Financial planners should consider adopting a more flexible approach to asset allocation going forward because the current market environment suggests that buy and hold strategies will suffer, according to AMP Capital Investors (AMPCI).
“The world has changed. It has become a lot more volatile,” AMPCI multi-asset group senior investment strategist Nader Naeimi said yesterday.
“The period from the 1980s till 2007 really was a great period for investment. Equities, bonds, all asset classes did really well and buy and hold strategies worked really well.
“That was on the back of a number of dynamics played out during that period which led to strong returns out of all asset classes.”
Those factors included disinflation, easy credit, macroeconomic stability and deregulation, he said.
“Arguably a lot of those dynamics have run their course,” Naeimi said.
Future years will be marked by higher volatility, tight credit, macro instability and re-regulation, which would mean a tougher period for growth assets, he said.
Given this, AMPCI director of investment strategy and chief economist Shane Oliver said that a 70/30 approach may not be as simple going forward and planners should consider allocating more dynamically between growth and defensive asset classes and the sub-sets of those asset classes.
“I think we have gone through a change in the environment away from one that favours buy and hold with a focus on picking managers or picking stocks back towards one where asset allocation is a lot more important,” he said.
