10 years on from the credit crisis: investment strategy

With this month marking the tenth anniversary of the global financial crisis Tom Stevenson, investment director for personal investing at Fidelity International, reveals which investment strategy has yielded the best returns over the past decade.

10 years on from the credit crisis: investment strategy

We looked at three types of investment strategy – adventurous, balanced and cautious (as defined by Fidelity’s PathFinder range* of risk-rated managed investment solutions) – and calculated how much £10,000 would be worth today had you built a portfolio based on each of these strategies on 31 July 2007.

The adventurous portfolio, which invests in a geographically diversified portfolio of equities, yielded the best result returning 119% over ten years to leave the adventurous investor with £21,912.90 – more than double the original investment**.

Our second example, a balanced strategy, which invests in a mixture of both growth assets, such as equities and alternatives, and defensive assets such as cash and bonds – but with a significant weighting towards equities – would have left an investor with a portfolio worth  £17,738.82 – a healthy 77% return***.

The cautious portfolio, which also contains a basket of mixed assets but is skewed towards more defensive assets such as bonds and cash, comes in at last place, returning 48% over the past decade to leave a portfolio worth £14,759.09****.

10 yrs investment

The performance of markets in the ten years since the financial crisis would have been hard to predict during the massive wealth destruction in its immediate aftermath. But it makes complete sense in light of the measures taken.

Since early 2009, investors have enjoyed a remarkable bull run, buoyed by the extraordinary monetary stimulus that followed the crisis, both in the form of record low interest rates and central bank quantitative easing. This has fuelled a revaluation of risk assets and richly rewarded those who have owned them throughout the past decade.

As a result of this extended easy-money environment, as our analysis reveals, anyone who had adopted an adventurous investment strategy that favoured a geographically diversified portfolio of equities would have seen their portfolio perform very well since the credit crunch took hold.

On the other hand, anyone who had their fingers burnt by the 2008 crash and subsequently sheltered in a more cautious portfolio geared towards bonds and cash would have lagged significantly. Cash and lower-risk bonds have offered a dismal return as interest rates have languished at a 300-year low.

Part two tomorrow considers how investment products have fared over the past 10 years.

 

*Each strategy has been defined based on Fidelity’s PathFinder range – Fidelity Personal Investing’s multi asset solution that is based on risk appetite. The performance of each strategy has been calculated based on the comparative index used for the following funds from Fidelity’s Path Finder range:

Adventurous: Fidelity Open World Fund. Comparative Index – IA Global

Balanced: Fidelity Multi Asset Open Growth Fund. Comparative Index – IA Mixed Investment 40-85% Shares

Cautious: Fidelity Multi Asset Open Defensive Fund. Comparative Index – IA Mixed Investment 0-35% Shares

** Source: Fidelity International, August 2017. Cumulative returns as at 31 July 2017. Based on £10,000 invested into the IA Global Index on 31 July 2007.

*** Source: Fidelity International, August 2017. Cumulative returns as at 31 July 2017. Based on £10,000 invested into the IA Mixed Investment 40-85% Index on 31 July 2007.

**** Source: Fidelity International, August 2017. Cumulative returns as at 31 July 2017. Based on £10,000 invested into the IA Mixed Investment 0-35% Shares

 

Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest and tax policies may change. 

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