A BUMPY ROAD TO A NEW PARADIGM
Markets rebounded in 2023 as central banks signaled an impending conclusion to the interest-rate hiking cycle. While resilience and moderating inflation have been prominent economic themes, heightened geopolitical risks and softening consumer trends add uncertainty to the outlook.
FOCUS ON STRUCTURAL TRENDS WITH RESILIENT DEMAND
Major transformative changes are afoot globally in areas with resilient demand and growth that do not rely on the economic environment. Structural changes, including digitalization and demographic trends, are changing the investment landscape across industries.
Asset classes to consider:
- U.S. growth stocks
- Global equities
- International equities
- Emerging market equities
- Public REITs
Diversify with alternative return sources
Public markets are vulnerable to short-term market noise with prices often overshooting to the downside based on shifting investor sentiment. Private markets benefit from a longer-term view and less frequent mark to market, often providing investors a smoother ride.
Asset classes to consider:
- Private credit
- Private real estate
TAKE ADVANTAGE OF VOLATILITY TO REDUCE TAX BILLS
After a banner tax-loss harvesting year in 2022, opportunities were more muted in 2023 as markets saw a broad-based rally through much of the year. But a slowing economy and rising geopolitical risks may lead to better tax-loss harvesting opportunities in 2024.
Asset classes to consider:
- Direct indexing
THINK BROADER TO IMPROVE RETIREMENT OUTCOMES
While moderating, inflation is likely to remain elevated for the foreseeable future, leading to a higher interest rate regime coupled with lower expected traditional asset class returns. As this can be challenging for a traditional 60/40 allocation, long-term investors may benefit from including hedging assets into their retirement allocations.
Asset classes to consider:
- Real assets
1 While all investors potentially can benefit from a direct indexing strategy, the value of tax losses and after-tax returns decrease as an investor’s tax rate decreases.
Risks—Investing involves risks. Some investments are riskier than others. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, and political and economic uncertainties. Investing in emerging markets is very risky due to the additional political, economic, and currency risks associated with these underdeveloped geographic areas. Investments in growth stocks may be especially volatile. Value investing involves the risk that undervalued securities may not appreciate as anticipated. It may take a substantial period of time to realize a gain on an investment in a small or midsized company, if any gain is realized at all. Real estate investment trusts (REITs) may not be suitable for all investors. There is no guarantee a REIT will pay distributions given the inherent risks associated with the market. A REIT may fail to qualify as a REIT as defined in the Tax Code, which could affect operations and negatively impact the ability to make distributions. There is no guarantee a REIT’s investment objectives will be achieved. Diversification and asset allocation do not guarantee profit or protect against loss.
Alternative investments are not subject to the same regulatory requirements or governmental oversight as mutual funds. The sponsor or manager of any Alternative Investment may not be registered with any governmental agency. Alternative investments often engage in leverage and other investment practices that are extremely speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the loss of the entire amount that is invested. Alternative investments may purchase instruments that are traded on exchanges located outside the United States that are “principal markets” and are subject to the risk that the counterparty will not perform with respect to contracts. Furthermore, since there is generally less government supervision and regulation of foreign exchanges, Alternative investments are also subject to the risk of the failure of the exchanges and there may be a higher risk of financial irregularities and/or lack of appropriate risk monitoring and controls. Past performance is not a guide to future performance and the value of Alternative investments and the income derived from them can go down as well as up. Future returns are not guaranteed and a loss of principal may occur. Alternative investments may impose significant fees, including incentive fees that are based upon a percentage of the realized and unrealized gains, and such fees may offset all or a significant portion of such alternative investment’s trading profits. Alternative investments are offered in reliance upon an exemption from registration under the Securities Act of 1933, as amended, for offers and sales of securities that do not involve a public offering. No public or other market is available or will develop. Similarly, interests in an alternative investment are highly illiquid and generally are not transferable without the consent of the sponsor, and applicable securities and tax laws will limit transfers. Alternative investments may themselves invest in instruments that may be highly illiquid and extremely difficult to value. This also may limit your ability to redeem or transfer your investment or delay receipt of redemption proceeds. Alternative investments are not required to provide their investors with periodic pricing or valuation information. There may be conflicts of interest between the alternative investment and other service providers, including the investment manager and sponsor of the alternative investment. Investors in alternative investments may have limited rights with respect to their investment interest, including limited voting rights and participation in the management of the alternative investment. Alternative Investments may involve complex tax and legal structures. Investment in any particular alternative investment, or alternative investments generally, is only suitable for sophisticated investors for whom such an investment does not constitute a complete investment program and who fully understand and are willing to assume the risks involved in such alternative investment. Investors are urged to consult with your own tax, accounting and legal advisers regarding any investment in any alternative investment. Investors are also urged to take appropriate advice regarding any applicable legal requirements and any applicable taxation and exchange control regulations in the country of their citizenship, residence or domicile which may be relevant to the subscription, purchase, holding, exchange, redemption, or disposal of any Alternative Investment.
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