Page 8 - FWP Wealth Adviser newsletter - Issue 117: August 2025

ISSUE 117
AUGUST 2025

Understanding the Global Currents: US Policy reduced risk. Yet, as the RBA and the Cboe “Redefining
1 Shifts and Australia’s Surprising Gains Portfolio Resilience” research note, today’s interconnected,
The US Dollar’s Decline and What It Means fast-moving global markets often defy these tidy formulas.
Over the past several years, policies coming out of the Bond yields remain historically low, and equity markets
White House and the US Federal Reserve have sent global are more sensitive than ever to external shocks—from tweets
currency markets into overdrive. Under the Trump admin- to tariffs to unexpected central bank moves. “In today’s
istration, the US dollar was weakened through frequent world, relying exclusively on old allocation models can
interventions and aggressive monetary stimulus, such as leave investors overexposed to the very shocks they seek to
quantitative easing—a strategy which involves central banks avoid,” cautions Cboe.
injecting liquidity by buying vast sums of government bonds
and other financial assets. While such moves were designed Modern Resilience: Diversification, Hedging, and Flexibility
to spur domestic growth, they’ve also made the US dollar So what are investors doing instead? Wealth Factory and
less attractive at a global level. other financial educators advocate for building genuinely
When the world’s reserve currency declines in value, diversified portfolios—not just across asset classes (shares,
investors everywhere feel the tremors. According to analysis bonds, property, cash, alternatives), but also across geogra-
from Firstlinks and Morningstar Australia, “global asset phy, industry, and even currency. For instance:
managers, including Fisher Investments, have been shifting • Alternative Assets: Adding commodities such as gold,
large tranches of capital” into countries perceived as sta- infrastructure funds, or private credit can offer inflation
ble, with Australia ranking high on the list for its resilient protection and new sources of return that aren’t tightly
banking sector. correlated to shares or bonds.
• Currency Hedging: Many Australians today use curren-
The Impact Down Under: CBA as a Case Study cy-hedged exchange-traded funds (ETFs) or even options
The Commonwealth Bank of Australia’s share price is and forward contracts to limit their exposure to US dollar
a prime example. “Driven by the search for safe havens,” swings—a tool that was once reserved for large institu-
notes Morningstar, CBA has seen its equity value rise as tions but is now widely accessible via retail brokers.
international investors pour in billions seeking stability and • Dynamic Positioning: Rather than setting an allocation
consistent yield. The Reserve Bank of Australia (RBA) has for years to come, successful investors are reviewing
connected these flows to “heightened global risk aversion, their mix more frequently, reacting to changes in eco-
trade frictions, and the relative appeal of strong, well-capi- nomic signals, political risk, and market opportunities.
talised home-country banks.”
While Australians might not control the White House or As Cboe’s analysis puts it, “Portfolio resilience now
the Fed, these global patterns show up directly in our super- means being prepared not just for volatility, but for the kind
annuation balances, property values, and the strength of the of non-linear shocks that define the modern financial era.”
AUD. Understanding these linkages is critical to making wise
investment decisions, as what happens in Washington and Practical Strategies for
on Wall Street truly doesn’t stay there. 3 Australian Investors
3.1 Diversification: Reaching Beyond the Familiar
Broader Economic Context: Beyond Banking Australian investors have often shown a “home bias,”
It’s not just Australia’s banks that benefit. Real assets, placing the lion’s share of their wealth in local shares and
infrastructure, and even certain segments of the real estate property. While trust in our banks and property sector has
market become more appealing when foreign capital search- been well placed so far, this approach can also add risk. For
es for safe, stable yields. This reallocation of investment example, if the local market stumbles—or, conversely, if
can buoy a broad range of Australian assets—even as it adds the Australian dollar surges, reducing the value of overseas
complexity to managing personal wealth, given the possibil- investments—returns could be instead limited or volatile.
ity of new bubbles or overheated markets. JoyRulez’s tips for managing volatility suggest consider-
ing global diversification through:
Why Traditional Investing Wisdom Needs a • International Shares: Via managed funds or ETFs that
2 Modern Update track major global indices (such as the S&P 500, MSCI
The 60/40 Portfolio: A Retrospective World Index, or emerging market baskets).
For decades, Australian investors have been taught that • Commodities and Real Assets: Funds that invest in infra-
a portfolio split between 60% shares and 40% bonds is the structure, gold, or other real assets can provide a cushion
golden mean: a recipe for steady, long-term returns with against inflation and market shocks.

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