The case for a balanced portfolio

Various classes of assets have experienced substantial volatility in recent years

Thus, investing in a globally diversified portfolio with a mix of equities, bonds, alternatives, property and cash has proven a sound strategy for long-term wealth creation says Pendal’s head of multi-asset Michael Blayney.

Contrary to some claims, the balanced portfolio isn’t dead.

Periods of volatility and changing correlations are a normal part of the market cycle, and that is what’s happening now, says Michael Blayney, head of Pendal’s multi-asset investments team.

“While there are clearly a lot of headwinds to equities at present, Australia is fortunate that the local market is more reasonably valued than many offshore markets. Also, the resources weighting of the ASX helps provide a partial hedge against inflation,” Blayney says.

Blayney’s fund remains modestly underweight equities. But he says Australia, in a relative sense, is one of the more attractive markets globally. Rising yields have hurt fixed income investments, but on a forward-looking basis Australian 10-year bonds now yield more than 4 per cent for the first time since 2014.

“This higher-running yield provides an attractive level of income relative to cash, and a cushion against the impact of any further increases in yields,” Blayney says.

“While we retain an underweight allocation to bonds in portfolios generally, we do see Australia as relatively attractive compared to other major bond markets.”

Times of market volatility tend to throw up opportunities

“While we’re not at the point, yet, of seeing ‘bargains’ like March 2020 or late 2008, the market falls have led to lower valuations across a range of asset classes,” Blayney says.

Now is a good time to rebalance, whereby assets are trimmed after strong price increases and topped up after falls, he says. “It is one of the simplest and best ways to incrementally improve long-term outcomes. In the present environment, this would naturally lead investors to trim cash and alternatives and top up cheaper equity and bond holdings.”

Blayney says equity markets tend to fall about one year in three – meaning they rise the other two.

“Investing in a globally diversified portfolio – with a mix of equities, bonds, alternatives, property and cash – has proven a sound strategy for long-term wealth creation over many decades, through wars, pandemics and a host of economic crises.

Conversely, panicking after large market falls and selling has, generally, been a wealth-destroying activity for investors. You see classic examples of that behaviour at work in 2008 and early 2020. While we’ve been somewhat underweight equities and bonds in portfolios this year, these are relatively modest positions in the context of our long-term strategic asset allocations.

“We continue to believe investors should ‘stay the course’ in respect of their long-term strategies.”

Let us help you plan for your retirement. Contact OBT’s friendly Financial Planning team in Gatton today to arrange a meeting.

Our financial advisers Bruno Tjelder and Damon Zischke and OBT Financial Planning Pty Ltd are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.