How to build a resilient investment portfolio By John Sim, CFP®
Introduction
STEP 1
We are in unprecedented times! 2020 will remain a year that most of us will not forget any time soon. If not for anything else, it will be remembered for how the COVID-19 virus wreaked havoc on the financial system and our investment portfolios. We’ve seen:
If we can take away anything from this pandemic, it is this: no one can predict the next crisis and how markets will react to it. As such, diversification is key.
Broad Diversification
• All major economies of the world are continuing to print money to support their economies • Despite how the virus has decimated the real economy, equity markets around the world have been reaching record highs • Inflation is seen less so in goods and services, but more in financial assets • Even bankrupt companies like Hertz can quadruple in price So how do we position ourselves during these financially crazy times? I present 4 steps we can take now to ride through this storm and come out stronger from it. From the above table, we cannot discern any pattern to tell us beforehand which developed market will do well in the following year. We see similar randomness of returns when we look at emerging markets.
Execution Tip: Ensure that our portfolios are diversified on a global scale. We need to steer clear from home biases, where we allocate an oversized proportion of our investments into our home market, Singapore.
STEP 2
Asset Allocation Even different asset classes perform almost randomly, as seen in the next chart. In a traditional equities and fixed income (bonds) portfolio, we can observe that different types of equities (and bonds) deliver different returns in different years.
1 4
F I NANC I AL
P L A N N I N G
M AG AZ I N E
2 0 2 1
