2 Big Reasons The Investing Playbook Is Outdated
Back in 1909, when radio was still in its infancy and steam ships were big news, the U.S. replaced Britain to become the economic leader of the century. The world’s financial headquarters were officially in New York, not London.
Globalization shifts power to the east
However, in the 21stCentury, especially during and after the Great Recession, we have experienced a shift in world economic power from west to east. The U.S. and Europe have clearly seen economic trouble and the center of power has moved further east to make cities like Beijing and Shanghai new global economic hubs.
The growth of technology and the acceleration of globalization has resulted in greater interconnection of global markets through a boost in communication and better awareness of the opportunities present in different corners of the globe.
This has led to both opportunities and challenges as division of labor enhances efficiency but competition grows. With access to global markets, everyday investors can tap into larger and more diverse markets. Using an unprecedented wealth of information, investors can effectively assess investments across a multinational portfolio.
Climate change matters to consumers
Climate change has also had an effect on how investors prepare for the future, calling on all companies to be more active in preserving the environment. Whether voluntarily or not, many companies have heard and responded to the call.
While climate change continues to make headlines across the world, a keen observer may notice that it has very little (if any) coverage in traditional investment books. The modern investor must take climate change into account when making investment decisions.
The Principles for Responsible Investment (PRI) released a guide to help investors reduce emissions in their portfolios. The paper, titled Developing an Asset Owner Climate Change Strategy, states thats, “Response to climate change must be tailored to an asset owner’s investment approach and asset class mix. This could involve: Measuring a portfolio carbon footprint; engaging with policy makers and companies on transitioning to a low carbon economy; and accelerating newer forms of investment.”
Where’s the good news for the modern investor?
When investing in the 21stCentury, there are two main things to keep in mind. One is that the investing playbook is very outdated because of the dramatic shift in financial power towards the east. If you’ve never looked into Asian stocks before today — now’s your big chance. Savvy investors can still seize opportunities that accompany global change and stride the wave of growth.
The energy market is also completely transforming, and the word “clean” has a lot to do with it. Where once we spent all our time and money on oil investments, everyone is now moving their money to alternative fuels that preserve and protect the environment. For the 21stcentury investor to succeed, they have to recognize the changing times, commodities, and technologies that surround them.
The second thing to keep in mind is that diversification remains the smartest way to go. If the financial crisis taught investors anything, it’s that keeping all your eggs in one basket is a terrible idea unless you’re prescient. By diversifying portfolios, investors hedge their bets against uncertain times of growth, and a cushion to protect them as they go through various unanticipated peaks and troughs.
It’s also worth pointing out that add that the days when an investor left everything in the hands of their financial manager are gone. The modern investor has to be proactive in managing their own funds — even if they are going to hand it off to someone else — and know all there is to know about their investments and the risk they carry.
Invest like it’s the 21st century
We’re already almost two decades into the 21st century, but we have to look even further ahead at the potential opportunities and challenges in years to come. We must reflect on past events and the opportunities we’ve already missed. Generally, the future looks very bright. But only if we’re willing to let go of some of our 20thCentury investment habits.
Originally published at troydixon.com on July 12, 2017.