As the risks of a market correction remain high, switching to investments designed to provide steady capital appreciation makes sense.
Prepare for the unexpected
In the midst of an extended ‘bull’ market, it is easy to forget the lessons of 2008 when numerous equity funds lost a large slice of their value – even if their manager outperformed the market or peer group.
All eyes on the US
As the largest economy in the world, the US is a strong driver of today's global growth. Output has shown moderate improvement in recent quarters, raising the possibility of faster growth to come. That led the Federal Reserve to start raising rates, taking the first steps away from accommodative monetary policy ahead of other global central banks. Risk assets have rallied to record levels, increasing the possibility of a sizeable correction. So if you invest in funds that only seek to profit from higher asset prices, what action should you take?
Focus on what matters most
With bond yields so low and a wide range of risk assets at overvalued levels, what looks like a well-balanced portfolio may actually carry significant risk. Diversifying equities, bonds and property to reduce risk, for example, is unlikely to offer much downside protection. This could be costly if different assets sell off as US rates rise. The key is to focus on the ultimate investment objective, which is to grow capital rather than worry about benchmarks and peer-related performance.
Welcome to the new normal
Despite accommodative monetary policies and very low interest rates, sub-par growth has persisted in many developed economies. Growth and rates may not return to their historical averages for some time. The implications on portfolios managed on the basis of pre-2008 economic and asset correlation norms are unclear. So switching into strategies designed to deliver specific goals in line with investors’ needs looks a wise move.
Past performance is no guarantee of future results. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.