Optimism and Balanced Portfolios

Optimism and balanced portfolios

Human beings are naturally predisposed to be optimistic, including when it comes to investing – by Richard Latter

2022 was a difficult year for many investors. And this year, at the start of which we dared to dream of a better future, we are still seeing the effects of the war in Europe, inflation, ongoing industrial action, and the cost-of-living crisis. None of which seem to have an immediate end in sight.

More recently, the collapse of Silicon Valley Bank and New York-based Signature Bank in quick succession, followed by concerns about the health of Swiss banking giant Credit Suisse resulted in a rushed through bargain basement buy out by UBS, averting a banking crisis (maybe).

For those looking for that half full glass, what can we focus on?

The Office for Budget Responsibility (OBR) is now forecasting that Consumer Price Index (CPI) inflation will fall to 2.9% by the end of 2023 and recent figures from the Office for National Statistics revealed output grew 0.3 per cent in January, much better than the 0.1 per cent forecast by City economists.

So, what should individual investors do at times like this?

It is important to remember some of the basics of investing, like staying diversified. This should include investing in a mix of assets including shares, bonds, cash, and funds across different sectors.

Equities had been enjoying a good run in 2023 with the FTSE100 breaking the elusive 8000 barrier in February, but the current market volatility and the negative news flow has seen the main index drop almost 10 per cent from its recent historic high.

Is there an area where investors might be light on their exposure?

Perhaps. Despite the recent historic issues with the gating of open-ended funds, real estate might be an area that investors might want to look at. Those looking to allocate to real estate today should consider the listed market first, with REITs priced to deliver annual returns in the high single digit range for the next several years, Lisa Kaufman, Head of Global Securities at LaSalle, recently stated.

Kaufman added that the REIT market has been “really very rational” through the recent period of tightening financial conditions, “and financial conditions do remain in the driver’s seat.” She noted that REIT returns “are attractive and we have a higher level of conviction in our outlook today just given the material tightening of financial conditions and the repricing that’s already occurred in the REIT sector.”

To summarise, review your portfolio, ensure you remain diversified and perhaps 2023 will start to turn round more positively. After all, us humans are naturally predisposed to be optimistic…

Richard Latter is Head of Distribution, IPSX – the world’s first regulated stock exchange dedicated to trading commercial real estate.