Summary
We have three strategic asset allocation models, based on risk tolerance: Conservative, Growth, and Aggressive. We make tactical adjustments to the models based on our forecasts for the different segments of the capital markets. This is a discussion of the Growth segment of the models. December was a challenging month for investors, as the S&P 500 fell 2.4%, compared with a 2.3% decline for the benchmark fixed income AGG ETF. For the full year, equity returns were a healthy 25%, while bonds were down 2%. Our Stock-Bond Barometer model favors bonds over stocks for long-term portfolio positioning. In other words, these asset classes should be close to their target weights in diversified portfolios, with a slight bias towards bonds, given the recent rise in interest rates. We are too heavy on large caps. We favor large caps for growth exposure and financial strength, while small caps offer value. Our recommended exposure to small and mid caps is 10%-15% of the equity allocation, which is lower than the benchmark weighting. US stocks have outperformed global stocks over the past one and five years. We expect this trend favoring US stocks to continue, given fluctuating global economic, political, geopolitical and currency conditions. Still, international stocks offer favorable near-term valuations and we are targeting 5%-10% equity exposure to the group. In terms of growth and value, growth rebounded in 2024, outperforming value. Over the longer term, we anticipate that that will grow