Navigating 2025: Why investors need to diversify and hedge their portfolios

2024 was a great year for many US investors. But will the same strategies that worked so well keep working in 2025? I'm Alison Nathan, and this is Goldman Sachs Exchanges. To get their fresh outlooks for asset classes and portfolio strategies, I'm sitting down with Christian Mueller Glissmann, who heads asset allocation research in Goldman Sachs Research and Alexandra Wilson Elizondo, co chief investment officer of the multi asset solutions business in Goldman Sachs Asset Management. Alexandra is joining me in our New York studio, and Christian is joining us remotely from our office in London.

New Year to you. So

it's the first podcast of the New Year, and I cannot think of a better way to kick it off. But before we get into our 2025 views, let's start with a quick recap of what worked well and maybe not so well for portfolios in 2024. Aleksandra, maybe give us a quick sense of that. Absolutely. The headline should read long risk. Long risk works very well as both US and global economies outperformed what the expectations were more broadly. But underneath that, in the broader indices, there was actually meaningful dispersion in sectors, regions, and size. Just some examples are that US large caps outpe

I think, broadly, our macro baseline is still friendly. We still have global growth that's healthy, probably not too dissimilar to to what we had last year. We still have inflation coming down a bit further and central banks cutting rates. But there is a subtle shift. I think what we had in the last 2 years is, you might remember this, we talked about the inverse Goldilocks scenario, where I think risky assets in particular, but generally most assets have benefited from this inflation normalization, where inflation came from very high levels and declined. And and we called it the inverse Goldi

Christian already started to talk about how some of these differences this year from 2024 might impact allocation strategies. Where are you on that, Alexandra? How are you looking at allocation strategies in 2025 versus 2024? Yeah. So we we all know that the economy is not the stock market, and a lot of returns got pulled forward in 24. And while we might be looking at the expansion of the cycle or a different phase of the business cycle, we are looking at late cycle valuations. And equity valuations are very challenged when you look at versus the rate market. But at the same time, you've got

the main message we're giving is twofold. First of all, you wanna think about more diversification across assets. A bit like what Alexandra said, maybe mix bonds and equities a bit more. I think 6040, we've already said in our podcast last year, will start to look a bit better, and it did, but mainly because equities did well, not because the bond market did well. I think this year, you might actually see more performance contribution, further risk reduction contribution from bonds in multi asset portfolios. So you want to think about diversification across assets, more balanced in the portfol

let me just play devil's advocate for a moment because you have talked about the risk that magnificent seven outperformance can't continue, the market concentration risk related to that, and valuations being so stretched as reasons to be more concerned for 2025. But if I think back to our conversation a year ago, 18 months ago, those risks were also front and center, and yet that outperformance continued. So why are you convinced that those trends won't continue today? From

my perspective, I'm not saying that we expect the magnificent 7 to massively underperform, but you have