Retest your investments to reflect the new return outlook

Research indicates that asset allocation is the primary driver of portfolio risk and long-term returns.¹ We feel allocation is the single most important decision a long-term investor will make, and it can be the difference between reaching objectives and falling short. In a world that is changing in significant ways, this is an especially important moment to step back, consider your options, and establish an appropriate long-term asset allocation policy. 

Start by looking forward

Too often, we see institutional investors take a backward-looking view by expecting the future performance of investments to mirror what they’ve seen in the recent past. That can lead to missed opportunities, allocations that don’t reflect prevailing macroeconomic, political and fiscal forces, and over concentrations in certain asset classes and themes.

Our approach is different: We focus on establishing a forward-looking view to provide us with insights on the opportunities and risks ahead. Each year, more than 60 investment professionals from across J.P. Morgan Asset & Wealth Management pool their quantitative and qualitative insights in a deep, proprietary analytical process. The results are 10- to 15-year expected return and volatility assumptions for more than 200 assets and strategies.

The J.P. Morgan Asset Management Long-Term Capital Markets Assumptions (LTCMAs), now in their 29^th year, fuel our decision making, power our approach for multi-asset portfolios and underpin our proprietary strategic asset allocation toolkit. For 2025, the central theme is “Higher starting point, healthier foundations.”

Higher starting points

World equities rallied 17% in the first three quarters of 2024.² This has lead to elevated valuations for public market equities, and some alternative assets, compared to 2023—what we’re calling “higher starting points.” Tech stocks such as the Magnificent Seven continued to broadly outperform, leading to higher concentrations. Meanwhile, credit spreads have tightened, leaving investors with less cushion for weakness. And we see more macroeconomic volatility, creating greater dispersion in geographic outcomes.

It’s important to consider this when making investing decisions, but we do not believe that asset prices are dangerously elevated overall.

Healthier Foundations

We see the global economy entering a period of stronger growth compared to the 2010s. In fact, in 2025, our long-term assumptions for nominal growth for the G7 nations rises for the fifth consecutive year. We call this state “healthier foundations,” as it is broadly supportive of equity valuations over the long term in spite of their increased valuations. The 2025 LTCMAs also incorporate greater capex spending—we project that capital expenditures as a percentage of GDP will their highest level since the “dot-com bubble” burst in 2000.

Other components that inform this view: Our U.S. inflation projection decreases for the second year in a row, creating a better “growth mix.” We also expect accelerating adoption of AI to promote greater productivity, and we again raise our forecasts for earnings growth to reflect rising profit our assumptions. However, the healthier foundations are international in scope. Lower valuations outside the US and a weaker USD support stronger international returns, especially in Japan.

One eye on the long term, another on your goals

We’ve worked with sophisticated long-term investors, endowments and family offices around the world for decades, and we know that accounting for changes in the world economy, markets and industries is a critical part of asset allocation. An unpredictable future may make it difficult to achieve investment objectives, leading to erosion of financial health and asset base.

As we look forward over the next 10-15 years, we expect the 60/40 allocation³ to remain the foundation of long-term portfolios. However, our assumptions call for an expected long-term return of 6.4% per year, which would likely fall short of the typical return objectives of endowments and family offices⁴. This raises the question: Are your portfolios on track to meet your goals? 

Our LTCMAs facilitate portfolio testing by providing specific estimates for potential long-term returns, volatilities and correlations across a broad spectrum of asset classes. We feed these data points into our proprietary asset allocation tools as we work to define optimal portfolios based on long-term objectives and key constraints, such as liquidity needs, structural diversification and specific liabilities.

Over many years, we have invested significant resources in developing these tools to help our clients make informed long-term investment decisions. Running our tools often uncovers gaps and can highlight different potential opportunities. Analysis can be the basis for education, consultation and discussion, and often leads to adjustments in asset allocation, including the addition of new asset classes and strategies (and an updated investment policy statement IPS).

One key tool—the Morgan Asset Projection System (MAPS)—lets us generate forward-looking portfolio values that account for starting value, expected inflows or outflows and taxes (if applicable). MAPS helps us understand whether a portfolio is likely to maintain its purchasing power after distributions and lets clients set expectations for their assets’ long-term growth. The chart below shows the additional ways we test portfolios.