Russell Insights

We live in a dynamically shifting world and our investment portfolios need
to be paying attention

Consider how your investment portfolio would respond to market changes and see how our portfolios actively adapt to opportunity and risk by exploring the nine scenarios below.

What does real diversification look like?

Until recently, many investors believed diversification simply meant holding different assets in their portfolio. When all these ‘diversified’ assets went south at the same time, many learned the hard way that there is a lot more to diversification.

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Do you have value stocks in your portfolio and, if so, how do you choose them?

It’s a well known fact that investors are often rewarded in the long term by investing in Australian equity value stocks. Some would argue it’s because of the nature of value stocks, while others would say it comes down to the insights of active value managers.

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Once you know what asset exposures you want for your portfolio, how do you go about implementing them?

There was a time when local property securities were the accepted norm to provide property exposure for your portfolio. But what’s deemed to be an effective component one day is outdated the next. The challenge is working out where the next opportunities are coming from.

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If your portfolio is exposed to bonds, will you be selling any time soon?

It’s a well known fact that when Treasury yields go up, bond prices do the opposite. With Treasury yields currently at an all-time low, there are no prizes guessing where government bonds prices are likely to head.

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What are you doing to protect your portfolio from inflation?

Since 2009, the world’s top six central banks have issued more than $6 trillion to support economic growth and boost employment. But all this money printing comes at a price, not least of which is increased inflation.

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If your portfolio has exposure to unstable economies, how do you manage the impact?

At first it was Greece that made the headlines with its massive bail-out package. Soon after Ireland, Portugal, Italy and Spain followed. Then Cyprus. Who’s next?

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How would your portfolio fare if the Australian dollar plummeted again?

It’s hard to remember a time when the Australian dollar traded as low as 60 US cents and the impact that had on our markets. Actually, you’ve only got to look back as far as 2008 at the onset of the GFC to see the effects.

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How does your portfolio adapt to risks and opportunities that arise?

Even the most carefully constructed portfolios can be knocked around by unexpected market changes outside our control. That’s why it’s important to build a portfolio that’s nimble and adaptive.

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What would you do if the key person managing your portfolio were to leave?

Investment managers are often appointed because of a star portfolio manager. But when that portfolio manager leaves the firm, the impact can be significant.

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