As the final months of 2024 approach, the shifting landscape of investment strategies has become increasingly salient for investorsThis period of reflection and planning at the year's end has evolved into a necessary ritual, focusing particularly on the investment outlook for the coming yearIn this context, the topic of "low interest rates" stands out as a central theme that cannot be ignored.

Since hitting a record low of 3% in July 2021, the yield on 10-year government bonds fell even further to below 2% within a mere 11 monthsThe swift decline continued, bringing the yield down to approximately 1.7% as of todayThe dawn of an era defined by "low rates," starting with a '1' in front, has arrived sooner than expected, reshaping the dynamics of the investment landscape profoundly.

In parallel, the overall interest rate environment across society has also dipped, with banks reporting five-year fixed-term deposit rates falling to 1.55%. Simultaneously, more than twenty percent of money market funds are experiencing annualized returns dipping below 1.3%, marking historic lows

A decade ago, these so-called "baby products" offered yields as high as 6%, making the current situation feel like a distant memory.

In recent years, a notable trend has emerged among residents' savings, characterized by a trajectory of moving "from across town to back home"; the phenomenon of "excess savings" has become increasingly evidentHowever, the shift towards net worth products signifies a departure from previously guaranteed returns, while the equity market has endured an extended period marked by a conspicuous absence of profits.

As a result, the demand for high-quality assets has surged, driving bond market interest rates persistently downwardYet, as yields continue to decline, the preferences of investors regarding low volatility assets are also facing critical decisions, necessitating an adjustment in asset allocation for this low-interest era.

How can investors navigate this evolving landscape? Here, we will explore three overarching strategies that reflect the emerging tides in investment thought.

The first strategy involves extending duration.

In investment finance, there is a theory known as the "impossible trinity": under normal circumstances, time (liquidity), return, and risk (safety) cannot all be optimized simultaneously

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The underlying logic is that money possesses a time value; by sacrificing some liquidity for a longer holding period, investors should, in theory, receive greater returns, effectively exchanging time for greater opportunity.

From this perspective, "extending duration" carries dual significance.

On one hand, under conditions of aligned risk appetite, investors may opt for medium to long-term pure bond funds that feature longer durations.

In the realm of fixed-income assets, duration measures the average time required to recover principal and receive interest, serving as an indicator of a bond's price sensitivity to interest rate fluctuations.

When investors expect future market interest rates to decrease, elongating duration can enable investment portfolios to capitalize more significantly during periods of declining rates

This is due to the inverse relationship between bond prices and interest rates, where longer-duration bonds typically exhibit greater price appreciation, thus yielding higher capital gains.

For instance, should market interest rates fall by 0.1%, the price of a bond with a 10-year duration could theoretically increase tenfold compared to a bond with a duration of just one year.

Hence, in comparison to short-duration bond funds, mid to long-term pure bond funds typically exhibit amplified fluctuations and returns, which may bolster overall investment growth in the long term.

On the other hand, extending duration also signifies lengthening the overall investment horizon.

In essence, long-term investing focuses on the virtue of compounding; as Charlie Munger famously stated, "If you can grasp the power of compounding, along with the challenges of attaining it, you will unlock the essence of understanding many things," with time being one of the crucial variables in compounding.

Moreover, the law of large numbers in probability theory illustrates that as the investment horizon elongates, an asset's actual returns are more likely to converge with its expected profits.

Change remains an enduring theme in markets, and uncertainty cannot be completely eliminated

Decisions that seem right in the short run may turn out to be erroneous in the long term, while choices that initially appear wrong may eventually prove to be wise.

We cannot control the market; our only option is to minimize the fluctuations during our journeyA longer holding period naturally leads to a higher tolerance for errors, helping investors weather market cycles and ultimately achieve more satisfying long-term returns.

The second strategy revolves around increasing equity allocation.

After experiencing significant market turbulence over the past few years, many investors have understandably developed reservations about increasing their allocation to equity-type assets

However, drawing lessons from the historical experiences of foreign economies, boosting equity allocations in a low-interest environment may become imperative.

This principle rests fundamentally on asset allocation theory.

Ray Dalio, founder of Bridgewater Associates, once remarked, "The Holy Grail of investing is to find 10-15 good, non-correlated streams of return and create a balanced portfolio."

Although equity funds can be volatile, they boast a natural low correlation with other asset classes like bonds and cashTherefore, including equity funds within a portfolio can create a stable "three-legged stool" for risk management.

Thus, the volatility of individual assets is significantly mitigated across the overall portfolio, potentially allowing higher returns for the same level of risk.

Moreover, beyond the mere aesthetic of volatility, the increased allocation to equities is indeed poised to yield superior returns over the long run.

Equity assets are typically characterized by the coexistence of high returns and high volatility, consistently driving upward in concert with GDP growth

In the past decade, key broad market indices, such as the A500, have outperformed real estate prices in first-tier cities, becoming a preferable choice for mitigating purchasing power erosion.

Additionally, as interest rates continue to trend downward, stocks with generous dividend strategies are gaining renewed attention due to their similar attributes to bonds and stable returns.

In fact, following the accelerated decline in government bond yields towards year-end, the potential of high dividend stocks is gradually emerging, establishing a new consensus for investing in cash-flow assets.

Lastly, the third strategy recommends a global allocation.

In contrast to the persistent gloom dominating the A-share market over the past three years, juxtaposed against the record highs of both the bond market and overseas markets, an increasing number of investors are recognizing the necessity of multi-asset, multi-market allocations

This signifies a collective awakening within capital markets.

Global allocation should not be perceived as an either-or situationInstead, it necessitates the application of scientific methodologies to achieve a portfolio effect where "1 + 1 > 2."

On one hand, in the face of unprecedented global changes, "uncertainty" has now become the normThe potential emergence of a de-globalization trend could further weaken the correlations between various markets, enhancing the effectiveness of globally diversified allocations.

Conversely, capital markets themselves will fluctuate alongside macroeconomic cycles, encompassing recovery, overheating, recession, and stagflation phases within what is referred to as the "Wall Street clock." There is no single asset that can dominate perpetually; each will experience both peaks and troughs in due course

While precise predictions for the future may be elusive, understanding the current market positioning and aligning asset allocations with the cyclical realities can foster adaptive investment strategies.

While it is challenging to pinpoint the exact moment for a market narrative reversal, a balanced portfolio of 15 common asset classes distributed equally can still yield nearly 13% returns even amid uncertainty in 2024.

From a comprehensive assessment standpoint, we can rank A-shares, Hong Kong stocks, and overseas capital markets, employing an over-allocation strategy for the top-ranking market while favoring underweighting strategies for those lagging behindFurther diversification can also be implemented among different styles within the A-share market itself

This approach seeks to maintain expected returns while minimizing risk, or alternatively, pursue higher returns under similar risk profiles.

Undoubtedly, asset allocation is not static; it should be adjusted periodically in tune with an investor's rhythm and adjusted to adapt to market fluctuations.

In retrospective consideration, the predominance of real estate allocation as a golden route for wealth preservation and appreciation indeed flourished over the past twenty years leading up to 2021. However, with shifts in the real estate cycle, the era of property-based wealth generation has come to a close, ushering economic growth into a new transformative phase where traditional structural profitability and risk-value ratios diminish, thus fostering the cultivation of new productive forces.

Interest rates, as a component of average profit margins, become a dominant trend as economic development transitions with a reset in societal average profit margins, leading us toward a prevailing low-interest environment.

As we transition from one upheaval into another, the world undoubtedly remains in a state of perpetual flux