Graham Harman - Senior Investment Strategist (Asia-Pacific), Russell Investments

It's now just over nine years since the Global Financial Crisis struck, and it's been a wild ride in financial markets over the period, with plenty of bumps and white knuckles along the way. Standing back and looking at the big picture, though, it's been a simple story. In 2008, global equity markets were cheap, and (in the heart of a liquidity crisis) cash was in short supply. The subsequent nine years have been a one-way spiral into the stratosphere, as central banks poured trillions of dollars – literally – into the system. In this time, we may have bounced around in the seats of the rollercoaster a little, but it's been just one giant sweep, all on the up, and Wall St has more than quadrupled over that period.

Just when we're slowing down at the end of this long upswing, and our stomachs are taking a moment to settle, as investors we now face two major challenges. Firstly, this liquidity driven uplift has taken sharemarket valuations to record highs; on some measures, we're at a stretch of valuation extremes not seen since the dizzy heights of 1929 and of 1999. Secondly, the US Federal Reserve Bank who has been providing much of the liquid fuel of printed cash for the past nine years, announced in September 2017 that they'll be commencing a reversal of that process, starting in the fourth quarter of 2017.

In the newly constrained market environment that this change of tack implies, it will become increasingly difficult to get the great returns we have had out of stocks, bonds, and corporate credit. This is a time to get right back to basics, asking questions such as: What are your goals? How much money do you need and when do you need it? What kind of growth do you expect from your reserves?

Many cemetery and crematoria clients have established long-term goals – both to meet their perpetual care obligations and hold reserves to grow. On top of that, you will need to pay for your perpetual care obligations in future dollars and so you need to have your reserves grow in real terms – that is, taking account of inflation. This has led many of our clients to consider goals such as: "inflation + 4%". This is a lofty goal, particularly now that the expectations for stock and bond returns are much lower than they have been in the past.

Often the first option considered, in the face of this dilemma, is to increase the level of riskier assets (such as shares) in a portfolio, in search of higher returns. But with current high valuations, this is more likely to result in large drawdowns in your portfolio and less likely to result in higher returns in the medium term. More drawdowns would result in an erosion in your reserves. So, we really want to meet a long-term investment goal of inflation + 4% but don't particularly want to invest in more stocks or other riskier assets.

While stocks and bonds have served us well in the past few years, they are not the only asset classes. There are many opportunities that could actually benefit your portfolio in an environment of elevated valuations, diminishing liquidity, and a prospect of lower or even negative returns. But you need to know where to find them.

In thinking this way, many of our clients have considered real return funds. These are funds that are designed and managed in a way that is expected to meet a long-term return goal like inflation + 4%. Real return funds aim to provide the returns you need over the medium to long term with some downside cushioning to make it feel like a more comfortable ride.

These funds work in two main ways. Firstly, they have better and more affordable access to asset classes that are not just the traditional ones, like shares and bonds, but also other asset classes that could benefit from the expected market environment. This is more than just choosing one stock instead of another or choosing between a government bond and a company's stock. This is about looking more broadly at the options and choosing the ones that are best placed for how we expect the world to look. Examples here in the late stages of an expansion cycle include commodities, currencies, physical assets such as global real estate and infrastructure, and emerging market shares and bonds.

Secondly, these funds are able to consider risks and opportunities in real time and have the tools and capabilities to move in and out of asset classes quickly, when the portfolio managers see that there is a risk in the way the portfolio is invested or when they are missing out on an opportunity. This ability to react promptly is important in a world where political events and economic news are unfolding in ways that are often neither logical or predictable.

As investors of funds relating to cemeteries and crematoria, you have a need to grow your portfolio in real terms and a need to have funds last for a long time. This in turn, means your return goal is likely to be high, so you can't really opt out of markets and get off the rollercoaster. However, you can opt in to a seatbelt, and enjoy a more comfortable ride with fewer bruises and bumps along the way.