How (Not) To Position Your Investment Portfolio For 2022

The end of a calendar year inevitably brings with it these two things: a pause for reflection on the year that was and multiple predictions on what the next year will bring.

From the events that took place in 2021, giving broad-based outstanding returns from Global Growth Assets (and who would have predicted that at the start of the year) as an example, I should like to comment on why most predictions are pointless.

At the start of each new year, we are subjected to a raft of prediction content from various sources. (See a summary here.)

As humans, we love to seek ‘shortcuts’ and ‘hacks’ to get ‘an edge’ or ‘advantage’ against our fellow humans.

The conventional wisdom for investment success is to master ‘market timings’ and to ‘select’ the right country/sector/company that’s going to ‘outperform.’ This has never been proven to work. So, why would you seek this for your family and your future generation’s life savings?

What works is prudent financial planning that creates financial independence for you and your family that removes the anxiety from money worries, and in the end, leaves a meaningful legacy to the loved ones you leave behind. The biggest contributor to financial life success is your behaviour, or evidently, your misbehaviour. There is no such thing as humans with money troubles. It is always money with human troubles.

So how do we position our investment portfolios heading into 2022?

The history of the stock markets shows that we do not have complete certainty how the markets will perform/react/move. If anyone tells you differently, they are not telling you the whole truth. No one knows what even the short-term market ‘movement’ will be – that is investment wisdom and truth.

What is needed for clients is a well-crafted, globally diversified, lifetime investment portfolio, built with foresight in mind. An investment portfolio that is well spread geographically and contains thousands of individual securities (equities and bonds) to weather all market storms and absorb the latest panics and crises which it will experience. Reacting to current noise and ‘positioning’ a portfolio is a fool’s errand.

The pessimist can never be a successful investor; they will continually seek positive confirmation of their negative world views. The optimist will move from crisis to panic and back again with confidence, knowing they are strong and capable enough to deal with anything and everything the world throws at them.

Every year we hear multiple reasons why we should not invest in the stock markets; this will not change. But neither will the fact, as shown historically, that markets do move in a positive direction. As financial planners, we can accept this and apply it in helping our clients manage their wealth and financial affairs, or we can be controlled by the journalist whose intention is to emphasise catastrophe or trivia. We focus on a reliable truth with which we guide our financial planning and guidance.

We at PSG Melrose Arch wish you well for 2022 and rest assured, our predictions in 12 months’ time will make for a remarkably similar reading.

Melrose Arch High Growth Fund

The Melrose High Growth Unconstrained model portfolio is well suited to investors who require a healthy allocation to growth assets, without the restrictions imposed by Reg. 28 of the Pension Funds Act, 24 of 1956 (as amended), hereinafter referred to as PFA. In practice, this could be either a pre-retirement investor or a post-retirement investor. With regards to pre-retirement, the model is well suited for voluntary/nonpension funds’ investments, where the investor seeks sufficient exposure to risk assets to outperform inflation over the medium to long term, yet doing so without the inherent volatility associated with a pure equity model/fund/portfolio.

In the post-retirement setting, the model is ideal for Living Annuities that are not bound by Reg. 28 of the PFA. The increased offshore allocation has added diversification and has ensured that drawdown rates are acceptable for those who require regular income drawdowns from their portfolios. The model has roughly 65% equity exposure, 22% bond exposure, 12% cash exposure, and 3% property exposure. With regards to geographic allocation the model is skewed in favour of offshore, with 60% offshore exposure, the bulk of which is allocated to equities. View more here.

Reminder to leverage tax incentives before the tax year-end.

“You must pay taxes. But there’s no law that says you gotta leave a tip"– Morgan Stanley advertisement

The end of the tax year represents an important opportunity for us all to maximise tax-efficient savings opportunities, and therefore many of us focus on Retirement Annuity (RA) and Tax-Free Investment Plans (TFIPs). Click here to access the landing page with all campaign-related content, useful calculators, and educational video content.

You have until 28 February 2022 to maximise your tax incentives before the tax year-end. Contact your Wealth Manager as soon as possible to discuss your unique investment needs.