In times of higher inflation and rising interest rates, financial planners will need to become more strategic and move into tactical allocation territory when constructing portfolios, according to Pinnacle Advisory Group chief investment officer Ken Solow.
He believes that as time goes on, advisers will become more proactive in making predictions on how a stock is going to perform.
“If you buy stock when it’s expensive your returns are below average,” Solow said.
“Conversely if you buy stock when it’s inexpensive your returns will be above average.
“Most financial planners are taught to buy stock and hold it for a prescribed amount of time. However, now in times of higher inflation levels and rising interest rates, lower multiples are inevitable and financial planners need to come out of the closet and make predictions.”
The US-based portfolio construction specialist, who will be speaking about this topic in Sydney next week, believes advisers should diversify their clients’ portfolios and maintain a defensive strategy by including alternative investments.
“I am looking for alternatives for portfolio construction as stocks and bonds are underperforming,” he said.
“This includes commodities, international real estate, hedge funds, absolute returns and all with a tactical asset allocation approach.
“In such an inflationary market, risks are at a premium and people are searching for better returns.
“Many people have purchased stocks at a premium and have simply watched them erode over time.”
Solow will be one of the keynote speakers at the fifth annual PortfolioConstruction Conference on August 23 and 24, a two-day forum designed for anyone whose role it is to build or manage a portfolio as well as those who wish to understand the process that is involved.
The conference program features research on contemporary and emerging portfolio construction issues with 31 quality sessions and more than 40 local and international portfolio experts.
For more information visit http://www.portfolioconstruction.com.au.
