Investment advisors and wealth managers are foreseeing a notable departure in the next 10 years from the trends seen in the past two decades. Charles-Henry Monchau, the chief investment officer at Swiss private bank Syz, cautions against making decisions with a long-term perspective solely based on recent history.
He highlights the importance of not over extrapolating from recent trends. Monchau posits that, unlike the previous two decades, inflation is expected to persist at higher levels for an extended period. This shift can be attributed to factors such as commodity supply shortages, the repatriation of production by companies, and labor shortages in crucial industries due to demographic changes.
These circumstances may lead to increased market volatility and reduced returns for assets that have performed well in the past decade.
Investment Strategies for Long-Term Investors
Monchau provides guidance to long-term investors regarding their portfolio management. He advises allocating a substantial portion of their investments to global equities, highlighting that this is the most suitable approach for individuals with extended investment horizons.
Furthermore, in response to the challenge of rising inflation, Monchau recommends considering three alternative options apart from traditional stocks and bonds. Firstly, he suggests adopting a more flexible approach to asset allocation between stocks and cash.
Secondly, he proposes incorporating assets such as real estate investment trusts (REITs) and commodities into the portfolio, as they can potentially serve as safeguards against inflation. Thirdly, he advises setting aside a portion of the portfolio for illiquid alternative investments, which may offer higher returns but come with the trade-off of limited liquidity over extended periods.
Gaining Entry to Formerly Restricted Private Markets
Monchau points out European Long-term Investment Funds (ELTIFs) as a viable means to enter previously inaccessible private markets. Nevertheless, he advises investors to be aware that their invested capital may not be easily accessible for withdrawal. ELTIFs grant individual investors the opportunity to invest alongside institutional investors in assets such as infrastructure, private equity, and private credit.
Monchau recommends considering an allocation of up to 50% of one’s portfolio to multiple ELTIFs, underlining that these investment vehicles are not designed for generating high recurring returns akin to venture capital funds or early-stage growth ventures. Instead, they present low-risk, highly diversified options that aim for modest double-digit returns.
Enhancing Portfolio Diversification and Income Generation
Monchau advises investors to broaden their portfolio holdings by considering other asset classes, particularly fixed income, in order to achieve diversification and a consistent income stream. Jamie Cox, a financial planner at Harris Financial Group, anticipates that international stocks will outperform U.S. stocks in the upcoming decade, driven by shifting market dynamics influenced by increasing interest rates and inflation.
Cox recommends a global focus on high dividend-yielding stocks in sectors such as consumer staples, telecommunications, and energy to generate income. He offers potential investment options including companies like Unilever, Nestle, Crown Castle, American Tower, and Broadcom. For investors with more than a decade until retirement, Cox suggests contemplating a 100% equity portfolio that maximizes returns through low-cost index ETFs.
He advises considering actively managed funds primarily when seeking dividend income during retirement.
Financial experts advocate the adjustment of investment strategies for the next decade. Long-term investors should contemplate a substantial allocation to global equities while staying vigilant about the potential impact of inflation. Accessing previously restricted private markets via vehicles like ELTIFs may provide diversification opportunities and moderate returns.
Furthermore, achieving portfolio diversification and generating income can be pursued through high-dividend stocks and alternative asset classes. It is paramount for investors to conduct a thorough assessment of their risk tolerance and long-term objectives when implementing these strategies.
Investment Approaches and Their Influence on New Business Models
As the investment environment undergoes transformation in the coming decade, new businesses are required to align their strategies with these changes. Renowned experts such as Charles-Henry Monchau, serving as the chief investment officer at Swiss private bank Syz, anticipate a departure from the patterns observed in the previous two decades.
Monchau cautions that persistent, elevated inflation levels are on the horizon, driven by factors such as commodity shortages, the relocalization of production, and shortages of essential workforce positions.
Global Stocks and the Impact of Inflation
Monchau recommends that long-term investors allocate a substantial portion of their portfolio to global equities. For new businesses, this might entail a reevaluation of their investment strategies to align with this perspective.
Nevertheless, given the prospect of increased inflation, businesses may find it prudent to explore alternative avenues beyond conventional stocks and bonds. This could encompass adopting a more adaptable approach to asset allocation between stocks and cash, incorporating assets such as real estate investment trusts (REITs) and commodities as potential safeguards against inflation, and contemplating illiquid alternative investments as a means to pursue higher returns.
Exploring Previously Restricted Private Markets
Monchau underscores the potential of European Long-term Investment Funds (ELTIFs) as a means of entering private markets that were previously inaccessible. This avenue could offer new business ventures opportunities to invest alongside institutional players in various asset classes, including infrastructure, private equity, and private credit.
Nevertheless, it is crucial for businesses to recognize that their invested capital may not be easily accessible for immediate withdrawal.
Diversification and Income Generation Strategies
In addition to these tactics, experts advocate for portfolio diversification and a highlight on generating income. Jamie Cox, a financial planner at Harris Financial Group, recommends directing attention toward high-dividend-yielding stocks in sectors such as consumer staples, telecommunications, and energy.
For new businesses, this could entail exploring investments in companies such as Unilever, Nestle, Crown Castle, American Tower, and Broadcom.
Summary
The evolving investment outlook necessitates that new enterprises adjust their strategies. They should contemplate a substantial allocation to global equities, explore previously constrained private markets, and prioritize diversification and income generation. These strategies could potentially prove instrumental to their success in the unfolding decade.
