In a September memo, Oaktree Capital’s Howard Marks outlined six investment options for a “low-return world.” In a follow-up article from Bloomberg, author Ben Carlson presents the pros and cons related to what he views as the best three on the list:
- Invest as you always have and settle for today’s low returns–
- Pro: It’s simple for investors to stay the course and adjust expectations.
- Con: The low returns resulting from this strategy means that investors will have to adjust spending, saving, lifestyle and perhaps push back retirement.
- Reduce risk to prepare for a correction (and accept still lower returns) —
- Pro: Reducing risk offers options to take advantage of opportunities down the road.
- Con: “Extreme patience is required.”
- Put more into special niches and special investment managers –
- Pro: Niche investing can offer “uncorrelated return streams, provide downside protection or take an opportunistic approach to the markets.”
- Con: “It’s tough to find consistent sources of alpha in the markets because of increased competition, high costs and lack of access to the best money managers.”
Carlson concludes, “There are no right or wrong answers here, but Marks’ idea of combining different strategies seems like a prudent form of risk management.”