The most read Kiwi Investor Blog Posts in 2020 have been relevant to the current environment facing investors.  They have also focused on building more robust portfolios.

The ultra-low interest rate environment and sobering low return forecasts present a bleak outlook for the Traditional Balanced Portfolio (60% Equities and 40% Fixed Income.)  This outlook for the Balanced Portfolio was a developing theme in 2020, which gained greater prominence as the year progressed.

In essence, there are two themes that present a challenge for the Traditional Balanced Portfolio in the years ahead:

1. That fixed income and equities (mainly US equities) are expensive, so now may not be a great time to invest too heavily in these markets; and
2. With interest rates at very low levels, there is increasing doubt that fixed income can still effectively protect equity portfolios in a severe market decline in ways they have done historically.

My highest read Posts address the second theme above.

The Balance Portfolio has served investors well in recent years.  Although equities and fixed income still have a role to play in the future, there is more that can be done.

The most read Kiwi Investor Blog Posts outline strategies that are “more that can be done”.

I have no doubt investors are going to have to look for alternative sources of returns and new asset classes outside equities and fixed income over the years ahead.  In addition, investors will need to prepare for a period of higher inflation. 

Not only will this help in increasing the odds of meeting investment return objectives; it will also help protect portfolios in periods of severe sharemarket declines, thus reducing portfolio volatility.

The best way to manage periods of severe sharemarket declines, as experienced in the first quarter of 2020, is to have a diversified portfolio.  It is impossible to time these episodes.

Arguably the most prudent course of action for an investor to pursue in the years ahead is to take advantage of modern investment strategies that deliver portfolio diversification benefits and to employ more advanced portfolio construction techniques.  Both of which have been successfully implemented by large institutional investors for many years.

From my perspective, maintaining an array of diversification strategies is preferred, investors should diversify their diversifiers.

The most read Kiwi Investor Blog Posts in 2020 were:

• The Traditional Diversified Fund is outdated – greater customisation of the client’s investment solution is required

• The psychology of Portfolio Diversification

• Preparing your Portfolio for a period of higher inflation

• Hedge Funds vs Liquid Alternatives – both bring diversification benefits to a traditional portfolio says Vanguard

• CAIA Survey Results – The attraction of Alternative Investments and future trends

• Is it an outdated Investment Strategy? If so, what should you do? Tail Risk Hedging?

• Time to move away from the Balanced Portfolio.  They are risker than you think.

• Protecting your Portfolio from different market environments – including tail risk hedging

• The reality is asset allocations can only do so much

• Real Assets offer real diversification benefits

Posts closely following were Understanding the impact of Volatility on your Portfolio and Optimal Private Equity Allocation.

Thank you all for you continued support and all the best for the year ahead.

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Global Investment Ideas from New Zealand. Building more Robust Investment Portfolios.