It’s easy to think that building investment portfolios was a lot easier in the 90s.  Yet in that decade all markets gyrated with substantial volatility at times. It’s instructive to reflect on some of the major financial events of that decade:

 90s Rock and Roll!

  • 1990/91 Recession in Australia (the last ‘official’ recession we for Australia)
  • 1990 Official cash rates at 18 % p.a.
  • 1990 Collapse of the unlisted property trusty sector
  • 1990 Corporate ‘high flyer’ collapses (Bond – Christopher Skase et al)
  • 1990 August, Iraq invasion of Kuwait = plummeting global share prices + skyrocketing oil prices
  • 1991 Gulf War
  • 1993 36% total return (price appreciation + dividend) for the Australian All Ordinaries Index
  • 1994 Global bond market crash
  • 1997 South East Asian currency crisis
  • 2000 The bursting of the ‘Dot Com’ (Information Technology companies) bubble

Those big issues notwithstanding, generally speaking, portfolios which had some exposure to Australian and international shares did quite well over the decade.

At a time when two decades of 10% per year average Consumer Price Index (1970-1990) was still echoing in the back of the cash register, it wasn’t that difficult for investors to derive capital growth (to help cope with the erosion of purchasing power by inflation) and a reasonable income.

‘Normal’ interest rates were very high by today’s conditions and exorbitantly high at the start of the 90s. Dividends were commensurate with todays and property rental yields were generally above (excluding residential) were above 5% p.a.

A well-designed, strategically balanced, portfolio could deliver what typical retirees needed – an income stream with the potential to grow over time and, for that peace of mind factor, a portfolio which could increase in value. There were times when it seemed (to the untrained eye) that all you had to do was put money in shares and you could ‘bank’ on it making capital gains.

Roll on through to the 20 teens and it’s a different ball game.

Same but different!

While the underlying fundamentals will always be the same i.e. only assets which can appreciate in value (such as shares and property) can deliver portfolio growth, the tactical application of such assets into portfolios is substantially different to the 90s.

The conflicted dynamics of debt-laden sovereign balance sheets (which act as both an economic and fiscal brake on a very large proportion of the global economy) versus the powerhouse, capital intensive, growth of the recent past in China and India, makes portfolio construction nowhere near as ‘bankable’.

Change all stations

I recall writing to my clients in August 2004 recommending changes to their portfolios because of what, it was abundantly evident (if professional advisers were taking the time to find the data and analyse it), was coming down the economic pipeline in the United States.  We reduced client allocations to international shares to less than half what it had been and within that we went underweight US shares.

It was a big ‘call’ at the time and one which took a few years to materialise however, it was in that period that it became clear to me that what worked in the 90s was by then history; that it would take at least a decade for the looming crisis to be wash through the global economy.

It meant that from then on there had to be an even greater focus on generating income – even for younger clients because in the absence of reliable portfolio growth at least consistent, tax efficient, income could be accumulated in their portfolios. Yet identifying investments that can generate, with reasonable reliability, consistent and competitive income – without too much risk – is quite difficult.

Next blog? Earlier in this blog I said that dividends in the 90s were commensurate to the 90s. That is to say the % income return on shares (the anticipated dividend as a % of the prevailing share price) were similar today’s dividends. But what’s not commonly identified by investors is the rising dollar values of dividends over time and it will be the subject of next week’s blog.  


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