DFO Yearbook — 2022

2022 was a historic year in that it has seen the biggest bond bear market of our lifetime. Maybe historians will use words like ‘Bond Bubble Burst’ or the ‘Big Bond Reset’ to describe a market, in which global bond market aggregates lost more than 15% of their value. These are losses that couldn’t be witnessed in more than 100 years. The good news is that the massive overvaluation of global bond markets should now come to an end. The same goes for the experiment with negative interest rates, which lasted for almost a decade.

As global bond and equity valuations look more reasonable, now is actually a good time for investors to build sustainable portfolios comprised of quality bonds and stocks. Even the heavily criticized ‘60/40 Portfolio,’ which has long suffered from the fact that its fixed income component was much too expensive and prone to a brutal correction, should now benefit from both, sensible stock, and bond valuations.

I’m therefore very happy to present the fifth edition of our DFO Financial Yearbook, which presents long-term risk and returns of a large group of relevant asset classes. Apart from individual asset class portraits, it also includes stress tests and timeless investment wisdom to provide a robust context for long term investors. I was long wondering, which realistic long term returns I should strive to achieve in public stock and bond markets. In the 1990s such information was very difficult to attain, and even today you need to look hard to find it. Most clients of private and priority banks will not receive such information from their relationship managers or strategy groups, as it’s just not something they focus on. They need short term revenues, not long-term investor success. Sad but true.

Das Family Office is keen to shed light on the fact that long term returns essentially range from the inflation rate, which on average was about 2% p.a. in the last few decades, up to about 10% p.a. for global shares of small company stocks. These are actually very attractive returns, but only if investors keep their nerves, when markets are tough, they will be able to compound their savings at such attractive rates. In the absence of a cool mind, investors will

change, reshuffle, or sell their investments at the wrong time and go in circles with uninspiring outcomes. Disappointment breeds frustration and scepticism whether long term investing is even worthwhile. I have seen this time and again, which is why I’m keen to help producing better outcomes.

Our DFO Financial Yearbook shows very clearly, that patient long term investors, who are focusing on sensible and globally diversified strategies, don’t lose money, beat inflation, and enjoy attractive equity risk premia, no matter the size of their individual wallet. All it takes is to combine global stock and bond investments in a way that fits your individual context. Whilst we do our best to help clients manage their emotions, we can’t force them to stick to sensible investment (re)solutions. What we do know, is that global financial markets are generous to the sensible and patient investor. We therefore want to provide an investment framework, which helps to take better decisions. As we want to make sure that our information can be acted on, we’re only displaying indices that can be invested in, at low cost, using index funds or ETFs.

I hope that the 2022 DFO Financial Yearbook will help you understand certain facts better, so that you find the confidence to establish a sensible strategy and then stay the course. We will obviously always be at your disposal if questions arise!