Navigating investment markets in uncertain times like these
As inflation returns, investors are now faced with a very different economic environment to the past decade. A decade of low-interest rates, low inflation and rising asset prices. You could forgive people for thinking that's just the way it is.
But the dynamics that drive market behaviour have changed. It's a new world for investors.- Bonds have experienced their largest falls in recent record, as prices on existing bonds fall when interest rates increase. For portfolios that rely on these defensive investments to balance equity risks, this has meant both shares and bonds have had a negative return at the same time
- Valuations of high-growth companies that promised profits in the future have fallen significantly, as higher interest rates today mean that uncertain future cash flows are less valuable
- Volatility is expected to remain high as central banks are focused on taming inflation with interest rate rises. This narrows the options for businesses to counter asset price declines.
The new market dynamics necessitate a different approach to investing. Navigating periods of uncertainty requires a clear investment philosophy and a focus on both risk and return objectives.
Dynamic Asset's CIO and Portfolio Manager, Dr Jerome Lander, provided a confronting analysis of today's economic and market situation in his most recent 'Lander Report'.
Watch the Lander Report Video.
The key points outlined include:
- This is not a temporary problem. In his view, the changes represent a permanent regime shift that has many implications for how people should manage their money.
- The only way to fight inflation is to quash demand because central banks can't solve supply-side issues. They can't solve the energy crisis. They can't solve commodity supply.
- This is not the environment where you want to have the kind of passive portfolio that was so well suited to ten years ago. In all likelihood, portfolios of that type will do very poorly.
WLM's investment philosophy has always been to focus first on not losing clients' money – to actively seek ways to reduce portfolio volatility. Reducing portfolio volatility is a vital part of growth over time. Diversification and an active asset management approach to investing can mitigate or moderate the typical risks within falling markets.
WLM can help
Don’t have a plan? WLM is here to help you to secure your financial future. If you’d like help with setting your financial goals or any further information, please contact us today.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained
