Feature Article:
The Policy Portfolio and the Next Equity
Bear Market - A Scenario Analysis
It’s difficult to argue with nearly 90 years of data showing that a simple balanced portfolio of stocks and bonds has been an effective passive risk-adjusted strategy. But it’s equally as difficult to argue with basic arithmetic. Prospective returns for a balanced portfolio are at some of the lowest levels in history. Intermediate-term Treasury prices reflect a yield-to-maturity of about 2 percent over the next decade.  Stocks will likely earn slightly more, but with much more volatility. Worse, without a collapse in an already low rate of inflation, bonds may not provide the same offset to declining equity values like they have in recent equity bear markets.
By William Hester, CFA
Senior Financial Analyst