When risk reasserts itself: Income preservation during volatility

Content Partnership

13 May 2026

It has been a volatile ride in markets these past few months. After reaching new heights in February, the ASX 200 fell 10 per cent in March before bouncing back in April as investors reacted to the Middle East conflict, oil supply uncertainty, the threat of disruptive artificial intelligence and persistent inflation.

This week, the ASX 200 is sitting 6.10% below its February record, with ongoing geopolitical risks and shifting expectations for interest rates suggesting the volatility will continue.

But as investors continue trying to forecast their way out of risk, Chris Paton, Chief Investment Officer of Australian alternative asset manager La Trobe Financial, warned this behaviour, and the closely related phenomenon of herd mentality often came at a cost.

“Historically, the cost of reacting to that volatility can exceed the cost of staying invested through it,” Mr Paton told Financial Newswire.

Indeed, Morningstar’s latest Mind the Gap study found the average US mutual fund investor lagged the asset-weighted return of the same funds by 1.2 per cent annually over the 10 years ending December 31, 2024, largely due to poorly timed investment decisions.

Compounding the challenge for investors, assets traditionally viewed as safe havens, such as gold, haven’t been performing that way.

Since reaching a record of above US$5,500 an ounce in January, the price of gold fell below US$4,700 at the beginning of the Iran/US war, before regaining some of those losses. It is now at US$4,745, meaning investors who bought at the top of the cycle, looking for safety, are sitting on a double-digit loss and experienced significant volatility.

“Tilting portfolio allocations heavily in response to headlines or uncertainty can produce undesirable outcomes for investors.  It’s that classic case of time-in, versus timing” Mr Paton said.

Where you get rewarded, he argued, was by having a well-constructed portfolio from the outset, and then by staying disciplined during uncertainty.

Small adjustments, not wholesale changes

Rather than knee jerk reactions to markets and headlines, Mr Paton said now was the time for investors to consider whether their existing allocations still aligned with their long-term investment objectives and risk appetite by asking questions such as:

• Do I understand where my risk actually sits?
• How conservatively is my portfolio constructed?
• Is my income truly dependable?

Then, it was about making adjustments to the portfolio where necessary, he said, not in response to markets but in recognition of a change in your own risk settings.

“Investors have to accept that there’s going to be periods of uncertainty and volatility,” Mr Paton said.

“And investors have to plan their portfolios, not for the benign times, but for the volatile times, for those periods of uncertainty, which are just becoming more and more frequent.”

It’s an approach La Trobe Financial uses itself, starting with a conservative portfolio allocation and then, during periods of heightened risk, further “narrowing our credit jaws”.

“We’ll take on even less risk than we do during normal times, just to make sure that our portfolio remains appropriately calibrated for the season we’re in,” Mr Paton said.

“And then we’ll normalise as uncertainty starts to unwind. But we never go the other way. We start conservative and go more conservative. We want to continue to deliver that regular form of income for investors, irrespective of the season.”

Role of credit during volatility

For investors needing greater income certainty, such as retirees, Mr Paton said conservative credit funds could play a defensive role in diversified portfolios when growth assets were being hit by volatility.

Some credit funds, such as La Trobe Financial’s 12 Month Investment Account, aimed to deliver regular income irrespective of market conditions through a portfolio of mortgages backed by real Australian property.

In doing so, Mr Paton said the primary goal is return of capital, and then return on capital, particularly during periods of heightened risk.

But he cautioned not all credit funds were the same, with some offering higher returns but with more risk.

“That’s the critical piece for investors, for advisers,” Mr Paton said. “How is this portfolio constructed? Is it designed to perform through all periods, or is it designed to be taking additional basis points during periods of benign credit activity, but it’s going to produce more volatile outcomes during periods of stress?”

For advisers wanting clarity on the best type of credit, be it public or private, for an individual investor, Mr Paton said it came back to first principles of investing:

• What is your investment objective?
• What is this particular part of your allocation looking to perform during this particular cycle?
• And which are the best managers designing portfolios to do that?

“And what’s their track record, frankly,” Mr Paton said.

La Trobe Financial’s 12 Month Investment Account current investment rate is 6.50 per cent net of fees*, compared to 5.72% on the benchmark, the Bloomberg Ausbond Bank Bill Index +1.50%. More importantly, it builds on a track record dating back to 2002 of returning 100% of investor capital, paying income at the advertised rates, and meeting all redemptions in full and on time.

This is the second article in a three‑part series on the role of private credit when risk reasserts itself. The first article covered inflation-responsive portfolios.

Content Partnership sponsored by La Trobe Financial 

*The variable rate of return is current at 1 April 2026. The rate of return is reviewed and determined monthly, is not guaranteed, and may be lower than expected. The rate of return is determined by the future revenue of the Credit Fund, and distributions for any given month are paid within 14 days after month end.

An investment in the Credit Fund is not a bank deposit, and investors risk losing some or all of their principal investment. Past performance is not a reliable indicator of future performance. Withdrawal rights are subject to liquidity and may be delayed or suspended.

Any advice is general and does not consider your personal circumstances.

La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence 222213 Australian Credit Licence 222213 is the responsible entity of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important for you to consider the Product Disclosure Statement (PDS) when deciding whether to invest, or continue investing, in the Credit Fund. You can read the PDS and the Target Market Determinations on our website.