Goldman recommends five strategies that help investors stay invested

Investing.com -- In a note to clients on Monday. Goldman Sachs said global financial assets have drifted heavily toward U.S. equities and technology stocks following three years of strong returns, and recommended five strategies to help investors maintain exposure while managing the growing risks of a potential reversal.

Analyst Christian Mueller-Glissmann said the composition of the "World Portfolio" has materially shifted toward U.S. assets, equities and the technology sector since the 2022 drawdown in balanced portfolios, driven by strong equity risk premia and the AI boom.

However, he warned that "the current AI capex boom increases the risk that falling profitability for mega-cap Tech stocks materially drags on equity returns before benefits from AI adoption show up."

The bank also flagged that higher inflation volatility and fiscal risks are "creating headwinds for balanced portfolios, with less of a buffer from bonds and more risk of rate shocks."

Based on Goldman's macro-based return forecasting framework, expected long-term equity returns are below the long-run average in all but an optimistic "Goldilocks plus AI boom" scenario.

Despite these concerns, Goldman acknowledged that it remains difficult to lean against the current momentum, noting that equities "deliver some of their strongest returns in the final years of a bull market, often led by the sector that outperformed in the preceding years."

To navigate this environment, Goldman recommended five strategies. These are selective real asset allocations, opportunities in factors and style diversification, regional diversification across assets, option strategies such as long-dated calls, and selective alternatives that are uncorrelated with the World Portfolio.

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