Investing involves taking on risk

We don’t know what the future will hold. But we can usually build a reasonable set of expectations about what might happen. The potential impact can be tested. And portfolios can be prepared. A sudden stop in economic and financial markets was a foreseeable risk. We wrote about the risk arising from sudden exogenous shocks, excess leverage, or policy error in November. We didn’t know which of the three risks would eventuate. We expected a credit deleveraging. We got an exogenous shock. Different drivers of a similar portfolio risk. Uncertainty is different to risk. When the outlook is truly uncertain, we can’t easily build a set of expectations about the outlook. With Covid-19, we face an uncertain outlook. We don’t know how to quantify the potential human and economic cost.

Focus on portfolio resilience

As retail investors, we have fewer levers to pull to prepare for risky outlooks. But we can still build resilient portfolios that allow us to engage in market upside but protect against the downside risk. We started that process in 2019 – and detailed the actions all investors could take to build resilient portfolios in our Oreana 2020 Medium-Term Outlook.

Know your objectives

It is harder to prepare for uncertainty like the impact of Covid-19. We don’t know how to fully quantify the potential impacts. So as investors we should focus on what we do know. And that is our investment objective. What return do you want to achieve over the long-term? How much risk are you willing to take? How long is your time frame for those risk and return objectives – are you close to retirement (probably can take on less risk) or just starting out (probably can take on more risk)?

Review your risk

The answers to those questions will help you decide how much risk you can adopt, even in the face of a truly uncertain outlook like Covid-19 is presenting. Our observation has been that many retail investors have more equity risk in their portfolios than is required to meet most sensible investment objectives. For example, a cash plus 4% return objective could have been achieved in a equity/bond portfolio over the past 20 years with just 73% exposure to equities. Over the past 5 years, that could have been achieved with a 15% exposure to equities. If the current uncertainty around Covid-19 has you worried, review your portfolio risk. You may have too much.

This presentation material and all the information contained herein is the property of Oreana Financial Services Limited (OFS), and is protected from unauthorised copying and dissemination by copyright laws with all rights reserved. This presentation material, original or copy, is reserved for use by authorised personnel within OFS only and is strictly prohibited from public use and/or circulation. OFS disclaims any responsibility from any consequences arising from the unauthorised use and/or circulation of this presentation material by any party. This presentation material is intended to provide general information on the background and services OFS. No information within this presentation material constitutes a solicitation or an offer to purchase or sell any securities or investment advice of any kind. The analytical information within this presentation material is obtained from sources believed to be reliable. With respect to the information concerning investment referenced in this presentation material, certain assumptions may have been made by the sources quoted in compiling such information and changes in such assumptions may have a material impact on the information presented in this presentation material. In providing this presentation material, OFS makes no (i) express warranties concerning this presentation material; (ii) implied warranties concerning this presentation material (including, without limitation, warranties of merchantability, accuracy, or fitness for a particular purpose); (iii) express or implied warranty concerning the completeness or relevancy of this presentation material and the information contained herein. Past performance of the investment referenced in this presentation material is not necessarily indicative of future performance. Investment involves risks. Investors should refer to the Risk Disclosure Statements & Terms and Conditions of the relevant document for further details. This material has not been reviewed by the Securities and Futures Commission of Hong Kong.

Melbourne
Level 17, 627 Chapel Street, South Yarra, Melbourne, Victoria, 3141
Australia

T +61 3 9804 7113
F +61 3 9804 8377

Please email your request to
info@oreanafinancial.com

Sydney
Level 3, 31 Alfred Street,
Sydney, NSW 2000
Australia

T +61 3 9804 7113
F +61 3 9804 8377

Please email your request to
info@oreanafinancial.com

Hong Kong
Suite 1002, 10th Floor
Cambridge House, Taikoo Place
979 King’s Road, Quarry Bay, Hong Kong

T +852 3185 0200
F +852 2110 0736

Please email your request to
info@oreanafinancial.com

A Licensed Financial Firm

In Hong Kong we are licensed by the Securities and Futures Commission (license no. AHX191), the Insurance Authority (license no. FB1443) and the Mandatory Provident Fund Authority (license no. IC000563). 

In Australia we are licensed by the Australian Securities and Investments Commission (AFSL No: 482234, ABN 91 607 515 122).