Not the time for a big position in equities

We sat down with Simon Doyle, Head of Fixed Income & Multi-Asset at Schroders Australia, and asked him how he would allocate a million dollars today. In his responses to this tough question he made it clear that it’s not a good time to be building a big position in equities. 

In this short video Simon told us that: “even if you were somebody who had a high natural risk tolerance, at the moment I wouldn't be encouraging you to put a lot of that money into equity markets, certainly on a 12 to 18-month to 2-year sort of time horizon.” He flagged better entry levels ahead, and touched on a few other asset classes to consider in the meantime.   

Edited transcript 

How would I allocate a million dollars today? It's a tough question because people have different objectives, and a million dollars for one person is different to a million dollars for another. 

If it was my 25-year old daughter saving, and for some reason, she came into a million dollars and she's saving for a house, I'd say, "You don't want to take too much risk on that." 

You know, it's not the time to be taking a big position in equity markets. You might want to take maybe some sort of high-yielding defensive domestic equites, because I think that's a much less overvalued market than the US. In fact, you could probably argue the Australian share markets broadly fair value. 

Don't be afraid of cash. Probably good quality investment grade credit. But a pretty conservative portfolio. 

I think even if you were somebody who had a high natural risk tolerance, I think at the moment I wouldn't be encouraging you to put a lot of that money into equity markets, certainly on a 12 to 18 month to 2-year sort of time horizon. 

Our objective based portfolio, to give you some sort of reference, that's generally targeted around a real rate of return around 5%. We only have about 20 to 25% of those portfolios in equities at the moment. That’s probably more equity than I would be encouraging my daughter to take, but still a relatively defensive portfolio. 

Be very mindful of liquidity because I think in the next 12 to 18 months, there'll be an opportunity to actually deploy that capital, to make some investments at much more attractive prices, so I think a little bit of patience with that million dollars, irrespective of who you are as an investor, I think is likely to help you in the long run generate a decent rate of growth on that money.

Further insights 

If asset allocation is what ultimately drives returns and manages risk, then we need an approach to asset allocation that is forward looking and relevant over the timeframe that we’re investing. Find out more here