The last decade produced great performance across most asset classes. But in the 2020s, we expect investment market returns will be lower and risk harder to manage. Looking forward, a disciplined multi-asset approach will be especially valuable to identify opportunities and help mitigate setbacks.

Powerful returns in 2019 meant that strategic allocation didn’t matter all that much for investors. Equities led the way by notching a new high, but performance was strong across asset classes and categories, from stocks to bonds to real estate and other diversifiers. This trend has persisted for most of the last 10 years.

But the good times may be coming to an end. We believe markets will face profound changes in the decade ahead. Secular challenges include adverse demographics in developed economies and in China, slow productivity growth and the drag on both consumption and investment from servicing unprecedent amounts of debt. Cyclical headwinds feature high asset valuations (after a decade of easy monetary policy and credit-driven expansion), populist pressures and rising geopolitical risks.

While this does not mean a protracted sell-off is around the corner, we expect lower market returns across most asset classes over the next 10 years (Display). Meanwhile, downside risks will proliferate and heighten as policymakers struggle to find effective responses to these intractable problems.

With a multi-asset approach, investors can navigate this trickier terrain using a wide range of tools to build a portfolio, from traditional asset classes to beta diversifiers, alternatives, timing strategies and options. Multi-asset strategies can also help income investors rethink how to generate income while managing risks. Focusing on the year ahead, we advocate five strategies to face up to the changing environment:

1. Be Warier in Equities—Consider Europe and Emerging Markets

Global earnings growth is weakening. In 2020, we expect earnings-growth estimates will fall into the low to mid-single digits. And much of the meager earnings gains will likely be driven by buybacks and corporate financing activities—not sales growth. Corporate profit margins appear to have peaked, particularly in the US, amid rising unit labor costs that may force companies to be more cautious on hiring and spending. In Europe, equity valuations are more attractive, and a weak euro should support the eurozone’s many export-oriented companies. Upward earnings revisions and an improving corporate outlook also favor selective exposure to emerging-market stocks including China A-shares.