Three Things To Do To Adapt Your Portfolio For The Next Decade

Three Things To Do To Adapt Your Portfolio For The Next Decade
Theodora Lee Joseph, CFA

8 months ago2 mins

It’s the same story across the US, UK, and Europe: higher interest rates. That’s no doubt impacted your portfolio – and possibly your home-buying plans. But the uncomfortable reality about today’s higher rates is this: they’re not an anomaly. If anything, the past 15 years were. This chart, which shows interest rates across the past 50 years, makes that super clear. The most striking part of the chart isn’t the uniformly steep rise in interest rates from early last year. Rather, it’s the abnormally low, near-zero rates we’ve had since 2008.

Today’s rates are hovering close to 5% in most major economies but that’s still in line with (if not lower than) the pre-2008 average.

So there’s likely a good chance that rates won’t go back to the out-of-the-ordinary lows that we’ve seen over the past 15 years. Tensions between the US and China suggest deglobalization could be here to stay, and with that, there’s the potential for the global economy to have higher inflation, higher interest rates, and more restrictive monetary policy. In short, investing over the next decade and more might not be as easy as the past 15 years.

Here are three ways you can adapt to that change:

Diversify across countries. We’re already starting to see monetary policy divergence across central banks and this is likely to accelerate. Interest rates will move higher or lower in different countries at different times (we’re already starting to see that with the US and UK), so it’s wise not to put all your eggs in one basket.

Consider more active investing. Rather than relying on broad market index funds, you might want to brush up on how to pick quality companies and invest in them for yourself. With ultra-low interest rates no longer around to lift all stocks higher, you’ll need to find companies with strong return drivers if you want to see your portfolio expand.

Make room for alternatives. Higher interest rates also mean higher volatility, so look out for assets that don’t necessarily rise and fall with the stock market, but that instead move to the beat of their own drum. Alternative investments – things like real estate, commodities, infrastructure funds, or even fine art – fit the bill here and could complement your stocks and bonds portfolio.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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