Perspective
A call to action for building resilient portfolios
The prospect of higher structural inflation against evolving risk considerations make the case for renewed focus on portfolio construction and robust financial planning.
Key Takeaways
- Planning can drive significant value for the end-client in terms of financial outcomes and satisfaction with the advisor. As a result, we see substantial contribution from planning activities to an advisor’s growth and as a source of demonstrable benefit.
- However, planning should be periodically revisited to ensure that portfolios remain aligned with goals and that any portfolio drift (especially from held-away assets) is addressed.
- This is particularly critical in today’s environment. Our research suggests that extraordinary outperformance by U.S. equities during the past 15 years resulted in complacency and declining degrees of diversification. Furthermore, the low inflation environment meant little difference between nominal and real returns, with the latter being more indicative of growth needed to meet future expenses.
- Complacent investors may be unknowingly making a very big bet that low inflation will persist, despite growing evidence that supports structurally higher inflation than we have observed since 2010.
- Our research suggests that including diversifying asset classes can dramatically increase portfolio resilience in the event inflation persists. Revisiting target allocations, including inflation stress tests, may be useful in assuring alignment with investors’ long-term goals.
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A call to action for building resilient portfolios
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