Are You Ready for the 2020s?

Peak Globalization

For decades, the world economy has pursued frictionless connections and commerce between and among nations around the globe. But now countries are looking inward, focused on resolving trade disputes while creating stronger local and regional economic ties. 

Recession

Over the past decade we’ve seen a long economic expansion—the longest on the record books in the U.S.—but now, with companies highly leveraged and central banks having little room to maneuver, some fear it wouldn’t take much for the economy to slip into recession.

Quantitative Failure

The U.S. Federal Reserve and other central banks have pushed the limits of monetary policy tools to stimulate the global economy. But with interest rates already very low—below zero in Europe and Japan—there may be little left that they can do.

Demographics

Advances in technology and medicine are leading to increasing life expectancy, an aging global population and a growing middle class in developing countries. More older people and more people with disposable income are boosting demand for a diverse array of consumer goods.

Climate Change

Halting responses to a warming planet have led to extreme weather, rising sea levels and economic and political dislocations. Now attention is turning to solutions, policy changes, and technology that could stem the damage while generating economic benefits.

Robots & Automation

The plunging cost of industrial robots coupled with advances in artificial intelligence are transforming the workplace and everyday life, putting as many as half of all current jobs at risk by 2035—changes may upend global supply chains and promote customized local production.

Splinternet

China’s surging technological self-sufficiency may lead to a split in global supply chains and technology rules and digital standards, as some countries adopt Chinese standards while others stick with the currently ubiquitous U.S. standards.

Moral Capitalism

Traditionally, capitalism has focused on maximizing profits for shareholders. Now, companies are expanding who they consider stakeholders and how they measure success, giving more weight to social responsibility, environmental sustainability, and employee satisfaction.

Smart Everything

We expect that more and more things will be connected to the internet, with powerful, flexible 5G networks leading to a proliferation of smart buildings, homes, cities, energy and mobility. These changes could improve life, especially in cities—but may come at the expense of privacy.

Space

In the new space age, private companies, reusable rockets and technology breakthroughs could transform a former government monopoly. One possible outcome: Nanosatellites extending broadband connectivity to the 40% of the world without good access to the internet.

Our Chief Investment Officer shares some strategies to explore as you consider how you might invest in the 2020s.

One thing we can likely count on in the coming decade is that change will be a constant, notes Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. And that can present new risks and opportunities. Here, Hyzy offers some ideas on how investors can prepare for both.

Stick with stocks

With U.S. and global interest rates stuck at historic lows, stocks will likely offer the best opportunities for growth during the 2020s, Hyzy believes. While many investors have been reluctant to embrace stocks since the 2009 financial crisis, “over the next 10 years, we could see the rise of a new ‘equity culture’ of Millennials and younger investors seeking returns,” Hyzy says.

Choose your sectors

As robotics, automation and artificial intelligence play an ever-larger role in business and daily life, “we expect the technology sector to produce above-average returns during the 2020s,” Hyzy says. With people 65 or older set to outnumber people under the age of five globally for the first time in history, health care presents another area of potential growth. Other growth areas include industrial stocks and financial services, he adds. With climate change taking center stage, renewable energy stocks also hold promise.

Protect with bonds

Although stocks on the whole may represent the best opportunities for return in the 2020s, bonds should remain an important part of portfolios. Bonds can add protection against market volatility, Hyzy notes, as well as a source of income. High-quality corporate bonds, short-term Treasury and municipal bonds are among the most promising fixed-income choices, he adds.

Expect—and prepare for—volatility

Amid an uncertain outlook for the U.S. and global economies—as well as an upcoming U.S. presidential election that could influence tax and regulatory policies for years to come—investors should be prepared for market volatility throughout the coming decade, Hyzy advises. “We’ve had so much episodic volatility in recent years that markets are getting used to it,” he says.

For individual investors, “having a portfolio that’s well diversified across multiple asset classes and sectors is an effective way to prepare for the unexpected.” Another key is to continually rebalance your portfolio, as events and markets change, to be sure that your investments stay aligned with your long-term goals.

Speak with your financial advisor about your financial goals, and how you might adjust your portfolio for the decade ahead.