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The next 10 years will be unlike the last two decades for investors, according to investment advisors and wealth managers. Charles-Henry Monchau, chief investment officer at Swiss private bank Syz, said investors risk making long-term decisions with a “cognitive bias” and urges those investing $1 million over the next decade not to extrapolate too much from recent history. He believes that inflation — in contrast to the past two decades — is likely to stay higher for longer in light of commodity supply shortages, companies’ reshoring of production, and labor shortages in critical jobs due to demographic changes. Those conditions could create more volatility and lower returns for assets that have done well over the past decade, according to Monchau. How to invest For long-term investors, the best approach is to have the bulk of the portfolio in global equities, according to Monchau, whose bank serves clients between $1 million and $5 million in assets. “If you have a long-term time horizon, the best is to be invested in equities,” he told CNBC Pro from Geneva. In addition, to deal with higher inflation, Monchau suggested three options beyond stocks and bonds. First, be more “nimble” with asset allocation between stocks and cash. Second, add assets like REITs (real estate investment trusts) and commodities that can potentially hedge against inflation. Third, allocate a portion of the portfolio to illiquid alternative investments, which could boost returns in exchange for the inability to wind down those investments over long periods. Monchau pointed to European Long-term Investment Funds (ELTIFs) as a way to access those previously restricted private markets, although investors should be aware that their money will not be readily available to withdraw. ELTIFs allow individual investors to invest alongside institutions in assets like infrastructure, private equity and private credit. “There’s been a democratization of finance,” said Monchau, who oversees the Swiss bank’s investment strategy that directs $15 billion of client assets. Earlier this year, Goldman Sachs raised over $200 million for its inaugural ELTIF aimed at high-net-worth individuals. Other asset managers like BlackRock and Franklin Templeton have also launched ELTIFs for their “European wealth clients.” “This is an instrument not to get rich, but to stay rich,” said Monchau, and suggested allocating up to 50% of a portfolio to several of these vehicles. “So don’t expect 20%, 30%, 40% or 50% [recurring returns] like so many are trying by investing in V.C. funds or early-stage growth ventures.” “These products are highly diversified, and they target low double-digit returns with low risk,” he added. Monchau said investors should also allocate to other asset classes, such as fixed income, to provide portfolio diversification and a regular income. Stocks and bonds Jamie Cox, financial planner at Harris Financial Group , expects international stocks to outperform U.S. stocks in the coming decade as rising rates and inflation change market dynamics. Cox said that in one sense, “this decade is going to be much like the decade of 2000” — there will, he said, be “a transition from large U.S. tech stocks into your more basic industries.” “Energy, staples, pharmaceuticals, are going to be the leadership group throughout the next decade,” said Cox, who gives investment advice targeted at retirement income planning to more than 1,800 clients in and around Richmond, Virginia. He expects rising government debt and deficit levels to keep interest rates elevated, and tech companies will face headwinds from tax changes and increased regulation. As such, Cox suggested focusing globally on high dividend stocks in sectors like consumer staples, telecoms and energy. “The ability to generate income is going to be far and away the better place for the next decade for investment,” he said. He singled out consumer staples companies like Unilever and Swiss-listed Nestle as high dividend payers. Companies and sectors he deemed promising for the next decade include telecom infrastructure companies like Crown Castle and American Tower , and energy and pharmaceuticals. However, Cox told CNBC Pro that investors should not “paint the technology sector with a broad brush.” “There are plenty of stocks, like Broadcom , for example, which is a tech stock, but it’s also a high dividend paying stock,” the investment manager noted. For younger investors more than 10 years from retirement, Cox recommends a 100% equity portfolio, maximising returns with low-cost index ETFs. Cox suggested investing in actively managed funds only when investors seek dividend income during retirement. “You need to spend money to generate income that’s sustainable, because if you don’t, then you end up eroding your capital,” Cox said. “So it’s worth paying for active management and worth paying for mutual funds at that point to diversify the risk of loss, but not until.”
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