BT Money Hacks: Balanced investing in volatile times
In the current volatile market, analysts are questioning the classic 60/40 portfolio. In the face of the turbulence triggered by President Trump’s tariffs, is the investment strategy of balanced investing still relevant?
Join host Howie Lim as she speaks with Audrey Goh from Standard Chartered Bank and Pete Tan from PhillipCapital to dive into how the 60/40 portfolio is adapting and what steps investors should consider now in the latest episode of Money Hacks from The Business Times.
The 60/40 portfolio
The 60/40 portfolio, comprising 60 per cent equities and 40 per cent bonds, has remained a pillar for diversified portfolios.
However, when both equity and bond markets move together - a positive correlation - the strategy falters. Instances in history - such as in 1931, 1941, 1969, and most recently 2022 - highlight periods when high inflation and weakened growth led to both asset classes declining simultaneously.
Strength of the strategy
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When central banks hiked interest rates to combat inflation, economic activities slowed down and negatively impacted both equity and bond markets. Since 2023, however, the 60/40 portfolio has shown signs of resilience as inflation concerns diminish and growth outlooks stabilise, notes Goh. During the volatile years, many investors sought refuge in bonds, causing a resurgence in interest for the 60/40 portfolio.
Tan emphasises that younger investors with longer time horizons can afford higher exposure to equities, while those nearing retirement might lean more towards bonds to avoid risks. A key takeaway is the need for diversification.
Present day considerations
Goh suggests incorporating asset classes that are less correlated with traditional assets, such as private investments and hedge fund strategies. Tan has different advice that he expands on in the podcast. Both however stress that volatility is the price for long-term returns.
Diversification is the advice of many experts. Goh and Tan point to digital assets, which while highly volatile, may find a small place in the portfolio. Goh recommends limiting the allocation to 1-3 per cent because their volatility significantly exceeds that of traditional equities.
Alternative investments
ETFs too are gaining popularity and provide a broad market exposure that might mitigate risks associated with investing in individual companies. Tan mentions that professional management can also help investors navigate through emotional biases, advising against selling in panic during market downturns.
As the market remains unpredictable, diversification and strategic allocation are essential. Both suggest that investors should stay informed, assess their risk tolerance, and consider professional advice to balance their portfolios effectively.
Listen now to better understand and evaluate the value of holding a diversified set of assets which might better prepare you for a wide range of potential outcomes.
If you have feedback or an idea for a podcast episode, contact us at btpodcasts@sph.com.sg. Stay tuned for more episodes of Money Hacks with Howie Lim.
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Written and hosted by: Howie Lim (howielim@sph.com.sg)
With Audrey Goh, head of asset allocation at Standard Chartered Bank’s wealth solutions division and Pete Tan, portfolio manager at PhillipCapital
Edited by: Howie Lim & Claressa Monteiro
Produced by: Howie Lim & Chai Pei Chieh
A podcast by BT Podcasts, The Business Times, SPH Media
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