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Asset Forecast Chart

A graph showing a predicted 10-year forecast for a variety of asset classes offers an interesting...

A graph showing a predicted 10-year forecast for a variety of asset classes offers an interesting take on possible investments from now until 2026.

The model by Barings visually represents the correlation between risk and reward rating them on %. The cliché of “no risk, no reward” runs true on this graph with the positive correlation that would be expected being present, i.e. an increase in risk equals an increase in reward.

As expected UK gilts anchor the chart being a notoriously safe investment, with equally notoriously low returns. Moving up the graph are mid-range investments such as emerging market bonds which offer a slightly better return in exchange for slightly higher risk. This pattern continues for the majority of assets such as European equities, as well as Gold. Gold is often seen as a safe haven in times of distress and economic uncertainty; however this uncertainty also means that as an asset class it can be seen as quite high risk with fluctuations in price often unexpected. At the top of the chart with the highest risk and highest reward are emerging market equities, as expected investments in this asset class can be very high risk due to the uncertainty associated with emerging markets, however obviously they can reap great rewards when these markets prosper.

Commenting on the graph, Andrew Oxlade from The Telegraph notes that “one important point is volatility. Look at the top returning assets on the forecast chart – the stock markets of Japan, Europe and emerging markets should all deliver robust returns, but the location of British shares, further left, suggest they will offer the same returns but with fewer ups and downs.”

Looking further left on the chart are two outliers in US yield bonds and property. These both have the potential of great returns like emerging markets, gold etc, however they are deemed to have less risk according to this model.

Property in particular is a unique asset which offers the opportunity for short term and long term profitability. A buy-to-let property in the right area up to the right standard can offer an investor short-term rewards such through rental income, but also the possibility of long term rewards through capital growth of the asset. This two-fold reward is what makes investing in property such a desirable investment for people in the UK at the moment.

References:
http://www.barings.com/global/index.htm
http://www.telegraph.co.uk/investing/news/the-10-year-predictions-that-suggest-where-to-invest/
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