Investors are at risk of losing capital by sticking to the time-honoured ‘balanced’, 60/40 investment strategy, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The warning from Nigel Green of deVere Group comes as the standard strategy of allocating 60% to equities and 40% to fixed income has dropped about 14% so far this quarter, according to Bloomberg data published on Monday.
He says: “Portfolios with the classic 60/40 mix are now performing worse than they did in the storm of the global financial crash and in the trough of the unprecedented upheaval at the height of the pandemic, data compiled by Bloomberg confirms.
“Previously the time-honoured strategy had been successful. When stocks collapsed, bonds remained relatively buoyant to compensate.
“However, this is no longer the case as red-hot inflation triggers a cross-asset sell-off, hitting both stocks and bonds at the same time.
“The 60/40 investment portfolio model is no longer fit for purpose.”
To achieve long-term portfolio growth, says the deVere Group CEO, investors should keep some of their wealth in cash for everyday spending requirements, and a rainy day or emergency fund, and also consider increasing their exposure to significantly more diverse, and perhaps more volatile, investment opportunities.
“If you’re seeking both capital appreciation and capital preservation, in this environment you should consider diversifying into less traditional, return-enhancing asset classes.
“These could include venture capital, structured products, high dividend stock, hedge funds and managed futures, and real estate, amongst others.”
These types of investments could also be helpful in improving the risk-return characteristics of your investment portfolio. “This is because they increase diversification and reduce volatility, due to their low correlations to the more traditional investments; and they can hedge some portfolio exposures,” explains Nigel Green.
As ever, market volatility is the time when most opportunities are presented for investors looking to build long-term wealth.
Last week, the boss of the financial game-changing financial giant told media outlets: “The panic-selling of the last few days has created some important long-term opportunities with high upside potential and low-risk possibilities for those who buy judiciously. There’s no doubt that some fortunes will be made in this bear market, like in others before.”
He concludes: “Global inflationary pressure – caused by a myriad of different and complex issues – means we’re in highly unusual times for financial markets.
“In turn, this means you need to look at alternative ways to build and protect your long-term wealth.
“There are many established opportunities and solutions outside of the classic 60/40 strategy that can help outpace inflation and offer considerable downside protection.”