As markets enter a more mature phase of the cycle, investors and advisers alike need to reassess how current risks and opportunities align with their clients' goals. This isn't just a challenge for retirees; younger, accumulation-focused investors could also face a "lost decade" if returns for the next decade turn out to be weak following a strong 5-10 years and starting from today’s lofty valuations.

While markets have climbed higher for over a decade, valuations have become increasingly stretched, particularly in the U.S. mega-cap technology stocks that now dominate major indices. Mainstream markets like the US Europe and the UK have already experienced "lost decades" similar to Japan after its bubble burst. With the priciest segments of the U.S. market now rivalling the excesses of the late 1990s tech boom, investors can no longer assume outsized past returns will persist.

Additionally, the escalating tariffs and trade tensions between the U.S. and China raise the spectre of a more isolated, less trade-friendly world. Investors must consider the possibility that we are witnessing the end of U.S. exceptionalism - the idea that the U.S. can consistently outpace global growth and offer a safe haven. If the tariff war continues to escalate and dampen global economic activity while weighing on market sentiment, even the U.S. is unlikely to remain immune. The post-WWII era of U.S. dominance may be drawing to a close.

Accumulators:

These risks have implications even for younger investors in accumulation mode. While they can typically tolerate short-term volatility to pursue long-term growth, an extended period of muted or negative returns is more probable from these starting valuations, as seen for over a decade starting in 2000. Even though they have very long time horizons accumulation investors may maintain substantial but globally diversified equity allocations and dynamically rebalance toward undervalued assets rather than chasing overheated U.S. tech darlings.

Retirees:

Sequence of return risk makes this especially critical for those nearing retirement. A bear market combined with portfolio withdrawals early in retirement can irreversibly impair retirement sustainability. Advisors can help these clients build resilient, diversified portfolios to withstand inevitable market shocks but a more proactive and forward looking asset allocation approach might be needed. Mitigating downside in the early years of retirement is just as important as seeking long-term growth.

Opportunistic Investors:

Opportunistic investors can take advantage by gravitating toward out-of-favour assets like emerging markets that offer more compelling valuations. But they should temper this with ample reserves and diversification and if geopolitical uncertainty persists some of these positions may be viewed as trades rather than strategic positions.

The key takeaway is that all investors must scrutinise their portfolio's risk exposures and return prospects rather than extrapolating the recent past forward, especially given the potential for a phase shift in U.S. and global economic conditions. Advisors need to objectively assess client allocations and ensure they can both participate if markets grind higher but also preserve capital if the next decade echoes the 2000s rather than the 2010s. 

Elevated valuations and macro headwinds pose challenges even for accumulation investors now. Crafting risk-aware, globally diversified portfolios aligned to each client's unique situation is, we think, something that becomes a more valued part of an adviser's offering. The objective is to position portfolios to achieve long-term goals without being derailed by short-term market gyrations in a more uncertain world.