For years, financial advisers have managed portfolios through the familiar ups and downs of the market cycle - corrections, recoveries, recessions, and rallies. But the environment we’re in now is different. This isn’t just another market phase; it reflects a structural shift in how economies and markets are behaving.
And with that comes a new era of risk - not only for portfolios, but for the advisers who manage them.
The World Has Changed — The Old Playbook Hasn’t
For decades, the Strategic Asset Allocation (SAA) model - the classic 60/40 split between equities and bonds - was the cornerstone of portfolio design. It was simple, stable, and for a long time, it worked.
That success, however, was built on a very specific type of world:
- Falling interest rates
- Predictable central bank policy
- Globalisation and low inflation
- Rising asset valuations across the board
That world has largely passed. We now face a different reality - one shaped by higher government debt, more persistent inflation, greater fiscal influence, and rising geopolitical tension. In this environment, the 60/40 portfolio is being asked to deliver outcomes it was not originally designed to produce.
The Evidence: Static Portfolios Are Falling Behind
A study by Schroders, “Why Strategic Asset Allocation Is Flawed”, found that even when long-term averages appeared reasonable on paper, SAA portfolios failed to hit their real-return targets nearly 50% the time over rolling five- and ten-year periods. In practice, this meant many investors spent extended periods playing catch-up after drawdowns that eroded their purchasing power.
More recent forward-looking data reinforces this challenge. John Hussman’s July 2025 market outlook estimates that the 12-year expected nominal return for the S&P 500 is just 0.6% per year - one of the weakest readings since 1929 and 2000. That estimate is before inflation. Once inflation is considered, expected real returns are meaningfully constrained.
The takeaway is clear: static portfolios are under increasing strain. They rely on relationships that are proving less reliable - such as bonds rallying when equities fall or inflation remaining anchored around 2%. These assumptions were shaped by a different era.
The Case for a More Dynamic Approach
A more flexible, forward-looking investment philosophy - often referred to as Dynamic Asset Allocation (DAA) or Total Portfolio Approach - has emerged as advisers are responding to this environment. It is not a rejection of long-term discipline, but rather an acknowledgement that flexibility matters more in certain environments than it once did.
DAA can provide advisers with:
- Greater flexibility as economic regimes change
- Improved risk control through active portfolio oversight
- A clearer narrative for clients, grounded in real-world conditions
In this sense, dynamic approaches allow portfolios to adapt - to align more closely with the environment rather than remaining fixed to assumptions formed in the past.
Why This Matters for Advisers
The risk for advisers today isn’t just market risk - it’s reputational and business risk. When portfolios underperform for extended periods, confidence erodes and relationships are tested.
Advisers now face three interconnected challenges:
- Client expectations remain anchored to historical return assumptions - outcomes are less certain using unchanged structures.
- Market behaviour has become less predictable - bonds and equities are moving together more frequently, weakening traditional diversification.
- Inflation has returned - persistently eroding real returns and leaving even positive nominal outcomes with diminished value.
This environment increasingly requires a shift away from purely ‘set and forget’ portfolio management. The challenge is no longer simply whether a portfolio can outperform a benchmark over time, but whether it can proactively acknowledge uncertainty and manage through it deliberately.
Looking Forward
The coming decade is likely to continue testing the investment frameworks that dominated the previous forty years. Markets are being shaped by fiscal influence, political intervention, and structural inflation. Static approaches built during a long period of disinflation and falling yields face increasing challenges.
For advisers, this is not simply an investment consideration - it is a business one. Those who adapt thoughtfully and intentionally are better positioned to support clients through this changed reality of portfolio management.
To find out about how our range of adaptive DAA managed account portfolios and how our investment strategies are well suited for today's macroeconomic environment - Contact Us.
Disclaimer
This material has been prepared by Dynamic Asset Consulting Pty Limited (ABN 82 079 145 298, AFSL 502623) of Level 20, 56 Pitt Street Sydney NSW 2000. Any content provided in this Report is for general information purposes only. It is not personal advice and does not take into account the investment objectives, financial situation or needs of any person. Please seek specific advice before making a decision in relation to any investment. Before making any decision about any product you should obtain a Product Disclosure Statement (PDS) or Investment Mandate (IM) document for further information. A copy of our PDS or IM is available from your adviser or by contacting us through our website at www.dynamicasset.com.au
