Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 483

It's time to question investment truisms

For almost all of my working life, we've been able to hold onto a handful of truisms about investment. Expressions like ‘time in the market not timing the market’ become investment adages because their truth endures through the ups and downs of the cycle.

But sometimes, as Jim Callaghan noted about politics in the 1970s, there is a sea change about which we can do nothing, and which is only clear in hindsight. In investment, the most famous of these may have been the start of the so-called ‘cult of the equity’ in 1956 when George Ross Goobey, the manager of the Imperial Tobacco pension fund, made the then radical claim that shares offered better inflation- and risk-adjusted returns than bonds.

He was right and the rest is market history.

Looking for the equivalent sacred cows today, I was unsettled to discover just how many things I could list about investing that I used to believe unreservedly and about which I’m now not quite so sure.

1. Balanced fund durability

First on my list is the foundational belief that dividing your portfolio between shares and bonds will always smooth your investment journey, ironing out the peaks and troughs and helping you sleep better at night. This year has been a shocking reminder that in certain circumstances (think high inflation and central banks prepared to risk recession to get it under control) both bonds and shares can perform extremely badly at the same time. The last ten months or so have tested the reassuring idea that when one of these two asset classes falls the other tends to rise. Risk averse investors who have sought the shelter of a traditional balanced fund are quite reasonably asking their advisers what has just hit them.

2. Gold as an inflation hedge

The next myth recent events have skewered is that gold is a hedge against inflation. This illusion gained traction in the 1970s when the precious metal performed well alongside sharply rising prices but there is more correlation than causality at work here. The truth is that gold performs well when inflation is higher than interest rates and bond yields. Then, the metal is forgiven its most glaring disadvantage, the fact that it does not pay an income.

Negative inflation-adjusted or real yields are the key to a rising gold price. These are often associated with periods of high inflation but not always. Today’s rapid swing from negative to positive real yields and the associated underperformance of gold this year make the point.

3. Growth investing

The third truism is a more recent arrival in the conventional wisdom and this year’s reversal of it might be seen as a return to a more durable fact of investment. The cult of growth, most obviously the outperformance of technology shares in recent years, has run into the sand as rising interest rates have changed the arithmetic of discounted cash flow models that put a high value on future earnings. Investors are once again looking for the bird in the hand that less exciting but steady cash generators and dividend payers can offer. Twenty years ago, we were reminded by the crash that shares on low multiples of earnings or assets, or which paid a high and sustainable income, were worth more than the market often acknowledges. I suspect we are relearning that today.

4. China to rule the world

A final investment truth that has dominated market thinking for years but has been undermined by recent events is that China will in due course be just like America but bigger. Beijing’s recent prioritisation of ‘common prosperity’ over economic growth confirms that China has long since given up slavishly following the western development model. Ten years ago, the relentless growth of the Chinese middle class and their journey through the acquisition of household goods and towards the consumption of leisure and financial services still looked like a one-way bet for investors. A property bubble, regulatory squeeze and Zero-Covid policy later, things look harder to navigate.

What does all this add up to? In some ways a more difficult backdrop than was in place during what we will come to see as a golden age for investors. But also, I hope, a period ahead in which there will be opportunities that have been lying dormant for many years. There won’t be a shortage of ways to make money in the markets in future or to protect its value; we will just have to look for them in different places.


Tom Stevenson is an Investment Director at Fidelity International, a sponsor of Firstlinks. The views are his own. This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL 409340 (‘Fidelity Australia’), a member of the FIL Limited group of companies commonly known as Fidelity International. This document is intended as general information only. You should consider the relevant Product Disclosure Statement available on our website

For more articles and papers from Fidelity, please click here.

© 2021 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited.


November 11, 2022

The perception that one needs a financial advisor and that a bespoke retail fund outperforms an industry fund is deeply entrenched. Is there any truth to this perception or have we all been trained to believe it?

November 11, 2022

Agree. My wife and I have done very well from our investments in Australian Super over the past 10 to 15 years. When we did rely on financial advisers, we inevitably lost money.

November 14, 2022

Thanks. I am in a quandary over this. My new advisor is facilitating my personal control over SMSF funds and I’m asking what evidence they have of investment returns but they are evasive. I can see all the industry returns so why aren’t private advisory funds required to do so?

SMSF Trustee
November 14, 2022

Trent , you're just talking to the wrong adviser. All the ones that I know include returns data in their statements of advice. Glen, please give more evidence to explain what you've experienced. What you've said slanders an entire profession based upon what? How many advisers have you dealt with? What do you mean by "lost money"? What do you mean by "every time"? Did you see the recommended strategy through over the time horizon agreed or did you just happen so start at the beginning of a bad year in the markets, bail out early, take a loss and blame the adviser? You might have been poorly advised but that is not the typical experience of clients with advisers so I'm curious why it happened to you.

November 10, 2022

Expressions like ‘time in the market not timing the market’

what about the expression "Past performance is not a predictor of future performance"

Well that seems to be applied only to financial performance.

Why do they select Steve Smith for the Australian cricket team and not me (if "Past performance is not a predictor of future performance")?

Why is it when we are interviewing for an employee we ask "what have you done in the past?"

Graham W
November 10, 2022

Tom says that gold is not a hedge against inflation and I cannot agree at all. A dollar in 1970 has lost 92% of its purchasing power. An ounce of gold in the seventies was worth $35 and now is worth around forty times more in today's money. Definitely this is not a myth Tom, but a big miss by Fund Managers. The cynic in me makes me think that Fund Managers have always avoided putting gold bullion in a balanced portfolio as they would be hard pressed taking a management fee on this part of their funds under management.

November 11, 2022

I think you've compounded one side of the equation and deflated the other Graham.
Average wages in 1970 were A$50 a week.I don't know what exchange rates were but if we say that 1 ounce of gold was A$50 then you worked a week for 1 ounce of gold. Today average wages are around A$ 1830.An ounce of gold is A$ 2400?.You work just over a week for 1 ounce of gold Could this be weakness in the A$ v US$ at the moment.
An easier way gold hit US$ 850 in 1980.So gold has roughly doubled in 42 years,and no income.Or AXJOA was A$ 1000 in 1980,roughly the price of ounce of gold?Today AXJOA at around $84000,gold @$2400?
On Monday would you spend $84K on gold,or $84K to buy the index.

Graham W
November 12, 2022

Definitely the gold as I expect it will outperform the share market by a minimum of twice as much.


Leave a Comment:



When is the right time to pull the plug on an investment?

How to invest in funds for free (almost)

The when and why of four million Australian retirees


Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates


Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.


On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.


Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.


Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.



© 2024 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.