Echelon - July 2018

What’s the right way to forecast for the long-term?

In 2018, the yields on cash and government bonds have diverged from inflation in a marked way. As a result, real returns on fixed income assets continue to offer a decent return. Forecasts for a quick turnaround in equity are pretty downbeat. On average, listed company profit growth has barely kept pace with inflation. Fixed income yields have been comfortably higher.

With yields on cash (bank deposits), fixed income and real estate so high, many investors have ignored the long-term potential of stocks. Over the last few years, a strategy focusing on real returns ahead of one taking advantage of low equity valuations has been vindicated.

However, we are all prone to making basic investment errors, like allowing fund managers’ past performance or the performance of those asset classes that have done well to determine decisions about future investments. A sensible approach to long-term investing is to assess potential returns of various asset classes, match those against the financial aims of an investee and allocate accordingly.

We have sought out star analysts and fund managers for this issue. We weighed their past performance in selecting to speak with them and explored historical data to paint this picture about the future potential of asset classes. In some ways, we yielded to a basic investment error of looking at past performance.

More than a dozen of Sri Lanka’s finest shared their views for this, Echelon’s annual Retire Rich edition. We hope you will find a compelling discussion about investing for the long term in this issue.