Finance Monthly - May 2022

61 Finance Monthly. Inve s tmen t highest performing asset classes have varied wildly throughout the 21st Century, and the recent inflationary period is likely to lead to a fresh period of market volatility over the coming years. “Investors should use a selective overall strategy and not forget about diversification,” noted Maxim Manturov, head of investment advice at Freedom Finance Europe. “This includes an emphasis on quality deals that are based on solid balance sheets and high cash flow generation. Also one of the ways to guard against market uncertainty is to abandon stocks with troubled balance sheets, which benefited from stimulus during the pandemic.” This can be a difficult approach for investors to come to terms with. After all, if you believe in an industry, you’ll likely find it difficult to move your money into markets that you’re less passionate about. However, it’s these mitigating moves that can keep your portfolio stable when an unexpected negative turn in the industry occurs. Significantly, many investors have turned to bonds as a type of ballast for a portfolio, with prices rising and falling at a less severe rate than stocks which can help to keep portfolios protected. Adopting A 60/40 Stocks and Bonds Strategy Can Help In response to the inflationary pressures facing portfolios worldwide, we’ve seen more investors take on a stock to bond ratio of 60% to 40% respectively. This helps to protect investors from reversals of correlations without the risk of shedding their wealth. Vanguard data suggests that many investor portfolio asset allocations have been tilting towards stocks at around 80% coverage over 60% – this is an extremely risky strategy to take during times of high inflation and one that could risk devaluing a portfolio. Fundamentally, portfolio outcomes are determined by investors’ strategic asset allocations. However, this is good news, because it means that wellbalanced portfolios can pave the way for investors to continue seeing healthy performance within their assets whilst staying protected from the next challenge set to test global markets. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Gbl High Yld 61.1% Gbl High Yld 19.9% Aust FL 11.4% A-REITs 33% Gbl Equities 49.3% A-REITs 26.6% A-REITs 14.3% Gbl High Yld 15.8% EM Equities 27.1% Aust Fl 4.5% EM Equities 39.2% Int FI 9.3% Int FI 10.5% Gbl High Yld 23.1% Aust Equities 20.2% Gbl Equities 15.6% Gbl Equities 11.8% A-REITs 13.2% Gbl Equities 13.4% Aust Credit 3.9% Aust Equities 37.0% Aust Credit 9.1% Aust Credit 9.1% Aust Equities 20.3% EM Equities 13.8% Int FI 10.4% Int FI 3.3% Aust Equities 11.8% Aust Equities 11.8% A-REITs 2.9% A-REITs 9.2% Aust FI 6.0% Gbl High Yld 7.4% EM Equities 17.0% Gbl High Yld 9.0% Aust FI 9.0% Aust Credit 3.0% EM Equities 11.7% Gbl High Yld 9.0% Cash 1.9% Int FI 8.0% EM Equities 5.7% Cash 5.0% Gbl Equities 14.7% A-REITs 7.3% Aust Credit 8.1% Aust FI 2.6% Gbl Equities 7.9% A-REITs 5.7% Inflation 1.5% Aust Credit 6.1% Cash 4.7% Inflation 3.0% Aust Credit 9.9% Aust Credit 4.3% EM Equities 7.3% Aust Equities 2.6% Int FI 5.2% Aust Credit 5.1% Int FI 1.6% Cash 3.5% Inflation 2.8% A-REITs -1.1% Int FI 9.7% Cash 2.9% Aust Equities 5.6% Cash 2.3% Aust Credit 3.8% Aust FI 3.7% Gbl Equities 1.5% Inflation 2.1% Aust Equities 1.6% Gbl Equities -6.0% Aust FI 7.7% Inflation 2.7% Gbl High Yld 4.8% Inflation 1.7% Aust FI 2.9% Int FI 3.7% Aust Equities -2.9% Aust FI 1.7% A-REITs -0.3% Aust Equities -10.5% Cash 4.0% Int FI 2.3% Cash 2.7% Gbl High Yld 1.3% Cash 2.1% Inflation 1.9% Gbl High Yld -3.0% Gbl Equities 0.7% Gbl Equities -0.4% EM Equities -19.2% Inflation 2.2% Aust FI 2.0% Inflation 1.7% EM Equities -4.3% Inflation 1.5% Cash 1.7% EM Equities -5.1% Australian Fixed Income Bloomberg AusBond Cash Bloomberg AusBond Inflation ABS Consumber Price Index Australian Credit Bloomberg AusBond International Fixed Income Barclays Global Aggregate A$ Hedged

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