Hot Issues
spacer
After the Australian household debt and east coast housing booms
spacer
Now’s the time for tax planning
spacer
Why it pays to contribute to your partner's super
spacer
Australia by numbers – Update
spacer
How to deal with financial stress – nearly 1 in 3 affected
spacer
Federal Budget 2018 – Overview
spacer
Your Budget
spacer
4 components of our 2018 Federal Budget
spacer
US China trade war fears – Q & A
spacer
Tools to help you manage your financial position are available on our site.
spacer
7 ways to boost your super
spacer
Australians reveal their priority goals
spacer
Australia by numbers – Update
spacer
Your retirement questions answered
spacer
How to make money by turning your unwanted goods into cash
spacer
Our website is really our digital office.
spacer
Bitcoin – is it really for you?
spacer
Spread your money, reduce risk
spacer
Love and money? It’s not about control
spacer
The pullback in shares - seven reasons not to be too concerned
spacer
Australia. All you need to know to be the expert.
spacer
Australian’s love affair with debt - how big is the risk?
spacer
5 ways to keep a cool head in a falling share market
spacer
2018 – a list of lists regarding the macro investment outlook
spacer
Sports lovers enjoy better financial fitness
spacer
Where Australia is at. Our leading indicators.
spacer
The year that was and the year ahead
spacer
Add some extra cash to your New Year
spacer
New year, new financial resolutions
spacer
Our Advent calendar for 2017
spacer
Where are we in the global investment cycle?
spacer
Australia's vital statistics
spacer
12 ways to enjoy summer without spending a fortune
spacer
One in three Aussies travel without protection
spacer
Digital payment options could see you spend more this Christmas
spacer
If you’ve always thought property prices only go up…
spacer
Will Australian house prices crash?
spacer
Where are we in the global investment cycle and what's the risk of a 1987 style crash?
spacer
Money steps for women
spacer
Resources on our site to help you, your family and your friends.
spacer
Australian Dietary Guidelines and healthy eating chart (PDF)
spacer
How to retire, your way
spacer
Prepare for retirement without missing out today
spacer
Be the boss of your cash
spacer
The Australian economy bounces back again
spacer
Should you lend money to family?
spacer
Money mistakes people make in their 50s and 60s
spacer
Australian Dietary Guidelines and healthy eating chart (PDF)
spacer
Eight steps to improved cashflow... and lifestyle
spacer
Powerful Budgeting, cash flow and Super Tools available on our site.
spacer
5 ways Australians will use their tax return this year
spacer
Australia's leading causes of death - ABS
spacer
The threat of war with North Korea
spacer
Six traits of Australians living the dream
spacer
The break higher in the Australian dollar is likely to be limited
spacer
Money can buy you happiness, you’re just spending it wrong
spacer
Key Economic Indicators, 2017 – updated
spacer
Helping your kids buy a home
spacer
From Goldilocks to taper tantrum 2.0
spacer
What’s your debt age?
spacer
Doing a budget is a good idea but ....
spacer
Planning is the key to making it financially
spacer
What to do when you come into money
spacer
Managing your money when you move in together
spacer
Reduce your bills with these household items
spacer
It pays to contribute to your partner's super
spacer
How to cope with losing independence
spacer
Transition to retirement income streams
spacer
The Australian economy hits another rough patch
spacer
Watch out for tax scams
spacer
The three core pillars of this year's budget
spacer
Federal Budget - 2017-18 - Overview
spacer
Federal Budget - 2017-18 - Budget documents
spacer
Make the most of the current super caps
spacer
Five, four, three… it’s not too late to get more in super
spacer
Super changes are coming
spacer
What’s your debt age?
spacer
Australian cash rate on hold
spacer
Super changes this financial year - Dr Shane Oliver - video
spacer
The door is closing on super’s current caps
spacer
Is Donald Trump's honeymoon with investors over?
spacer
Estate planning and why you need a super plan
spacer
What does a comfortable retirement look like?
spacer
Give your career a health check
spacer
Super changes from July 2017
spacer
Changes to the Age Pension assets test
spacer
Keep your money safe over the silly season
spacer
Looking ahead at 2017
spacer
Review of 2016, outlook for 2017 - looking better despite the political noise
spacer
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
spacer
54.2 million worries
spacer
Five tips for happy healthy ageing
spacer
Thinking about managing your own super?
spacer
Sending more to the tax office than you should?
spacer
Government pulls back on proposed changes to super
spacer
Market Update - What to consider when investing in a low return world
spacer
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
spacer
Oliver's Insight - Megatrends
spacer
Value of Advice
spacer
A growing family doesn't have to blow the budget
spacer
Blinded by optimism
spacer
Thinking about managing your own super?
spacer
The investment outlook - it's not all that bad!
spacer
What’s your biggest obstacle to financial success?
spacer
Ageing Parents
spacer
Should you own the roof over your head?
spacer
Be a senior entrepreneur on your own terms!
spacer
Brexit and other key developments
spacer
Brexit wins
spacer
Commentary on major issues - AMP
spacer
Five money habits for a happy financial year
spacer
Remember to factor in parental subsidies at tax time
spacer
Are grandparents giving too much?
spacer
2016-17 Federal Budget - AMP
spacer
2016 Budget in detail
spacer
How (and why) to talk to your adult children about insurance
spacer
Procrastination: Just do it. Eventually.
spacer
Why Australian property won't collapse
spacer
The Lucky Country holding up pretty well
spacer
Have we reached the bottom?
spacer
The evolution of the Chinese consumer
spacer
Retirement rolls around faster than you think
spacer
Pressed for time?
spacer
Changes to the Age Pension assets test
spacer
Women are building financial intelligence
spacer
Heirlooms no more
spacer
Initial market falls precede stronger returns - Shane Oliver
spacer
What exactly is income protection insurance and do I need it?
spacer
A rough start to the year, which could have further to go
spacer
Aged Care - Changes to Assessment of Rental Income
spacer
A bump in the road, then a new start
spacer
New year, new start – are you ready for retirement?
spacer
Review of 2015, outlook for 2016 - Dr Shane Oliver
spacer
We wish you a Merry Christmas for 2015 and a Happy New Year
spacer
Go easy on the plastic over Christmas
spacer
Resolutions for a wealthy future
spacer
The Australian dollar doing what it normally does - overshoot. Dr Shane Oliver
spacer
How to manage volatility in a low return world
spacer
The Australian economy - more help will be needed. Dr Shane Oliver
spacer
Insurance through my super
spacer
Four tactics to build an investment portfolio
spacer
The demand for global infrastructure
spacer
Help achieve your investment goals with dynamic asset allocation
spacer
The Power of Budgeting
spacer
Jump retirement hurdles with a coach
spacer
Preparing for the time of your life
spacer
A Super Loan for all reasons
spacer
Making a smooth transition
spacer
Budget 2015 - some professional opinions
spacer
Australian Government - Budget 2015
spacer
Achieving a comfortable retirement
spacer
Is off-the-plan on the money?
spacer
Should I take my super as a lump sum or not?
spacer
Do you have a key person in your business?
spacer
Tips for success in a competitive job market
spacer
All you need to know about buying at auction
spacer
To sell or not to sell?
spacer
Saving in a material world
Help achieve your investment goals with dynamic asset allocation

It goes without saying that the investment landscape has changed dramatically in recent years.

Deleveraging has become an ongoing theme; central banks have played a significant role in guiding the economy and extreme swings in investor sentiment have all contributed to market volatility. All this will likely continue to impact the reliability of future investment returns. 

           

Investment cycles prevail

The fundamental principle underpinning a dynamic asset allocation approach to investing is that just about everything in financial markets is cyclical. The pendulum-like swings in investor sentiment is one thing that investment markets can depend on. Financial success increasingly depends on a better understanding of market and economic cycles, with the ebb and flow of stock markets presenting enormous opportunities to generate wealth if market cycles are accurately understood. 

Market cycles range from multi-year periods called ‘secular’ cycles to multi-month periods called ‘cyclical’ cycles. The key to understanding what drives stock market cycles is to recognise that there are concurrent cycles at play during any given time. While the secular cycle determines the primary trend in the share market, the cyclical cycles also have a great capacity to impact investors’ financial goals. The key point to recognise is that while secular cycles are driven by valuations, cyclical moves are driven by investor sentiment and central bank actions. 

Better than the toss of a coin

Given ongoing deleveraging, ominous demographic trends and high starting-point valuations for both bonds and equities, it would be a safe assumption to expect low returns on the basis of secular market cycles. In this environment, the shorter-term business cycles are of critical importance. Capturing opportunities during market upswings while protecting returns during downswings is the obvious path to success. Of course, this is much easier said than done. 

Four investment principles for dynamic asset allocation

While making investment decisions objectively is critical to success, these decisions still need to pass the test of time – this is where investment takes shape as an art form. 

For the investment process to pass the test of time, it must be underpinned by a set of fundamental investment principles. The following principles are engraved within our dynamic asset allocation investment process and we believe should be taken into consideration by all investors:

  1. Risk is not the same as volatility – risk is the potential to lose money and not recover; volatility is a backward-looking measure at how variable an asset is. Therefore, price risk should be a stronger focus than backward-looking analysis.
     
  2. Risk and return are different sides of the same coin – there is often more downside to investing in high performing companies with low volatility than the apparent low performing companies with high volatility. This is due to the critical role ‘investor expectation’ plays, where the expectations on high performing companies become increasingly hard to meet.Similarly, expectations on the low performing companies are low and hence become easy to beat.
     
  3. Diversification based on historical correlation is destructive – correlations can change; typically increasing during economic instability. Overcrowding and the typical high pricing of popular investments leads to high correlation when the economy turns and investors decide to sell at the same time. Therefore, the diversification benefits that are crucial during these times aren’t received. Smarter diversification can be based on how assets are valued and how crowded the positioning is, rather than relying on historical correlations.
     
  4. The market cycle leads the economic cycle – if you aim to buy assets when the economic cycle is strong and sell them when it’s weak, you will inevitably miss out on opportunities and be exposed to risks. History has shown us that weak economic conditions don’t always lead to weak future share market returns. It would be unreasonable to assume that the macroeconomics and earnings impact on future market returns is insignificant. Indeed, a sustained and durable move higher in shares requires strong support from earnings growth and a healthy macro backdrop.

Call us if you'd like to review your investments.

 


Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.