We enter 2020 with our allocation to risk assets at the lower-end of our historic range. This conservative mindset reflects the current high valuations and a concerning domestic economic outlook.

In the final instalment of our Economic & Investment Strategy Guide preview we outline our Asset Allocation for the year ahead.

Our allocation to market risk assets remains largely unchanged, with a very modest 1% increase. However, the allocation across market risk assets has altered, with a reduction in Australian Equities a reflection of the growing concerns we have about the Australian household's cashflow, which continues to deteriorate in the current low wage, low productivity growth environment. Australian Equities relative to the US and UK appear expensive.

In contrast to Australia, we continue to believe that the US consumer and household remains a driver of economic growth and leading indicators are supportive of modest positive returns. Accordingly, we have modestly increased our exposure. Likewise, the recent progress on Brexit, attractive valuations on a comparable basis and solid macroeconomic indicators have supported a larger allocation to the UK.

The unprecedented low rates in Australia are providing an incentive for investors to shift up the risk curve. However, given the soft economic conditions locally, we believe that maintaining discipline with respect to credit quality is paramount.

Lower bond yields have reduced the attractiveness of fixed rate bonds, but we see opportunities in Asset-Backed securities and even US inflation-protected bonds if the current bourgeoning drivers of inflation continue to develop.

We see the greatest potential for currency gains from the British Pound as it emerges from beneath a cloud of Brexit uncertainty, while the Australian Dollar may come under further pressure for lower commodity prices.

Over the longer term, it is difficult to see the stellar returns of the past 10-years being repeated for the next decade. The journey of 'lower and lower interest rates', often attributed to secular stagnation, has driven a broad-based increase in asset valuations that supercharged investment returns. This trend is nearing exhaustion.

The corollary to high asset valuations is a fall in investment yield that will dampen returns in the medium to long term. For investment markets, the journey to lower rates (secular stagnation) has been a case of it being better to travel than to arrive.

Cameron Harrison have been advising business owners and their families on asset allocation and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business.

For more information on our approach to investment strategy or any other inquiries, please contact us on +613 9655 5000.