Investing in an uncertain world
Importance of a methodology
A key success factor is selecting rational and proven strategies and techniques that prioritize the selection of uncorrelated assets to achieve favorable risk-return ratios and contribute to portfolio resilience against various risks.
Ginkgo Wealth Management's core approach is to apply this methodology effectively to your portfolios.
Risk Compensation
Investment returns are obtained in exchange for the risks (i.e., uncertainties) associated with them. This compensation cannot, of course, be guaranteed due to the inherent presence of uncertainties.
Given inflation, taking no risk almost certainly leads to a loss of purchasing power over the long term.
Gaining purchasing power therefore requires assuming a certain level of risk.
It is essential for each investor to quantify the risk limits they are willing to take, based on their situation, and to ensure these risks are managed to remain within the defined boundaries.
Increasing uncertainties
Over the past forty years, declining interest rates have mechanically contributed to a generalized increase in the value of all assets (financial or real estate). Combined with low inflation, this has led to significant wealth accumulation for households with assets.
However, this favorable environment is not the historical norm.
The early 2020s marked a turning point, and we can anticipate a future characterized by sustainably higher interest rates and inflation compared to the recent past.
This shift profoundly alters the characteristics of different asset classes in terms of profitability, risk, and appeal, tending to generate more uncertainties and, consequently, volatility. It is therefore important not to view the future through the lens of the recent past.
An increasingly uncertain world generates new risks but also opportunities, making it all the more necessary to update one's investment portfolio.
Building an investment portfolio
Even in a world of uncertainties, past experience has identified better and worse practices in investment :
It is essential to think in terms of a portfolio rather than individual assets in isolation, as the whole is greater than the sum of its parts.
A well-constructed portfolio does not involve trying to select each year the "best" assets in the "best" asset classes by choosing the previous year's winners (hoping for momentum) or the previous year's losers (hoping for a rebound)
A well-constructed portfolio for a given investor involves selecting a combination of assets that, with a good probability, meets the investor's long-term objectives within their risk tolerance and liquidity needs.
One can draw an analogy with a sports team, whose success relies on the complementary offensive and defensive strengths of its players.
Useful Resources
