While 401(k) accounts have benefited from double-digit returns over the past few years, plan participants might not want to budget big for retirement quite yet, according to Russell Investments' 2015 Annual Global Outlook.
Key market predictions and economic forecasts for the coming year paint a slower, less volatile picture, with gains in the single digits, Fed tightening around the middle of the year, gradual improvement in the unemployment situation and a bump in 10-year Treasury yields.
In addition, other countries' central banks pursuing differing strategies will offer varying risks and opportunities. While strategists expect the situation will "turn out smoothly," they added in the report that "markets could be spooked if inflation pressures emerge and force more aggressive Fed action, or if Europe and Japan fail to respond to more stimulus."
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Russell expects the economy will grow by 3 percent over the course of the year, inflation at 2 percent and payroll gains in the neighborhood of 200,000 per month. It also sees a preference for equities over fixed income—no surprise there—and an underweight position for aggregate fixed-income exposures.
Internationally, the picture is mixed, with stronger growth seen in all developed markets, and emerging markets equities offering longer-term value opportunities. However, Russell strategists are "highly cautious of the current business cycle" in EM, so tread with care.
The Eurozone's economy is seen growing more slowly, at only 1 percent to 1.5 percent, and while strategists see an average overweight position in Eurozone equities, they're looking at a neutral position on U.K. equities.
In the Asia-Pacific region, bonds and cash won't do quite as well, but there'll be a bit more volatility.
Real assets offer opportunities in the form of infrastructure, where demand is expected to grow, and the strategists feel that listed infrastructure will be the most attractive in this asset class. REITs will have to deal with increases in interest rates, while commodities are seen as expensive.
With all the influences exerting differing forces on economies from one side of the earth to the other, Russell strategists said, "2015 looks to be a year when active investment choices will matter, especially given divergent central bank policies and differential growth rates across the globe. In particular, it should be a year that suits the use of actively managed globally diversified, multi-asset strategies. In this low-return world, a wide source of opportunities and a nimble process will be crucial when navigating the investment landscape in the year ahead."
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