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March 3, 2024
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Alternative Investments

Going beyond 60:40 with alternatives: analysis from The Royal Mint’s Steve Jones 


Written by Steve Jones, Business Development Manager in Wealth Management at The Royal Mint 

In times of economic instability and uncertainty, investors frequently reassess and recalibrate their investments to safeguard their portfolio against potential risks.

This is often prompted by various drivers, such as rising systemic events and turbulence in the stock market, which can create pressure for investors to divest their assets. 

 

 

The current financial landscape is characterized by economic uncertainty, rising concerns about a global recession, and volatile financial markets. These circumstances have forced many to reconsider their financial situation and investment strategies this year. Our research shows that a significant majority (63%) of UK investors have expressed heightened concerns about the risks and returns associated with their investments since the onset of the cost-of-living crisis. 

While choppy investment markets can create a selling frenzy, it also pushes more investors to consider whether their portfolio is positioned to benefit over the long-term. Prioritising long-term growth over short-term market movements can enable investors to ride bumps in financial markets and give investments enough opportunity to grow over multiple years. 

Our data shows that 26% of investors surveyed were motivated to invest in alternatives investments such as gold and property because they want to build their wealth over the long-term. We explore why assets traditionally viewed as ‘alternative investments’ appeal to investors looking to build wealth and secure better returns in the long run. 

 

The art of portfolio balance 

The 60:40 investment portfolio, allocating 60% of a portfolio to stocks and shares and 40% to fixed income, has been the traditional playbook for asset managers. However, in the current period of high inflation and high interest rates, the correlation between these assets has been put to the test by markets. Blackrock research shows that over the last two years, the 10-year US Treasury yield has, on average, delivered negative returns on days when equities have fallen. 

As investors increasingly look to construct resilient and durable portfolios, many are considering non-traditional investments and broader opportunities to target returns over the long-term. By including non-traditional asset classes in their portfolio, it provides an opportunity for investors to diversify their portfolio and spread their investment risk. 

 

With low correlation to traditional asset classes, alternatives can be a beneficial way to diversify your portfolio and avoid overexposure to any one particular asset class. The World Gold Council now suggest putting around 2–10% of a portfolio into the ‘safe-haven’ of investment gold in order to benefit from portfolio diversification.

Discovering the path to long-term returns 

The average rates on one-year and longer-term fixed rate bonds, and fixed-rate ISAs have tipped over 5% for the first time since 2008. However, our research shows that nearly three quarters (71%) of UK investors are now looking for better returns from their investments because high inflation is eroding the value of their returns. Our research also indicates that many investors are turning to alternative investments during this period to enhance the total return of their portfolio through access to a broader base of investments. While cash savings are returning 5% with little risk in an environment where inflation is above 6%, investors are increasingly willing to look for greater returns despite the higher risk that comes with investing. 

 

So far this year, gold has returned 1.4% to investors (GBP per troy ounce) but in the long-term, the asset has delivered annualised returns of 10.3% over the last 20 years (figures as of 21st September). This compares against UK stocks which have delivered annualised returns of 5%, and returned 1.4% this year. Last year at The Royal Mint, we saw a near 26% uplift year-on-year in the volume of gold investments as investors increasingly move into precious metals to improve the returns profile of their portfolio. Gold is now becoming a more mainstream investment choice for many UK investors. 

Pragmatism amid uncertainty 

In order to navigate periods of economic uncertainty, many investors are constructing portfolios that are resilient and durable. By diversifying investments and avoiding overexposure to a single asset, the chances of achieving consistent portfolio growth over the long-term are greatly enhanced. As investors prioritise long-term wealth creation, they are pragmatically turning to investments like gold and other precious metals to bolster their portfolios.

 



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