Stock markets have recovered well from their sharp falls after the start of the Covid and Ukraine crises, and to this one can add the resurgence of bonds offering potentially healthier returns. Pre-Covid, investors typically had to lend to more risky companies and countries if they wanted to receive more than a few fractions of a percentage point in returns. But now that inflation has come back, even high quality “investment grade” bonds can offer an annual coupon of anything up to 5% and more.

This is seemingly a return to the “old normal” of an inflationary environment, following about ten years when consumer prices changed little, and bond yields were low. “Having a balanced portfolio could be incredibly helpful in such an environment, where a range of fundamental forces are driving markets and market sentiment,” Ms Dickson noted. “It is extremely difficult to know where to allocate investments to either equities and bonds, and whether these should be short or medium-term allocations,” she added.

More clarity comes when making a detailed examination of the capabilities of individual companies and sectors to maintain profit margins. Ms Dickson pointed to some companies in the retail, health and tech sectors providing essential goods and services. This gives them the capability to pass increased prices on to their customers. Other companies can cut costs while maintaining quality standards, and these too could provide investment opportunities.

Yet even when these analyses are made, doubt remains about the medium-term future for interest rates in the US and Europe, mainly because inflation is proving to be stickier than had been expected. Ms Dickson said these risks argue for the creation of a balanced investment portfolio, which could potentially capture future growth, while also providing some reassurance if the economic picture darkens. Check out this and previous podcasts in the two series so far for easy-to-understand information about investing for the future.

This episode is part of the second season of the “Investing for the long term” podcasts series featuring Capital Group. These monthly podcasts, produced and hosted by Delano and Paperjam, explain some of the key challenges investors are facing and the investment opportunities related to those challenges. The first series can be accessed .

To listen to Capital Group’s podcasts, .