Finance Monthly - May 2022

60 Finance Monthly. Inve s tmen t the future. Share prices are likely to go up as the industry continues to grow but are liable to go down in the wake of any negative news surrounding the industry and any disruption caused to the companies that operate in the space. In such an event, it’s likely that your portfolio will suffer a significant drop in value if it’s not balanced out by other investments. When this happens, it can be a good idea to look at what’s causing your chosen industry to struggle. In 2020, the emergence of COVID-19 brought chaos to air travel as international borders were closed and thousands of flights were cancelled. As a result, other stocks focused on digital entertainment like Netflix and remote communication apps like Zoom rallied as holidaymakers were forced to stay home and interact with friends online. We also saw ‘staycations’ become more popular as lodging marketplace Airbnb’s stock rallied in late 2021 amidst the outbreak of the COVID-19 Omicron variant. This diversification away from travel stocks ensures that an industry downturn won’t be too impactful across portfolios. It’s also important to diversify among different asset classes. Different assets like bonds and stocks don’t behave the same way to adverse events, and the combination of asset classes like stocks and bonds can reduce a negative response from within your portfolio to adverse market events because they are likely to move in opposite directions. This means that negative movements can be effectively offset by positive ones in different markets. Another key factor when it comes to diversification is geography. It’s essential to look for stocks and bonds that don’t operate within the same country as others. This means that a domestic financial crisis won’t hurt the entirety of your portfolio. Playing The Long Game The stock market can be an extremely mysterious place, and the highest performing assets of today rarely sit still. Whilst stocks are generally the growth engine of portfolios, they also endure many bumps along the way which can see losses accumulate. As the chart below shows, the 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 EM Equities 65.3% A-REITs 20.0% A-REITs 15.0% A-REITS 12.0% Gbl High Yld 33.1% A-REITs 30.4% EM Equities 43.0% A-REITs 33.0% EM Equities 25.6% Aust Fl 14.9% Aust Equities 18.7% Aust Fl 12.0% Aust Equities 10.4% Int FI 11.6% EM Equities 16.9% Aust Equities 28.0% Aust Equities 22.5% Aust Equities 24.2% Aust Equities 15.1% Aust Credit 10.7% Gbl Equities 17.1% Aust Credit 11.1% Int FI 8.3% Aust FI 8.6% Aust Equities 14.6% EM Equities 21.4% Gbl Equities 15.8% EM Equities 23.4% Cash 6.8% Int FI 9.2% Gbl High Ylds 6.6% Int FI 9.7% Aust Credit 6.7% Aust Credit 7.8% A-REITs 8.9% Gbl High Yld 16.1% A-REITs 12.5% Gbl High Yld 12.9% Int FI 6.6% Cash 7.6% Cash 5.0% Aust Equities 6.4% Gbl High Yld 6.2% Gbl High Yld 5.0% Int FI 6.6% Gbl Equities 10.7% Gbl High yld 7.9% Gbl Equities 12.1% Aust FI 3.5% Inflation 3.7% Inflation 1.9% Cash 6.2% EM Equities 6.1% Cash 4.8% Cash 4.9% Int FI 8.9% Int FI 6.6% Cash 6.0% Aust Credit 3.2% Gbl Equities -24.6% Aust Credit 0.8% Inflation 5.8% Aust FI 5.5% Inflation 2.9% Aust Credit 3.7% Aust Credit 7.1% Aust Credit 6.0% Int FI 4.4% Gbl High Yld 2.9% Gbl High Yld -27.6% Int FI 0.3% Gbl Equities 2.3% Cash 5.3% Aust Equities -8.6% Aust FI 3.0% Aust FI 7.0% Aust FI 5.8% Aust Credit 3.9% Inflation 2.9% Aust Equities -38.4% Aust FI -1.2% Gbl High Yld 0.4% Inflation 3.1% EM Equities -14.5% Inflation 2.4% Cash 5.6% Cash 5.3% Inflation 3.3% Gbl Equities -2.1% EM Equities -41.2% A-REITs -5.6% EM Equities -18.1% Gbl Equities -9.6% Gbl Equities -27.1% Gbl Equities -0.2% Inflation 2.5% Inflation 2.8% Aust FI 3.1% A-REITs -8.5% A-REITS -55.7% Emerging Market Equities MSCI Emerging Markets A$ Unhedged Australian Property Trusts SAPASX 200 A-REIT Global High Yield Barclays Global High Yield Index A$ Hedged Index* Global EquitIes MSCI World x Australia A$ Unhedged Australian Equities SAPASX 200 Schroders: A Dynamic Approach to Investing Annual returns for a range of asset classes ranked by performance

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