It is a good time to be an investor. Because interest rates have increased, most asset classes – cash, bonds, commodities, real estate and stocks – can be expected to generate satisfying returns over the coming decade.
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Let’s start the review with the asset class I usually don’t invest in – fixed income (cash and bonds).

I tend to avoid fixed income because I’m a risk-tolerant investor with a 50-year investment horizon. I don’t need the stability that cash or bonds provide.

Cash and bonds return less than stocks in the long run. Even if I had been the best bond investor in the world, I could not have grown my capital at the rate I did over the past 20 years, had I exclusively focused on bonds.

That does not mean that a 100% focus on stocks and other risky assets is the right strategy for everyone. Stocks are volatile and experience large drawdowns from time to time. Many people cannot handle these drawdowns and sell at the bottom, when stocks are the cheapest and should be bought, not sold.

To avoid these psychology-driven losses, many people are advised to hold cash and bonds in their portfolios. The good news is that right now, fixed income looks more attractive than in a long time.

In the US, yields of 4.5% on cash and bonds will probably lead to ‘real’ (inflation-adjusted) returns of 2-2.5% a year over the coming decade. In the euro area, interest rates are lower than in the US. Even so, positive real returns can be achieved by switching out of cash and into bonds.

Overall, cash and bonds can be expected to generate satisfactory returns, given that investors in these asset classes take very little risk of loss. The main risk is inflation, but even that can be hedged against by buying inflation-proof TIPS bonds.

Those who want higher returns than cash and bonds tend to invest in stocks and real estate.

Real estate remains an attractive investment today, after property values fell in 2022-2023 due to higher interest rates.

Real Estate Investment Trusts (REITs) can be expected to return 5% a year after inflation going forward. The first 4% of this return is expected to come from dividends, and the remaining 1% from valuation growth, as the properties in the portfolios of the REITs appreciate.

Finally, how about stocks? Here there is a great disparity between geographies.

US stocks are highly valued, and can be expected to return only 1% a year over the coming decade, assuming their valuations normalise.

It is the highly valued mega caps of the $SPX500 that drive the low expected returns of the US market. US small companies, by contrast, are reasonably valued and can be expected to return 5% a year.

European stocks can be expected to do a little better than any US market segment, returning 6% a year. The highest returns, 8% a year, are expected from Emerging Market Value stocks.

I believe the portfolio is well placed to return at least 5% year after inflation going forward (hopefully more) given its focus on non-US stocks and real estate.

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