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Don't go too cash heavy in risky times

2 October 2019






ANZ's chief investment office explains that a diversified investment strategy will usually beat trying to time the market.

It’s human nature to want to defend ourselves from risks. And there was no shortage of risks in investment markets last year. 2018 was bookended by periods of weaker sharemarkets and high volatility.

This year, sharemarkets have been strong, but there are potential threats on the horizon: primarily slowing growth in the global economy and trade tensions between the US and China.

Despite all this the sharemarket has gone from strength to strength. A leading index of US sharemarket performance, the S&P 500, neared a record high in late July and is nearing that again in mid September. Some investors may be wondering how long the record-breaking market rally can continue.


Data source: FactSet. For the period September 30, 2014 to September 24, 2019.

The challenge of managing risk in investments

In light of slowing growth and its potential impact on sharemarkets, should you ‘de-risk’ your investments? And what does this actually mean?

For many people cash investments are the safest place for their money in a volatile market, as they provide stable and reliable (but low) returns. That may mean taking a lot of money out of shares and other higher risk investments until the market recovers.

While such investment decisions are easy to make in hindsight, getting the timing right to take money from growth assets to defensive ones, such as cash, is difficult in real time. That’s because even experts just don’t know what way the market will go, particularly in periods of high volatility.

Another way to manage investment risk

An easier and more effective way to manage investment risk can be to maintain a well-diversified portfolio across all asset classes (shares, bonds, cash, etc.) and focus on medium to longer-term returns.

As we can see from the graph below, investing in growth assets, such as property and shares, have historically delivered better performance than cash investments over the long term, even taking into account significant market corrections.


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Data: Australian equities: S&P/ASX 300 Total Return Index | Global equities: MSCI World (ex Aust) Net Total Return Index in AUD | Global property: FTSE EPRA NAREIT (ex Aust)

Total Return Index hedged to AUD | Australian fixed income: UBSA Comp Bond Index (All Maturities) | Global fixed income: Barclays Global Aggregate hedged in AUD | Cash:

90 Day Cash Rate (pre 1992); Bank Bill (post 1992) | Inflation: Consumer Price Index.

* Global property index information unavailable pre-2006 # International fixed income index information is unavailable pre-1991

Source:, FactSet, ABS and ANZ Wealth. Data as at June 30, 2019.

So, overall, taking a medium to long-term perspective in a diversified portfolio should deliver superior returns and preserve capital more than short-term market-timing investing.

What’s ahead for markets in 2019?

Into mid September, global sharemarkets rose, recovering from a small correction in August, which moved the value of shares to a fairer level.

The sharemarket is rising due to investors’ optimism that US-China trade tensions may be resolved, and because the US and European central banks are more likely to cut interest rates. Improved trade relations and lower US rates should bolster global economic growth.

However, ANZ’s Chief Investment Office is cautious. We do not believe we’ve seen the last skirmishes in the US-China trade war, inflation continues to disappoint, and there are indications global economic growth will continue to slow in the months ahead, particularly in the trade and industrial sectors.

As always, your Private Banker is well placed to guide you on the investment strategy that suits your personal situation.


Mark Rider, former Chief Investment Officer

Mark brought over 30 years of investment market experience to ANZ, having previously worked at UBS and the Reserve Bank of Australia. During his seven-year tenure at ANZ Mark was responsible for and contributed to the overarching investment philosophy, investment strategy and asset allocation of ANZ Private Banking.


To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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ANZ Private Bankers are representatives of Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ), the holder of Australian Financial Services Licence number 234527. This document ("document") is distributed to you by ANZ and may not be reproduced, distributed or published by any recipient for any purpose.

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