Most investors have been favouring equity for the last 2 years. Recency bias nudges investors to think that equity is the only asset class to bet on. It is this bias that kept investors from buying gold. Investors thought that gold would not do well. The post-COVID rally in cryptos spooked the prospects of gold and added to that conviction. But that conviction has proved to be short-lived, and gold did exceptionally well in 2022. Today that same negativity is seen in debt investing.
Investors think that debt investing is uninteresting and debt returns are less exciting. Investors’ preference for equity is an extension of this dislike towards debt. This dislike for one asset class is being turned into a preference for another asset class.
Traditional debt investors entering equity markets are now only chasing past returns. This may not be a bright idea. It is time for traditional debt investors who entered the equity market to gradually go back and build strong debt portfolios.
2023 will be a year of multi-asset investing. Only a reasonably well-balanced portfolio has the chance to beat inflation. Slow earnings growth poses a risk to equity valuations. Betting only on equity would not be the best thing for an investor to do. The best approach for an investor is to have a little bit of – equity, gold, debt and global. Maintaining a healthy balance of all asset classes will go a long way in helping investors journey safely towards sustainable wealth creation.