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Capital Market Assumptions 2014

The Long Road Toward Normalization

Hunter Brackett, CFA
Senior Manager | CAPTRUST Consulting Research Group

Financial literature has taught us that risk and return are related, and that optimized portfolios seek to produce the highest expected return per unit of risk. Formulating risk and return assumptions for the various asset classes that comprise capital markets offers investors a guide to the probable range of investment performance over a given period. These assumptions can then guide the asset allocation and risk levels that should be chosen to meet investment goals. 

Five years after the financial crisis, central bank policies remain accommodative, interest rates are still near historical lows, inflation remains contained, and economic growth is below its long-term trend. However, over the five- to seven-year horizon of our forecast, we expect a normalization of these factors as central bankers unwind their policies in response to improving growth and inflation, and interest rates gradually rise towards longer-term equilibrium levels.

For more, please download the full position paper below.

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