Are Your Investments Prepared for the Future?

Key Takeaways

• 1. An investment portfolio may never be totally immune to disruptions or volatility, but there are some strategies you can implement to enhance its resilience.
• 2. Regularly review and adjust your investment allocations in response to shifting market dynamics.
• 3. Refer to our five tips to diversify your investment portfolio and remember to invest in strong fundamentals over the long-term.
• 4. When in doubt about investment decisions, consult a professional investment advisor.

It’s no secret that investors have been grappling with the economic uncertainty triggered by the COVID-19 pandemic for the past few years.

It all started in early 2020. You may recall how markets fluctuated dramatically during the height of the pandemic.

Then, fuelled by the supply chain disruptions and fiscal stimulus during COVID-19, inflation roared as we eased back into a “new norm” in 2022.

This led central banks, particularly the US Fed, to aggressively raise interest rates, which directly impacted asset prices and market sentiments in 2022 and 2023.

These events underscore why it’s crucial to take a forward-thinking approach to managing your investments.

Why it’s important to future-proof your investments

When faced with economic uncertainty, investors need to consider strategies to both capitalise on present opportunities and future-proof their portfolios against future challenges.

Future-proofing your investments means you strategically anticipate and adapt your portfolio to emerging trends, disruptive technology, and unforeseen challenges.

Whether it’s preparing for the next unforeseen tail event similar to COVID-19, or staying ahead of disruptive technology such as AI, which has the potential to reshape entire industries, cultivating long-term portfolio resilience has never been more crucial than it is today.

#1 – Be flexible

To proactively navigate the ever-changing market landscape, consider adopting a flexible investment approach.

You can do this by regularly reviewing and adjusting your investment allocations in response to shifting market dynamics.

For example, during economic uncertainty, you can reallocate your investments to defensive sectors such as utility and healthcare, or assets such as government bonds and gold.

On the other hand, you can shift your allocations towards growth assets to maximise returns when the economy is doing well.

By rebalancing and reallocating, you can also capitalise on emerging short-term opportunities while mitigating risks.

One such instance is the recent advancements in generative AI.

The rapid adoption of AI created new investment opportunities in innovative companies poised to benefit from this technological breakthrough.

Aside from the generative AI companies, chip makers, cybersecurity, and energy producers also stand to gain from this boom.

#2 – Diversify your investments

Investors tend to look for the most promising investments that give the highest returns.

But, concentrating all your money on a single asset exposes you to the risk of losing a big chunk of it, or even all of it, during a downturn, or if the asset faces trouble.

For instance, when the Fed raised interest rates in 2022, the US stock market suffered losses with the S&P 500 down by over 18% that year. If you were solely invested in US equities, your portfolio would have suffered in that drawdown.

Downturns or global events can also disproportionately affect asset classes, sectors, regions, and industries. To mitigate this risk, diversification is key.

Here are some ways you can diversify your investments:

• ● Across asset classes: Stocks, bonds, commodities, REITs
• ● Across industries or sectors: Some sectors can be more cyclical compared to others
• ● Across growth and value investments: Growth investments typically offer higher potential returns but come with increased volatility, while value investments may provide stability during market downturns.
• ● Across different geographies: Mitigate risks associated with regional economic downturns, political instability, or currency fluctuations
• ● Across size: Large-cap, mid-cap, and small-cap investments all offer distinct risk-return profiles that can help balance your portfolio’s risk exposure.

#3 – Invest in strong fundamentals

Another strategy for building a resilient portfolio is to identify investments with strong fundamentals.

This includes looking for companies with a sizeable competitive advantage, strong balance sheet and profitability, and a sustainable business model.

These qualities make your investments more likely to withstand market volatility and downturns.

Companies that are responsive to change through innovation, diversifying their revenue streams, and having a robust management team that can make tough decisions during bad times tend to be more resilient to changing market conditions.

They are also better positioned to take advantage of uncertainty and emerge stronger in the long run.

#4 – Look for long-term trends and themes

Thematic investing offers a forward-looking perspective that could provide potentially sizeable opportunities and position your portfolio for long-term success.

One such theme is the global transition towards clean energy and how this transition has impacted copper prices – copper is a component used in battery technology in electric vehicles.

Citi Research forecasts that copper prices could be pushed higher by restrained supply and high demand for the material.

Similarly, healthcare innovation presents compelling investment opportunities, fueled by advancements in medical technology, biotechnology, and healthcare services.

Particularly drug discovery and testing would be faster and more productive with the help of AI, according to Citi Research.

By getting in on the ground floor on long-term trends and transformative themes, your portfolio is aligned to take advantage of megatrends that could shape the future economy.

#5 – Seek expert advice

Markets are always reacting to short-term changes and the barrage of information that gets thrown at us daily can be overwhelming.

Understandably, this can make investment decisions incredibly difficult for the individual investor, especially those who lack time or expertise.

This is when having an expert guide you through your financial journey could be the key to ensuring that you set yourself and your portfolio up for long-term resilience.

A qualified financial advisor can help you navigate complex investment decisions, assess your risk tolerance, and develop a customised strategy aligned with your long-term investment goals.

As Steven Wieting, Chief Investment Strategist at Citi shares, “Clients derail their lifetime financial health by taking dangerous risks in periods of bull market excess. The equally damaging mistake is failing to invest for long-term goals when these periods have passed and asset prices are depressed. It is our goal to identify these periods and help clients manage risk and reward through these two exaggerated, extreme states.”

Are you future-ready?

The future can never be predicted with 100% certainty. But we can take steps to ensure that our investments can weather any eventuality while being able to still take advantage of emerging opportunities.

To do that, we could employ the following strategies:

• 1) Be flexible in our investment approach by regularly reviewing and adjusting our investment allocations to adapt to changing market conditions.
• 2) Diversifying investments across various asset classes, industries, and geographies to help mitigate risks associated with downturns or specific events affecting certain sectors, asset classes, or regions.
• 3) Ensure the assets you invest in have solid fundamentals that can improve your portfolio’s resilience
• 4) Invest in long-term megatrends or disruptive themes that can position your portfolio for potential growth opportunities that come from these future economic shifts.
• 5) Consult with a financial advisor to help you make investment decisions that are aligned with your long-term financial goals.

If you are looking to gain a headstart in your wealth journey, Citigold offers clients access to timely wealth insights through its global network of expert analysts and advisors. Start your wealth journey here with us to enjoy access to these opportunities today.

Disclaimers

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