By Jane Purnell

After a period of strong capital gains across all asset classes, the current decade would be more likely to see a far lower contribution of total return (which includes capital growth and income), given the established relationships between interest rates, inflation, leading economic indicators and corporate earnings which signalled falling profitability in the second half of 2023 and beyond, according to IndexInvest Investment Director Mark Holzworth.

To further explain, Talaria Asset Management Cochief Investment Officer Hugh Selby-Smith said that although income always mattered it did not contribute significantly to returns every decade,
with the S&P 500 indicating investors had no return from capital appreciation in the 1910s, 1930s and the 2000s.

“This leads us to believe that the 2020s is very likely to be a decade where capital gains will be a far lower contribution of return, highlighting the importance of income,” he said.

At the same time, 2022 stressed the importance of risk management and investors were avoiding assets that magnified market moves and preferred assets with shorter rather than longer payback periods.

“With risk of economic recession in many parts of the world during a time of high inflation, governments and large corporates are loathed to increase spending in fear of bidding up prices on
consumables and assets thereby only further increasing inflationary pain”.

“Monetary authorities around the world will not be loosening financial conditions any time soon as they try to fight spiralling inflation, meaning investors must position their portfolios

“Our decades of experience in managing wealth for Australians has guided us in making investment moves which seek to not only add value over time, but more importantly, manage risk in times of volatility in markets”

‘The benefit of investments paying consistent, frequent income include receiving immediate returns. Where this income is adjusted to increase for inflation during regular reviews, the
returns are even more attractive. For this reason, residential investment property acquired at reasonable prices delivers long-term cash flow which is set to increase in a tight rental market.
This carries investors through until capital growth returns.” Holzworth said.

He also warned that this year would continue to be a “dangerous time” to add risk to portfolios by purchasing volatile assets such as shares, especially in the technology and consumer
discretionary sectors.