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  • Writer's pictureRealFacts Editorial Team

Time For Risk-On Investing

Seema Shah, Chief Global Strategist at Principal Asset Management

During Bloomberg Markets: The Close, Romaine Bostick conducted an insightful interview with Seema Shah, Chief Global Strategist at Principal Asset Management. During the interview, Shah was asked about the optimal asset allocation mix for the current market conditions. She responded, “The key thing here is that this is a solid economy, so you should be risk-on. This is the time to be diverting away from cash if you've been sitting there. There are a ton of opportunities." Risk-on investing refers to a strategy where investors actively seek higher returns by embracing riskier assets during favorable economic conditions. 

In contrast, risk-off investing prioritizes safety and capital preservation by favoring safe-haven assets during uncertain or challenging times. Shah's perspective is clearly optimistic about the markets, suggesting that it's an ideal moment to allocate considerable funds to the equity markets. While Shah holds a bullish stance on equities, many investors have favored risk-off investments in recent months, as evidenced by the substantial $6 trillion currently allocated in money market funds. However, this significant pool of funds could potentially serve as a catalyst for upward movement in the markets if investors opt to transfer this capital into equities. 

While Shah advocates for risk-on investing, she remains aware of the potential dangers present in the current market environment. She specifically highlighted geopolitical tensions as a significant risk factor. Although she acknowledges geopolitical tensions as a potential risk, she emphasized, "It's one of those things that you can't really time, so we have to focus on the fundamentals."  The fundamentals she pointed to include robust equity fundamentals and resilient credit conditions. 

Investors should also be mindful of how inflation is affecting their returns. Shah suggested potential hedges for inflation, stating, “You want to make sure that you're having real returns. Start thinking about real assets, like commodities, infrastructure, and real estate, those are areas that will give you that protection.” Real returns represent the actual gains or losses on an investment after adjusting for inflation. Besides the areas Shah highlights, historically, equities tend to offer higher returns, thereby contributing to some degree of inflation mitigation.

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