Prudent portfolio management shouldn’t rely upon the assumption that everything will remain the same or that economic settings of the past will continue. Unfortunately, this is how many portfolios in Australia are typically managed. This is particularly dangerous when one considers that current economic settings are quite different to what they have been historically.
Maintaining the “status quo” is a very powerful force in portfolio management, just as it is in other areas of life. However, investors should consider whether maintaining the status quo is best serving their interests right now. While we have seen dramatic changes in the political status quo this year, investors’ portfolios have yet to adapt to the changed world we live in.
Most investors’ portfolios are typically designed for a moderate-high growth, low inflation world given their bias toward being long equity, property and bonds, with only the weighting to each of these asset classes varying (the idea being that each of these asset classes is not necessarily highly correlated).