The risk is that monetary easing may over-stimulate the US economy, already at full employment, resulting in a sharp tightening in financial conditions leading to a recession. Investors should consider gradually reducing exposure to global equity markets and within the equity category consider moving exposure away from high growth investments towards more quality and value-based investments or managers.
Some cash on hand will likely reduce the volatility of your portfolio, while providing the opportunity to buy cheap assets in the event of a market sell off. In the absence of the protection historically provided by bonds, investing with good hedge fund managers is likely to pay off as the increased market dispersion should be beneficial to these managers.
In the late part of the economic cycle, inflation often starts coming through as the economy starts to overheat and there aren’t enough resources available for the increased demand - be that commodities or labour. As a result, in addition to equities, real assets that can offer protection against inflation tend to do well in this environment.
As inflation rises, however, interest rates are also likely to rise as lenders need compensation for the decline in purchasing power of future interest and principal repayments. Therefore bonds, notably fixed rate bonds, are negatively impacted by inflation as yields rise and therefore prices decrease.