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During economic crises, investors switch to real assets like real estate and commodities for two reasons. First, their low correlation with financial assets, like stocks and bonds, and second their being a hedge against inflation’s corroding power. Economic crisis after crisis has vindicated this strategy. In Sri Lanka, real estate is a popular investment asset class, and accessible commodities like gold also serve the same purpose. As evidence, look at the large size of the market for gold-backed loans. In this climate, who could have predicted that the best investment asset class during 2017 and 2018 would turn out to be a financial asset: fixed income securities. Fixed income’s inflation-adjusted returns (real returns) have been in high single digits for over two years, despite poor economic growth and a murky outlook. For Sri Lanka’s vast owners of simple financial assets (a bank-fixed deposit), this unwitting outcome has been a cushion from the worst of the crisis, as every economic crisis before has ruined the small gains ordinary Sri Lankans have accumulated during periods of low inflation. Fixed income securities (including fixed deposits) being the best investment asset class has leveled the playing field between sophisticated investors and ordinary households during this crisis. Analysts still think this strategy, which is working for the unsophisticated as much as for portfolio managers, will continue into 2019. In this 2019 edition of the Investor’s Guide, we attempt to explore options beyond this obvious fixed income strategy. However, we must confess that other investment strategies are tough to justify.

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