The investment forecast for 2023 might have just gotten a little rosier, as one major investment firm is now estimating returns for a 60/40 portfolio at 7.2%

In its annual publication, Long-Term Capital Market Assumptions, New York-based J.P. Morgan Asset Management forecast U.S. equities in 2023 to provide a return of 7.9%, fixed income 4.6% and private equity and real estate roughly 10% each.

“From our current vantage point, the view has improved. We see much higher forward-looking returns across major asset classes as well as a broad return to more traditional valuation relationships,” said Jared Gross, head of institutional portfolio strategy, during a virtual panel tied to the release of the forecast, which has been named “Back to Basics.”

“Put simply, what used to work, but then stopped working, is now likely to work again,” he said. “Diversified market portfolios can provide returns, active management can deliver enhanced performance, and private alternatives can deliver unique sources of alpha inflation protection and diversification.”

According to the investment firm, the forecasts have been released annually for the last 27 years, and 70% of the time they’ve come within one-half of one standard deviation of the markets’ actual performance.

“It's important to add that we don't go through this exercise out of purely academic interest or just because it's helpful to our clients. We put these insights to work across our portfolios, most directly in our multi-asset solutions business, where we manage against strategic benchmarks that are directly informed by these LTCMAs,” Gross said. “And that's really just a fancy way of saying that we eat our own cooking.”

Joining Gross were John Bilton, head of global multi-asset strategy, Danielle Hines, associate direct of U.S. equity research, David Lebovitz, global market strategist, and Lisa Coleman, head of the global investment grade corporate credit team.

To Bilton, the silver lining of 2022 is that, from now moving forward, asset markets are back on their familiar path, as evidenced by the jump in the 60/40 return from 4.2% this year to the forecast 7.2% next year.

“One thing that may surprise some folks is that while we've got expected returns up across the board, what we haven't seen is that much of a change in the long run on U.S. inflation or indeed global inflation,” he said, adding that he expects inflation will cool slowly over the next couple of years.

Another bright spot, he said, is the experience advisors will now have where even the most conservative portfolios today will offer more return than the most aggressive in the last year.

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