Global sharemarkets have been remarkably resilient in 2024 despite stickier inflation and higher interest rates. After last week’s US election in which Donald Trump claimed victory, the S&P500 has now notched up its 50th all-time high in 2024.

Late 2023 saw optimism grow that the Federal Reserve would be cutting rates sooner and the market rallied. However, 2024 has been “same, same but different” with rising markets against a backdrop of higher rate expectations. After an aggressive hiking cycle by the Federal Reserve, interest rates are normalising, and fixed income has again become attractive with interest rates currently exceeding inflation. However, this has not made putting money to work any easier.

Although it has been on the mind of investors for some time, many face the increasing challenge of effectively deploying capital in what could be perceived on the surface as a fully valued global equities market.

We are often introduced to clients after a liquidity event and are engaged to advise on the task of deploying their capital as part of a strategic plan. In our experience, the following framework has served clients well during these scenarios, particularly on the back of a period of strength in global investment markets.

(1) Establish a long-term asset allocation: Begin with a personalised asset allocation that accounts for risk tolerance, liquidity needs, lifestyle goals and return objectives. This should also include a portion for alternative investments, beyond traditional equities and fixed income.

(2) Develop a timeline for investment: Once the allocation is set, create a plan for how to invest in each asset class. Fixed income investments can generally be deployed immediately, while equity investments could be made gradually, over a set timeline, to take advantage of market drawdowns which average around 13% within each 12-month period. ‘Dollar-cost averaging’ can reduce the risk of buying at market highs.

(3) Select passive investments with caution: Be cautious with passive investment options, particularly large cap equity indices, which are heavily skewed toward large-cap growth stocks. The Magnificent 7 (Apple, Microsoft, NVIDIA, Alphabet, Amazon, Meta, and Tesla) have accounted for close to 50% of the S&P500’s total gains for the year. Consider an active approach to equities management which has the potential to screen in and out companies based on valuation. Partnering with the right active manager is critical.

(4) Achieve superior diversification through alternative investments: Alternative investments fall outside the traditional asset class categories such as equities or bonds. Examples of alternative investments include private equity, venture capital, real assets (including direct infrastructure, agriculture, and commercial property) and hedge-funds. Alternative investments are generally less correlated to traditional asset classes meaning the price movements from these assets do not closely follow the same trend or direction as traditional assets. Therefore, diversified portfolios with an allocation to alternatives should better withstand market corrections and minimise the impact of portfolio drawdowns.

From a psychological perspective, deploying a significant level of capital is never easy. The key to success lies in having a well-structured plan and sticking to it, even during times of market uncertainty. In our view, investors should focus on long-term horizons (at least 5 to 10 years) to smooth out volatility and increase the likelihood of compounding returns above inflation. By doing so, investors can stay on track to meet their financial goals.