Transient market volatility has the potential to be thrilling, especially on the heels of low volatility spells like those in the not-too-distant past. However, sustained periods of market stress can create a positive feedback loop in which excitement quickly turns to fear. It is in these episodes that portfolio resilience is truly tested and the ability to capture market dislocations can have a disproportionate impact on results.

Our 2019 Long-Term Capital Market Assumptions (LTCMAs) offer a message of secular optimism, broadly consistent with our 2018 assumptions. This optimism is tempered by the reality of late-cycle headwinds and an uptick in volatility, as many economies are operating above trend with little slack and asset valuations remain elevated (although after December’s sell off, stocks now look cheap relative to their own history, as well as to bonds). These views are incorporated into our 10- to 15-year forward-looking risk and return estimates across asset classes. But how can institutional investors protect their portfolios from near-term stresses so that they can be positioned for long-term success?

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