The sheer volume of financial market assets on offer today can make the task of assembling a portfolio overwhelming.
Diversification has always been the maxim of prudent investing – put all your eggs in one basket and you could end up losing them all. But spreading your capital across several asset classes, and across a variety of individual instruments within those sub-groups, is a tried and trusted investment strategy.
Making that initial choice to diversify is the easy bit but selecting the asset categories and more specifically the weight (or percentage of the total basket) allotted to each one is a little trickier. One initial step involves a rigorously honest self-assessment that addresses three key issues:
(A) Your financial robustness – what percentage of your capital can you afford to lose (however temporarily) if things turn bad?
(B) How much do you value your own sense of security? Are you willing to accept a lower rate of return for the relative safety and reliability of government bonds, or are you quite happy to sacrifice that security blanket for the possibility of far greater returns from a more volatile asset class, say, emerging market corporate bonds?
(C) Finally, you should also consider your investment horizon, assess which instruments you’ll be keeping long term and which you will need to adjust as market conditions change.
Most investors are subconsciously drawn towards the familiar and for many this means shares in the companies and brands they read about every day in the financial press. But it’s always worthwhile to dig in and try to understand unfamiliar instruments, be they in a far-away market or of a type you’ve never previously considered. Research, research and research again.
Check out company earnings reports and outlooks and scout around for analysts’ assessments of the company itself and the broader sector within which it operates.
Keep on top of the financial news, as well as the broader political news for insights into government policy changes that may impact your investments. For example, a government push for more green energy should be good news for companies in the renewables space (but watch out for those with outdated or unsuitable technologies). Thorough preparation will make task of assembling your portfolio far easier, and also that little bit more bulletproof.
Sudden, unpredictable and often violent events are an intrinsic part both of the human condition and the investment process. The classic example here is the Kobe earthquake of January 1995, which cost thousands of lives and caused $200 billion of damage to buildings and infrastructure. Japan’s Nikkei 225 index plunged 7.6%, eventually leading to the demise of Britain’s famed Barings Bank.
If anything underlines the value of diversification across geographies and asset classes and hedging your risk through variety, this story does. Anybody overexposed to Japanese assets back in early 1995 was not in a good place the day after the earthquake. Those with finely tuned, diversified and properly hedged portfolios, fared far better.
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AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist