2023 Outlook: Advisors will need an Alternative Toolbox

Key Takeaways

• Don't rely solely on the 60/40 stock-bond portfolio for diversification: In 2022, both stocks and bonds suffered double-digit losses simultaneously, proving that traditional diversification failed when needed most—reassess your allocation strategy.
• Integrate alternative investments into your portfolio: Use alternatives (private equity, hedge funds, real assets) specifically during periods of low equity returns, high volatility, and inflation to reduce portfolio shock from market dislocations.
• Expect substantially lower equity returns over the next 10-15 years: Most capital market forecasts anticipate returns well below historical averages due to market excesses and global economic challenges—adjust your retirement and income expectations accordingly.
• Monitor Fed rate policy decisions closely: The Fed raised rates 425 basis points in 2022 with unprecedented 75 basis point increments; watch when they stop hiking and whether they reverse course, as this will significantly impact bond valuations and credit markets.
• Prepare for potential recession scenarios: Assess whether you face a mild recession or a severe one, and understand how different global regions may experience varying degrees of economic contraction and ripple effects across markets.