Summary
- Investors should review their portfolio asset allocation and loss tolerance during periods of high oil prices, high inflation and a weaker won.
- Allocating 5%%-10%% of total assets across gold ETFs or gold-bar trusts can provide a buffer during periods of inflation.
- Investors should diversify 15%%-20%% of their assets into dollar assets and cash-flow assets through dollar MMFs, U.S. bond ETFs, REITs, infrastructure funds and dividend-stock ETFs.
Forecast Trend Report by Period
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Hold 5%-10% in gold and 15%-20% in dollar assets
They can serve as buffers against inflation and currency risk
REITs and dividend-stock ETFs are also worth considering
For South Korea, which relies heavily on energy imports, high oil prices can quickly translate into faster inflation, a worsening trade balance and weaker corporate profitability. For individual investors, the key question is how to protect their assets.
The first step is to review the portfolio. Many investors are heavily weighted toward deposits and savings accounts, domestic equity funds and local bond products. That mix may be adequate in normal times. But when high oil prices, high inflation and a weaker won arrive together, those holdings can all come under pressure at once. Investors should check their allocations by asset class and their tolerance for losses, while making sure they are not overly exposed to any one country or asset group.
Gold is worth holding as part of the mix. When oil prices rise and inflation expectations climb, gold often gains as well. Allocating 5%-10% of total assets across gold exchange-traded funds and gold-bar trust products can provide a cushion when markets turn volatile.
Dollar-denominated assets can also help hedge currency risk. In periods of high oil prices, the won often weakens. Holding dollar assets can help preserve portfolio value when the U.S. currency strengthens. A practical approach is to put about 15%-20% of total assets into relatively stable dollar products such as dollar money market funds and U.S. bond ETFs.
Cash-flow assets that tend to hold up better during inflation are also worth considering. Even if deposit rates are 3% a year, a 4% increase in consumer prices still leaves investors with a negative real return. REITs, infrastructure funds and dividend-stock ETFs can provide regular cash flow through rents, toll revenue and dividends.
Investing is not about predicting the future, but about preparing for uncertainty. Rather than concentrating in a single asset, investors should spread their money across a balanced mix. That is the asset-allocation strategy that can help them withstand an era of high oil prices.
Kim Mi-jung, PB, KB Kookmin Bank Busan PB Center
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
