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ARC: Inflation has set private client portfolios back to 2016 levels

Real wealth has fallen by 15% from 2021 peak

Graham Harrison


Analysis from Asset Risk Consultants (ARC) has found inflation has sent the real value of private client portfolios back to where they were in 2016.

The researchers noted that despite the FTSE 100 reaching a fresh high and inflation falling suggesting investors may be doing well again, analysis reveals the reality is very different.

Adjusting for inflation, most private client portfolios are back to levels seen eight years ago, ARC said. The typical sterling private client investor’s real wealth has fallen by 15% from its 2021 peak.

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In order for this inflation adjusted peak to be restored, returns need to average 7.3% over next 10 years, according to ARC’s calculations.

A major factor in the downturn was the re-adjustment of bond yields in 2022 as rates rose that resulted in a one-time downward shift in the wealth of investors.

ARC said investors should consider “tightening their belts” and reducing withdrawals while portfolios recover.

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The chart below plots the ARC Sterling Steady Growth Private Client Index since inception against a trend line of inflation plus 4% per year. It is based on the most common risk profile run by discretionary investment managers.

Graham Harrison [pictured], ARC Group chairman, said: “The typical sterling private client investor needs to accept that their real wealth has fallen by about 15%. Thinking that recovery in nominal terms means their portfolio is back on track is accepting an illusion.

“This may make an investor feel more comfortable when their portfolio recovers to a previous numerical high, but the ‘real’ question is at what point previous purchasing power recovers.” 

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“Over the past decade, the optimal portfolio consisted solely of equities, a viewpoint encapsulated in the acronym TINA – there is no alternative – as equities were driven ever higher by excess liquidity and bond yields moved to ultra-low or even negative levels,” he continued.

“The 2020s are surely going to be the decade when TARA – there are reasonable alternatives – once again comes to the fore. The return of positive real interest rates in bond markets means that multi-asset class investing should once again offer both risk diversification and positive real returns.”

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