Strategic asset allocation, the hallmark investment approach of financial advisory firms who use risk profiling to determine a client’s investment portfolios, is under the spotlight, with an increasing number of investment firms questioning whether the strategy remains appropriate in light of the seismic shift seen in financial markets over the past decade.
There has rarely been a more urgent time to assess whether your money is being optimally managed. Market valuations are close to all-time highs while risk levels are high and long-term real return prospects are near zero. We anticipate re-runs of 2020 over the coming years, with more volatility and markets that ultimately go nowhere.
The ASX200 fell roughly 10% in the financial year just finished, which included a terrifying 35% plunge and euphoric 30% rally in a 16-week period. This loss-making white-knuckle ride is not what investors seek, and has left many on the sidelines feeling cautious and confused.
Dynamic Asset Portfolio Manager, Jerome Lander, discusses the risks of strategic asset allocation - particularly during the very difficult market conditions we face today. He argues that unless you're prepared to change the way you manage your client's money, there's really no way to manage that risk.
Equity markets have bounced well over 20% since the lows just over a month ago, so technically we are already in a new bull market.
With peak new cases now behind us, the economy agitating to reopen and governments starting to ease restrictions, is the massive fiscal and monetary stimulus in the pipes about to prove the bulls spectacularly right?
During market downturns, investors are commonly advised to stick with their strategic asset allocation rather than crystalise their losses in the hope that the downturn will be short lived and that returns will revert to historical norms.
The purpose of any advice business is to help its clients to achieve what they want to achieve. So, why is talking about goals-based advice seen as being 'different' from what financial planners have always done?
Sequencing risk is one of the most important things to consider when constructing your investment portfolio.
The premise of Goals Based Investing is to focus each investment portfolio on specific individual personal and lifestyle goals. Those goals inform the right timeframe, risk and return parameters, which in turn determine the best asset allocation and investment mix. Goals can be short-term, such as taking a holiday, medium-term, such as renovating or paying school fees, and long-term, such as saving for retirement.
Let us examine what happens when the clear and present danger from the coronavirus meets the global asset bubble, your portfolio and the industry standard investment approach. This is no small issue because – contrary to a market consensus – the coronavirus (COVID-19) is actually a real threat to complacent equity markets and client portfolios. It is a global health pandemic which requires active management in the real world, and which should also be risk managed by your adviser or super fund. The coronavirus and its real-world management should not simply be dismissed as just another flu, and could even be the catalyst which bursts the global asset bubble.
