“Having a significant portion of your portfolio in an asset class that is almost guaranteed to lose money is not diversification – it’s stupid” – Adam Walkom, The Sunday Times’ Raconteur
Managing partner, Adam Walkom’s views on government bonds and balanced funds was quoted in The Sunday Times’ Raconteur pull-out this week.
Adam Walkom is co-founder at Permanent Wealth Partners, a firm of financial planners. For him, the traditional 60:40 portfolio is dead. “In a world of low and rising interest rates, having a significant portion of your portfolio in an asset class that is almost guaranteed to lose money is not diversification – it’s stupid,” he stresses.
Walkom adds that, thanks to the traditional 60:40 approach, it “became too easy for the adviser to bundle a client into a balanced portfolio because they ticked boxes on the risk questionnaire a certain way – good for the regulator; bad for the client”.
If you won’t need the funds for 20 or more years, you should hold 100% equities, he argues. For nearer investment horizons – say, five or so years – an “all-weather” portfolio could be an option. This uses a spread of assets for the non-equity portion, such as real-estate investment trusts, gold, private equity and maybe some inflation-linked bonds.
So many people have significant holdings of bonds – an asset class that is almost guaranteed to lose money as interest rates rise – without realising it. How? Their pensions…
For years, the finance industry has pushed balanced funds as the default funds for most people’s pensions, yet for most people, they are entirely NOT suitable.
And, to make things worse, as people get older, their pensions will be automatically ‘lifestyled’, without their knowledge, where their bond allocation is actually INCREASED!
Without making active decisions, most people are at risk of major underperformance. We call this letting things drift.
Don’t let things drift, make decisions. Get in touch to see how we can help.