represent the returns that an investor should expect in any particular year. They are not designed to predict actual portfolio performance and may differ greatly from actual performance. They are based on estimates and assumptions that may not occur. Standard deviation is a measure of volatility. It reflects the degree of variability surrounding the outcome of an investment decision; the higher the standard deviation, the greater the risk. Index returns reflect general market results and do not reflect the impact of any fees, expenses, or taxes applicable to an actual investment. An index is unmanaged and not available for direct investment. Hypothetical and past performance is no guarantee of future results. Different investments offer different levels of potential return and market risk.
See definitions of the indices and risks associated with the representative asset classes.