After the ‘Big Bond Reset’ of 2022 and the associated fallout in global financial markets, we could witness a very pleasant and highly rewarding recovery in 2023. All major asset classes achieved positive returns. In some cases, such as global equities and global high yield bonds, we could even witness high double-digit returns.
Long term investors will know that bad years are normally followed by better years, unless there are fundamental shifts, such as the ones we can currently observe in China.
Whilst 2023 brought about better bond market returns, they were still not sufficient to make up for the losses of 2022. Higher current yields and a normalising inflation environment should ensure, that all losses will have been recouped in the not-too-distant future.
As bond markets have normalised and can’t be considered expensive anymore, we’re witnessing very high valuations in global quality large capitalisation and technology stocks, which may need some adjustment to return to realistic valuation levels.
I’m very happy to present the sixth 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 to meet short term revenue goals, not achieve 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 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 produce 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 and cash flows.
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 have therefore established 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 2023 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!
