Make these 6 moves now to capitalize on one of the best long-term investing outlooks in over a decade, according to JPMorgan’s $2.9 trillion asset management arm

• A diversified portfolio of stocks and bonds should climb 7% per year through the mid-2030s.
• JPMorgan Asset Management’s new report shows that growth will be steady but lower than in the 2010s.
• Here’s exactly how the firm recommends investing right now for strong long-term gains.

Investors shouldn’t be scared off by slower economic growth caused by higher-for-longer interest rates and inflation, according to JPMorgan Asset Management (JPMAM).

Money managers should instead expect solid returns for the next decade across asset classes, the firm’s top investing minds wrote in their annual long-term capital market assumptions report.

A traditional 60/40 stock-bond portfolio is expected to generate an average annual return of 7% for the next 10 to 15 years, per the report, which was released on October 17.

While that’s slightly lower than last year’s 7.2% estimate, it’s still one of the brightest outlooks of the last decade, strategists at the $2.9 trillion firm said Tuesday at a press conference about the report. For reference, JPMAM called for forward long-term returns of 4.3% in 2021.

Lower growth, higher rates will define the economy’s next decade

As for the economy, JPMAM expects long-term global GDP growth of 2.4% per year, which is just above 2022’s 2.3% estimate but below the median growth rate of 3.1% in the 2010s. The US is projected to grow 1.8% per year versus 1.6% for other developed markets.

That more modest growth outlook reflects the structural shifts in the global economy that took place during the pandemic. Inflation will settle at 2.9% in the mid- to late-2020s, according to JPMAM, which is much higher than last decade’s rate but in line with the historical average.

Elevated price growth means that the near-zero interest rate policy that the Federal Reserve and European Central Bank stuck to in the 2010s is over, JPMAM’s strategists said.

“These doves have changed their feathers,” David Kelly, the chief global market strategist at JPMAM, said of central bankers at the conference. “They’re hawks now.”

However, fiscal policy should help lift the global economy, as should artificial intelligence. The ongoing green energy transition in Europe and the US, which is spending a trillion dollars on infrastructure, will give growth a boost, according to JPMAM. The firm added that productivity gains from AI will likely add a tenth of a percentage point to global growth in the next decade.

While JPMAM’s report focused on long-term outcomes instead of near-term risks, Kelly warned that a recession could be around the corner, as he did last month in an interview with Insider. However, the strategy chief doesn’t think a downturn would be a repeat of the financial crisis.

“We may be on the edge of something,” Kelly said in reference to the economy. “But we think we’re on the edge of a swamp — not the edge of a cliff.”

Kelly continued: “There’s nothing in the outlook we’re looking at right now that suggests that the US or the world economy is on the edge of a deep recession.”

Many of the market’s top concerns, including restrictive monetary policy and geopolitical turmoil, will remain headaches for the next decade, according to JPMAM.

However, strategists at the asset management arm strongly recommend staying invested, especially because the biggest risks — like a pandemic — are always impossible to predict.

6 top ways to invest now

While a balanced portfolio should fetch a 7% long-term return, JPMAM’s experts encouraged investors to aim for even higher. By simply weaving in alternative investments, the firm said that expected returns rise to 7.6% and can easily surpass that with successful active management.

Diversification across asset classes and countries is crucial for anyone with a long time horizon, according to JPMAM. Kelly and his colleagues, global multi-asset head Monica Issar and portfolio manager Grace Koo, are urging their clients to branch out from US stocks.

“Diversification is owning the stuff you hate,” Kelly said. He also remarked that “cash is a trap — not a long-term investment.”

International equities, both in emerging markets and developed economies, look highly attractive compared to their US counterparts, according to JPMAM. Foreign stocks trade at a historic discount to the S&P 500 on a forward basis, the firm found. It noted that the valuation disconnect was 30.5% as of September 30 — nearly double the typical markdown of 15.9%.

The long-awaited reversal for international stocks won’t happen overnight, JPMAM strategists said. The group is riskier than US companies, partially due to their exposure to geopolitical conflicts, and they’re also dependent on the US dollar weakening relative to other currencies. Emerging markets in particular have fallen flat after years of missing growth estimates.

But in the long term, emerging-market equities and those trading in Europe, Australasia, and the Far East (EAFE) will rise 8.8% and 9.2% per year, respectively, according to JPMAM. That’s far above the 7% expected gain for US large-cap names, which have dominated for over a decade.

Outside of stocks, JPMAM is bullish on fixed income, specifically long-term US Treasuries and US investment-grade bonds. The firm is highly optimistic about the asset class after its brutal multi-year selloff and expects 4.6% and 5.1% long-term returns for those groups, respectively.

Bond yields are the highest they’ve been since before the financial crisis, but pundits widely expect prices to rally again once the Fed stops raising interest rates. Bob Michele, who’s the head of JPMAM’s global fixed income division, told Insider earlier this month that this is one of the best times to buy bonds that he’s observed in his 43-year career.

“As the recent inflation shock and spike in bond market volatility fade into the rearview mirror, we anticipate a welcome calming of the gyrations in the fixed income market,” JPMAM strategists wrote in their report.

While the time-tested 60-40 portfolio should perform fine, JPMAM thinks investors are leaving gains on the table if they only target stocks and bonds. The firm’s strategists wrote that “alternative assets are arguably the brightest spot in an attractive universe of returns this year.”

US real estate had the most impressive year-over-year jump in expected returns, rising from 5.7% to 7.5% in JPMAM’s latest projections. Nearly as impressive were global real estate investment trusts (REITs), which are now expected to grow 7.9% a year from 6.4% in 2022.

Real estate is a proven inflation hedge that will stand out if price growth persists as anticipated. Investors looking in this area should prioritize residential properties over office buildings given the nationwide home shortage and the prevalence of post-pandemic work-from-home policies.

“A shortage of affordable housing means supply/demand metrics for apartments and single-family rentals remain favorable and should stay that way over our 10- to 15-year investment horizon,” JPMAM strategists wrote.

Lastly, REITs in the US and Europe are appealing since they’re cash-flow producing machines that generally have healthy balance sheets. JPMAM recommends avoiding office REITs as well.