Long-Term Capital Market Assumptions and Strategic Portfolio Allocations, 2025
Each year, the Inspire Investment Management Team analyzes historical return, risk, and correlation statistics for different asset classes and then formulate assumptions based on current market conditions.
Each year, the Inspire Investment Committee analyzes and updates its capital market assumptions for various asset classes. The assumptions below are long-term in nature (ten years+) and can be used to model different portfolio allocations, which in turn can be utilized by investors for investment planning purposes. The Inspire Investment Committee reviews historical return, risk, and correlation statistics for different asset classes and then formulates its assumptions based on current market conditions. These assumptions are based on our best estimates with the information available at the time of this writing, and there are no guarantees that these assumptions will be realized.
Key Takeaways
Return Assumptions:
Inflation: High and sustained level of inflation, unchanged from the previous year
US fixed income: Decreased to 4.25% given slightly lower expected long-term level of interest rates
US equity: 7.25-9% range, with lower large-cap performance and US small-cap equities expected to outperform their mid- and large-cap counterparts
Non-US developed and emerging market equity: Lowered to 8.5% for non-US developed and 9.25% for emerging markets, both with a probability of outperforming large-cap US equity
Expected returns shown are hypothetical and do not reflect actual investment results. These projections are based on assumptions that may not materialize.
Risk & Correlation Assumptions:
Risk (standard deviation) and correlation assumptions are in line with historical figures with a modest decrease for US Fixed Income, a slight increase for US Mid and Small Cap, and a small decrease for Emerging Markets Equity.
Portfolio return assumptions have declined compared to last year given the general lowering of asset class return assumptions (e.g., a 60% Equity/40% Fixed Income portfolio is expected to return 6.7% over the next 10 years versus 7.2% previously).
Expected returns shown are hypothetical and do not reflect actual investment results. These projections are based on assumptions that may not materialize.
Inspire strategic allocations reflect long-term assumptions with overweights to US small-cap, US mid-cap, and international large-cap equity, and underweights to US large-cap relative to the global equity market (as represented by the MSCI ACWI IMI Index which is one of the most comprehensive global all-cap indices available with over 8,400 constituents and covering 99% of the global equity investment opportunity set).
*Source: MSCI.com as of 3/31/2025
Below are the Inspire strategic allocations as of March 31, 2025. These allocations remain unchanged from the previous year.
Investor Implications
There are many instances in the Bible that offer wisdom about planning ahead and being prudent with our money (e.g., Proverbs 13:16, Proverbs 15:22, and Luke 14:28-30).
At Inspire, we believe that the most prudent approach for a long-term investor is to maintain a proper asset allocation with disciplined rebalancing. This can be achieved with Inspire globally diversified strategies or individually constructed portfolios utilizing our broad array of ETFs.
If you are working with an investor with a longer time horizon (10+ years), a portfolio with a higher allocation to equities would be appropriate. However, if you work with an investor with a shorter time horizon (<5 years), a lower risk tolerance, and/or increased cash needs (e.g., greater than 5% annual spending), a more conservative portfolio with a higher allocation to fixed income would be appropriate.
Currently, investors should expect lower long-term returns, especially compared to recent history. For example, the S&P 500 returned 11.4% over the last ten years even with a 25.0% return in 2024. Although US large-cap equities have performed well versus other asset classes, our long-term assumptions and allocations favor US small-cap, US mid-cap, international, and emerging market equities. Investors should also plan for increased volatility (both upside and downside), especially in the near term.
If you have questions on how you can use this information with your clients, feel free to reach out to the Investment Management Team. We stand ready to work with you if you need help to determine where clients may fit on this spectrum and what Inspire disciplined strategy would be most appropriate for their needs, all while investing your values and giving glory to God!
This is a publication of the Inspire Investment Committee.
Darrell Jayroe, CFA, CFP, CKA, serves as the Senior Portfolio Manager for Inspire, responsible for leading the firm’s Investment Committee, and serving as Lead Portfolio Manager for Inspire’s ETFs and SMA strategies. Darrell has been with the firm since 2016.
*Advisory Services are offered through Inspire Investing, LLC, a Registered Investment Adviser with the SEC. All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.
This article is intended solely for use with sophisticated investors, financial professionals, or institutional clients who are familiar with the limitations of financial projections and forward-looking investment models. It is not intended for retail distribution.
All return expectations, capital market assumptions, and hypothetical portfolio outcomes presented are illustrative, based on proprietary models and current market conditions as of the date noted. These projections are not guarantees of future performance, and actual results may differ materially due to various risks and uncertainties, including changes in market conditions, interest rates, inflation, and geopolitical events.Hypothetical performance results have inherent limitations and are based on assumptions that may not reflect actual trading or investor experience. These projections do not represent actual client accounts, nor are they intended to indicate future performance of any specific strategy or product. Inspire does not represent that any account will achieve results similar to those shown.
The strategic portfolio allocations discussed may include investments in proprietary Exchange Traded Funds (ETFs) advised by Inspire Investing, LLC. Because Inspire receives management fees from these funds, a conflict of interest exists. Inspire seeks to mitigate this conflict through policies and procedures designed to ensure that recommendations are made in the best interest of clients and based on their unique objectives and risk tolerance. Additional information about this conflict is available in Inspire’s Form ADV Part 2A, available at www.adviserinfo.sec.gov.
Investment decisions should be made based on individual goals, time horizons, and risk tolerance. No portion of this article should be interpreted as personalized investment, legal, or tax advice. Please consult a qualified financial professional before implementing any investment strategy.
Advisory services are offered through Inspire Investing, LLC, a Registered Investment Adviser with the SEC. All expressions of opinion are subject to change without notice and are provided for informational purposes only. Nothing in this article should be construed as an offer, solicitation, recommendation, or endorsement of any particular security, strategy, or investment product. Investing involves risk, including the potential loss of principal. Please consult your financial advisor before making any investment decision. Inspire Investing integrates biblical principles into its investment philosophy through a Biblically Responsible Investing (BRI) approach. This values-based methodology reflects Inspire's interpretation of Scripture and may not align with the views or beliefs of all investors.
This content is provided for educational and informational purposes only and should not be considered personalized investment advice. Inspire does not provide legal, tax, or accounting advice. Please consult your own advisor regarding your specific situation.
Any hypothetical or backtested performance results presented are for illustrative purposes only and do not represent the performance of actual client portfolios. These results are based on assumptions that may not reflect real-world conditions, and actual results could differ materially. Hypothetical results do not guarantee future performance.
Certain statements may include forward-looking information based on current beliefs, expectations, and assumptions. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially. Inspire undertakes no obligation to update or revise any forward-looking statements.
Inspire Investing, LLC serves as the investment adviser to certain proprietary ETFs used in Inspire portfolios. Inspire receives management fees from these ETFs, creating a potential conflict of interest. Inspire seeks to mitigate this conflict through policies and procedures that ensure recommendations are made in clients' best interests and consistent with their unique goals and risk profiles. Additional details can be found in Inspire's Form ADV Part 2A.
Inspire does not provide tax advice. Any references to tax implications are general in nature and may not apply to your specific situation. You should consult a qualified tax professional regarding your personal tax circumstances.
Past performance is not indicative of future results. All performance figures referenced herein are historical and may not reflect current or future market conditions. Actual investor outcomes may vary. There is no assurance that any investment strategy will achieve its objectives or avoid losses.
This presentation is intended for use with sophisticated investors or institutional clients familiar with the limitations of forward-looking financial modeling. It is not intended for broad retail distribution.
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Long-Term Capital Market Assumptions and Strategic Portfolio Allocations, 2025
Each year, the Inspire Investment Management Team analyzes historical return, risk, and correlation statistics for different asset classes and then formulate assumptions based on current market conditions.
Each year, the Inspire Investment Committee analyzes and updates its capital market assumptions for various asset classes. The assumptions below are long-term in nature (ten years+) and can be used to model different portfolio allocations, which in turn can be utilized by investors for investment planning purposes. The Inspire Investment Committee reviews historical return, risk, and correlation statistics for different asset classes and then formulates its assumptions based on current market conditions. These assumptions are based on our best estimates with the information available at the time of this writing, and there are no guarantees that these assumptions will be realized.
Key Takeaways
Return Assumptions:
Inflation: High and sustained level of inflation, unchanged from the previous year
US fixed income: Decreased to 4.25% given slightly lower expected long-term level of interest rates
US equity: 7.25-9% range, with lower large-cap performance and US small-cap equities expected to outperform their mid- and large-cap counterparts
Non-US developed and emerging market equity: Lowered to 8.5% for non-US developed and 9.25% for emerging markets, both with a probability of outperforming large-cap US equity
Expected returns shown are hypothetical and do not reflect actual investment results. These projections are based on assumptions that may not materialize.
Risk & Correlation Assumptions:
Risk (standard deviation) and correlation assumptions are in line with historical figures with a modest decrease for US Fixed Income, a slight increase for US Mid and Small Cap, and a small decrease for Emerging Markets Equity.
Portfolio return assumptions have declined compared to last year given the general lowering of asset class return assumptions (e.g., a 60% Equity/40% Fixed Income portfolio is expected to return 6.7% over the next 10 years versus 7.2% previously).
Expected returns shown are hypothetical and do not reflect actual investment results. These projections are based on assumptions that may not materialize.
Inspire strategic allocations reflect long-term assumptions with overweights to US small-cap, US mid-cap, and international large-cap equity, and underweights to US large-cap relative to the global equity market (as represented by the MSCI ACWI IMI Index which is one of the most comprehensive global all-cap indices available with over 8,400 constituents and covering 99% of the global equity investment opportunity set).
*Source: MSCI.com as of 3/31/2025
Below are the Inspire strategic allocations as of March 31, 2025. These allocations remain unchanged from the previous year.
Investor Implications
There are many instances in the Bible that offer wisdom about planning ahead and being prudent with our money (e.g., Proverbs 13:16, Proverbs 15:22, and Luke 14:28-30).
At Inspire, we believe that the most prudent approach for a long-term investor is to maintain a proper asset allocation with disciplined rebalancing. This can be achieved with Inspire globally diversified strategies or individually constructed portfolios utilizing our broad array of ETFs.
If you are working with an investor with a longer time horizon (10+ years), a portfolio with a higher allocation to equities would be appropriate. However, if you work with an investor with a shorter time horizon (<5 years), a lower risk tolerance, and/or increased cash needs (e.g., greater than 5% annual spending), a more conservative portfolio with a higher allocation to fixed income would be appropriate.
Currently, investors should expect lower long-term returns, especially compared to recent history. For example, the S&P 500 returned 11.4% over the last ten years even with a 25.0% return in 2024. Although US large-cap equities have performed well versus other asset classes, our long-term assumptions and allocations favor US small-cap, US mid-cap, international, and emerging market equities. Investors should also plan for increased volatility (both upside and downside), especially in the near term.
If you have questions on how you can use this information with your clients, feel free to reach out to the Investment Management Team. We stand ready to work with you if you need help to determine where clients may fit on this spectrum and what Inspire disciplined strategy would be most appropriate for their needs, all while investing your values and giving glory to God!
This is a publication of the Inspire Investment Committee.
