Multi-Asset Insights

Asset Allocation Workshop: Theory and Practice

December 22 2021

In forecasting returns, current conditions suggest future stock and bond returns are likely to be lower. To forecast expected risk, investors should consider volatility, as well as “fat tails” and exposure to loss. Combining return and risk forecasts to optimize portfolio construction can boost overall performance by applying appropriate models, good judgement, and experience.

Key Insights

  • It’s possible to forecast investment returns, and current conditions suggest future stock and bond returns are likely to be considerably lower than in the recent past. 
  • It’s also possible to forecast risk through consideration of volatility measures, as well as “fat tails” and exposure to loss. 
  • Portfolio optimization can boost performance by using appropriate models, good judgment, and experience to adjust your asset mix.
  • Financial professionals should trust your investment process, maintain good diversification, and make sure strategic portfolio design evolves as asset classes evolve. 

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Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of November 2021 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. Actual outcomes may differ materially from estimates and any forward-looking statements made.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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