17 Jul 2026
The investment landscape has changed. With higher-for-longer interest rates, geopolitical uncertainty and shifting investor expectations, Graham Folley examines how model portfolio managers can navigate multiple potential outcomes while helping clients stay focused on their long-term goals.
The near zero-base rates seen between 2008 and 2022 were a major factor behind the returns enjoyed by model portfolio investors over the last 15 years or so. However, of more importance today is whether base rates of a historically more normal level will demand a different approach by portfolio managers as we move forward.
Investors themselves certainly appear to be concerned about the investment climate and where their returns will come from. Advisers are telling us that clients are increasingly bringing up inflation and the cost of living in their conversations. What’s more, there is a nervousness about geopolitics and what these tensions mean for the future and a growing fear that there’s probably going to be a large and damaging market correction at some point soon.
This is certainly being borne out in industry data – a significant chunk of change went into money market funds in the first quarter. But, in the cold light of day, could these concerns lead to poor decisions? Are any potential actions solving the wrong problem at the wrong time?
Firstly, let’s define investment. In its purest form, investing is deferring consumption – putting money aside and investing it so you can buy more goods in the future. Obviously, this only works if your returns are going to be greater than inflation – generally, cash on deposit doesn’t deliver on this front.
Prices could be ticking up, though. So, what should you be looking for in a portfolio in order to combat higher-for-longer inflation? Some investments are better than others at combatting the effects of inflation. However, these same investments may not be as beneficial when the expected inflation spike fails to materialise.
If you have convinced yourself that a market sell off is imminent and that correction will be large, then the rational investor would, of course, act now and take risk off the table in whole or in part. But what if this scenario doesn’t happen? What if other, less immediate and obvious scenarios play out? What then? And what if, despite the cascade of newspaper and social media headlines, geopolitics doesn’t affect markets in the way that our gut instinct is saying it will?
So, what we have is a combination of feelings and vibes that could lead clients to be diverted from their goals. While the more doom-laden prognostications are obviously possible, are they probable and does a reaction to them lead to what could euphemistically be termed sub-optimal outcomes?
Another possibility is that we end up with a market that delivers below average returns for the next decade. What do those clients who elect for ‘safety’ do in this scenario? Will they end up hoping and praying for an elusive sell off that could come far later than they expect and with a market bottom at a far higher level than when said safety was sought?
This is a tricky time when feelings, recency bias and a very noisy media environment can cloud judgement – some might say that reality is being trumped by a world that is more volatile, uncertain, complex and ambiguous.
As a consequence, model portfolio managers (and the advisers that use them) should be appraising what brought success in the years following the financial crisis – and probably asking themselves (if their investment mandate or strategy allows it) whether a change in approach is needed. The uncertainty and ambiguity surrounding future returns needs to be addressed as a reality. The complexity of the new environment and the ongoing short-term volatility of markets will be with us for the foreseeable future. So, portfolio managers need to embrace the fact that they are planning for multiple outcomes and not shy away from transparently communicating what they have done, what they are doing and what they could do.
Transparency is more important than ever. Customer understanding is one of the four pillars of the Consumer Duty. Clients need to be kept informed on how their portfolios are positioned against the risks and events that concern them. As outlined above, portfolio managers should be able to demonstrate that they have the structure and tools in place to deal with all potential outcomes and the structure, flexibility and ability to execute quickly and efficiently should some outcomes become more probable than others.