The expected return for the Global Market Index (GMI) held steady in November.

Freepik

Today’s revised, long-run forecast for the benchmark — a market-value-weighted portfolio that holds all the major asset classes (except cash) via a set of ETF proxies — is unchanged at a relatively lofty 6.9% ex ante annualized total-return performance, matching last month’s estimate.

Echoing recent history, all but one of GMI’s components continue to reflect return forecasts (methodologies defined below) above their trailing 10-year returns. The downside outlier remains the US stock market, which continues to post a relatively low ex ante performance estimate vs. its higher trailing 10-year performance.

GMI represents a theoretical benchmark of the optimal portfolio for the average investor with an infinite time horizon. On that basis, GMI is useful as a starting point for customizing asset allocation and portfolio design to match an investor’s expectations, objectives, risk tolerance, etc. GMI’s history suggests that this passive benchmark’s performance is competitive with most active asset-allocation strategies, especially after adjusting for risk, trading costs and taxes.

It’s likely that some, most or possibly all of the forecasts above will be wide of the mark in some degree. GMI’s projections, however, are expected to be somewhat more reliable vs. the estimates for its components. Predictions for the specific markets (US stocks, commodities, etc.) are subject to greater volatility and tracking error compared with aggregating the forecasts into a GMI estimate, a process that may reduce some of the errors through time.

For context on how GMI’s realized total return has evolved through time, consider the benchmark’s track record on a rolling 10-year annualized basis. The chart below compares GMI’s performance vs. the equivalent for US stocks and US bonds through last month. GMI’s current 10-year return is 6.0%, which is modestly above the lowest performance posted in the past decade.

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