Building a Stock Portfolio for a Debt-Averse World

Expecting higher inflation, higher rates, and eventually a debt restructuring

March 2024. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Stocks for a low-growth & high-interest rate environment should have high-quality characteristics
  • However, there are many ways to define quality stocks
  • Historically quality portfolios have not generated excess returns


Ignoring the past is one of the biggest investing mistakes. However, simply looking back and expecting that history will repeat itself is likely an equally large error.

A simple combination of stocks and bonds generated wonderful returns for most investors given that both asset classes were largely in bull markets and uncorrelated over the last few decades. However, the world is structurally changing as demographics are turning negative across most developed and emerging markets, e.g. China is expected to lose more than 600 million people over the next 80 years according to the UN Population Projections (read Aging & Equities: Selling Stocks for the Long-Term).

Given a decrease in the working-age populations, global economic growth will be lower or negative, which is not supportive of equity investments like stocks, private equity, venture capital, or real estate. However, bonds are even worse off as there will be fewer people to tax, which makes paying interest more difficult, and reduce the pool of buyers of fixed-income instruments. Ultimately, debt will need to be restructured, and Japan is likely the first major country that will undergo this painful process given that it has the oldest population and a high debt-to-GDP ratio.

Although a global debt restructuring is likely decades away, it is interesting to contemplate what asset classes are most attractive for such an economic environment. It will not be a linear path, but interest rates will eventually increase given more supply and less demand for debt. Bonds are probably the least favorable, followed by real estate and private equity as both rely heavily on debt to juice returns. Venture capital is a tiny asset class, so that only leaves public equities.

In this research article, we will explore creating a stock portfolio for a debt-averse world.