What’s the Worst Asset Class for the Next 5 Years?
Why It Matters
Understanding which asset class is likely to underperform helps investors reallocate capital, avoid costly real‑estate overexposure, and consider alternative strategies like portfolio‑backed borrowing for tax efficiency.
Key Takeaways
- •Private equity valuations face steep markdowns and redemption limits.
- •US residential prices outpaced incomes, now showing flat or negative real returns.
- •Demographic pressure pushes millennials toward renting over homeownership.
- •Rental‑versus‑buy calculations favor renting in high‑cost coastal markets.
- •“Buy, borrow, die” strategy benefits wealthy but limited by asset size.
Summary
The Ask the Compound episode tackled a provocative question: which asset class will deliver the worst returns over the next five years—private markets or U.S. residential real estate? Host Duncan and guest Nick Mulli dissected recent capital inflows, the housing boom of the early 2020s, and the growing impatience among private‑asset investors.
Mulli argued that private equity and venture capital are on a downward trajectory. Redemption limits are tightening, mark‑to‑market adjustments have slashed valuations to as low as 40 cents on the dollar, and the IPO window remains effectively closed, leaving investors stuck with over‑inflated book values. Meanwhile, housing shows its own strain: median home prices have outpaced median incomes for decades, and recent data reveal price declines that have finally fallen below inflation, suggesting flat or slightly negative real returns.
A memorable exchange highlighted the demographic angle—John Burns data shows the largest U.S. cohort (ages 33‑37) is now entering the housing market, yet many are opting to rent rather than buy, especially in coastal metros where rent‑versus‑buy calculators show clear cost advantages to renting. The conversation also touched on the “buy, borrow, die” strategy, praised for its tax‑deferral benefits for ultra‑wealthy investors but noted as impractical for most due to the substantial asset base required.
For investors, the takeaway is clear: expect private‑market returns to turn more negative than residential real‑estate performance, which is likely to stagnate. Allocation shifts toward liquid public equities or income‑generating assets may mitigate risk, while high‑cost homeowners should reassess the rent‑versus‑buy equation. Wealthy individuals might explore borrowing against portfolios, but the strategy remains niche.
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