According to the World Bank, the global economy is set to have its worst five-year growth in 30 years. The global market growth forecast is predicted to be 2.4%, compared to last year’s 2.6%. That’s the third year in a row. Although growth for 2025 is expected to rise to around 2.7%, it is still 0.75% lower than the average rate of the 2010s.
Chief economist and Senior vice president for the World Bank Group, Indermit Gill, says, “Without a major course correction, the 2020s will go down as a decade of wasted opportunity,”
Despite the resilience that markets have shown in the face of a possible recession, geopolitical factors will bring challenges to a fragile global economy. This includes a war in Ukraine, the Middle East conflict, and 40 pending government elections that could have a significant impact on energy prices and, thus, inflation and economic growth.
This leads us to wonder if there is anything we can do to bolster our investment portfolios against struggling markets to mitigate risk.
Are there solutions to mitigate the risk to your financial portfolio?
Diversification is basically risk-proofing your investment portfolio as much as possible. No one can predict markets, guarantee good returns, or avoid losses. Still, diversification can reduce the risk of losses by spreading your assets over various areas to keep returns favourable over the long term.
- Different asset classes – Asset classes have different risks and also have certain levels of returns. Equities or stocks tend to be higher risk but also have the potential of higher returns over the long run. Bonds and cash are lower in risk and offer lower returns. It all depends on whether you want to preserve or grow wealth. Examples could include shares in tech companies like Microsoft, buying US government bonds, etc.
- Different sectors – sectors react differently to market conditions, and by having investments in different sectors, you are spreading the risk if one sector performs poorly. Some sectors are correlated to others, so when one does poorly, another does well. Sectors include financials, technology, energy, commodities, infrastructure etc.
- Different regions – Different regions are affected by global economic events differently. Some regions might show a decline in economic activity, and others improve because of the decline. For example, the volatility in the Suez Canal region will affect trade between Asia and Europe. Europe might have to look at South America for some supplies. In this case, South America’s economy will increase, and Asia’s will decrease.
It is essential that all investment decisions are reviewed by a financial advisor.
What does a Financial Advisor do?
A financial advisor is a qualified financial professional who specialises in investment and wealth management along with estate, tax, retirement and financial planning to ensure that a financial portfolio is efficient and optimised.
A financial advisor is not just for the wealthy with complex portfolios. Every professional needs a solid financial plan to save for retirement and to build wealth. An advisor guides a professional from a young professional, building wealth through middle age, retirement saving, and after retirement.
- Builds a solid financial plan based on a client’s financial goals and needs.
- Ensures the client remains on track with their financial goals.
- Provides guidance and advice on all things financial, like investing.
- Advises on investment choices according to a client’s risk profile.
- Review a financial portfolio regularly to ensure the portfolio is performing well.
- Makes adjustments to the financial plan as the client’s circumstances change, e.g., they marry and have children or inherit money. This could mean increasing retirement savings, starting an education savings plan for children, or investing in a lump sum.
- Ensuring a portfolio is as tax-efficient as possible. Global professionals these days have assets in multiple countries, and ensuring that these assets are in a tax-efficient solution requires the expertise of an advisor.
- Actively manages a portfolio to ensure maximum returns and reduce risk through diversification.
- Is knowledgeable on international and global financial trends and laws.
- Act as a watchman to guard against frivolous or impulsive investing on the client’s behalf.
- They do the work on your behalf so you can have financial peace of mind and not worry about the future of your family’s security.
Using a financial advisor is the best way to ensure financial goals are achieved and your family is financially secure. Chat with your advisor today to review your portfolio and ensure you are suitably diversified.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your deVere advisor for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.