Dear Investor,
After a rewarding 2023, global financial markets carried their momentum into 2024. Equity markets, in particular, surprised with another year of double-digit gains, as the Nasdaq 100 and S&P 500 each advanced more than 25%—despite concerns that valuations of U.S. large-cap stocks had already reached extreme levels at the end of 2023.
Bond markets continued their recovery from the 2022 “Big Bond Reset,” though long-duration government bonds in the U.S. and Europe still recorded losses. This segment now seems to operate in isolation, as government debt levels in developed markets have reached the point where “the long bond” no longer provides reliable portfolio insurance.
It is against this backdrop that I am pleased to present the seventh edition of the DFO Financial Yearbook, which compiles long-term risk and return data across a wide range of asset classes. Beyond individual asset class profiles, the Yearbook includes stress tests and timeless investment principles to support long-term investors.
For the first time, we have added current valuations of major asset classes relative to their historical returns, as well as breakeven inflation rates. Our new “valuation traffic light” offers a practical guide to whether now may be an attractive time to invest in a given asset class. In addition, we highlight the growing role of global private markets, which private banks are increasingly promoting to their clients. However, investors should note that access typically requires “feeder vehicles” with costs ranging from 2–5% p.a., which can significantly erode returns—particularly when compared with the very low cost of index funds and ETFs.
The purpose of the Yearbook is to provide clear, realistic expectations for long-term returns in global stock and bond markets. Such information is rarely shared by private banks or their relationship managers, whose short-term revenue goals often conflict with the long-term success of their clients. A fee-only advisor may therefore be a more effective partner for investors seeking unbiased guidance.
Our research shows that long-term returns range from the inflation rate (about 2% p.a. over recent decades) to slightly above 10% p.a. for global small-cap equities and successful factor strategies such as quality and momentum. These are attractive opportunities, but only for investors who remain disciplined during market downturns. Without patience, frequent reshuffling and poorly timed exits tend to produce disappointing results, leading to frustration and scepticism about the value of long-term investing.
Time and again, I have seen that investors who stay the course with globally diversified, low-cost strategies do not lose money over the long run, consistently beat inflation, and enjoy the equity risk premium—regardless of portfolio size. Success ultimately comes from combining global stock and bond investments in a way that aligns with individual circumstances and cash-flow needs.
While we help clients manage the emotional side of investing, the decision to remain committed rests with them. What we do know is that global markets reward patience and sensibility. To support this, we have established an investment framework of asset-allocation recommendations and practical building blocks, focusing only on indices that can be accessed cost-effectively via index funds or ETFs.
I hope the 2024 DFO Financial Yearbook provides you with the insights and confidence to establish a robust long-term strategy—and, most importantly, to stick with it. As always, we remain at your disposal should you seek an investment partner or sounding board.
