To Deliver Sustainable Growth Through Sensible Diversification

Diversification — which stands out as a foundational pillar for long-term investment success — will remain critical in 2023. Spreading your risk across asset classes and geographies remains the best way to smooth out market fluctuations and ensure that you are able to conserve wealth, regardless of the level of financial market turmoil. A well-diversified portfolio should include local and global bonds, emerging market and developed market stocks, private market instruments, property and cash.

No one knows if the world will emerge from the past three years with a new, structural normal. We’ve seen structural resets before, for instance, the shift (back in 1973) from the gold standard to a dollar standard, with the aim being to introduce more liquidity into the global financial markets. Whether the climate crisis, pandemic, social justice and the 2008 global financial crisis collectively spark a new standard remains to be seen.

What is clear is that the world was due for a cycle correction. Developed market interest rates pre and during the pandemic were unsustainably low, with central banks and government policymakers in the UK and the US simply ignoring economic fundamentals to print more money into an inflationary environment. This situation had to unwind; it started unwinding through 2022 and will continue to do so through 2023 and into 2024.

We also know that the narrative of planet over profit is growing, and that the big developed market nations are being called to atone for the damage their greenhouse gas emissions have created. How this will affect the monetary systems remains to be seen; suffice to say, heavily indebted Western markets could find it difficult to find the billions that poorer countries are demanding to fund their net-zero carbon emissions initiatives.