Our thoughts on troubled times and a reassuring free offer.
Stock market volatility
As I am sure you will be well aware global stock markets have been subject to significant volatility in recent weeks as markets have become concerned by the weakness of economic growth in many developed economies as well as the sovereign debt crisis which has been plaguing Europe since 2010. Financial markets do not like uncertainty and have a tendency to over react to economic data which can result in markets rising above or falling below what might be considered an appropriate level which reflects the long term valuation and prospects of their constituent companies.
During difficult times this behavior can resemble panic selling with the absence of confidence forcing prices lower than is a fair reflection of their value or prospects. We have certainly witnessed this type of market behavior before and will undoubtedly see similar times in the future. The key issue is how do we as investors respond to these difficult times which understandably make us anxious about our financial security and future prospects.
From recent portfolio valuations completed for clients it is clear that the performance of each asset class differs with most corporate bond funds recording a positive return since the start of 2011.
Commercial property funds have also held their ground with some funds posting small increases over 2011 so far. Naturally the biggest casualties have been equity funds as these are riskier assets and have been marked down as investors have sought the perceived safety of US government bonds, UK government bonds, gold and the Swiss Franc.
Therefore, the reality for most client portfolios is that some holdings have increased in value, some are broadly unchanged and some have fallen since the start of the year. This is one of the key reasons why investment portfolios are constructed to hold a broad basket of investments. Whilst this approach does not always reduce the impact of volatile markets it is widely considered the most effective way of maximizing long term returns for any given level of risk tolerance.
On a positive note, many companies in the UK and abroad have reported strong sales figures, solid profit growth and have pledged to increase their dividend payments to investors. This reflects the reality that many companies have been reducing their debt levels, cutting overheads and investing in their businesses to provide long term growth in their businesses.
This contrasts the much poorer health of many Governments who are trying to deal with significant budget deficits and very high debt levels whilst simultaneously trying to support domestic economic growth. For investors, the strength of the corporate world will help underpin share prices once common sense returns to markets and investors begin to make rational decisions about the future growth prospects.
Like many of our clients, we have experienced the ups and downs of markets before and understand the importance of remembering the reasons why we take risks with our capital in order to meet our longer term financial goals. We also understand that when the media reports stock market slides/ falls/ slumps/ routs this naturally makes us feel anxious and question our strategies.
It is interesting to observe that when markets rally this is rarely covered in the media. This is why our clients at investing ethically ltd are always be able to talk to thier adviser.
If you are not our client and you have any concerns or would like to review your financial plans. please don’t hesitate to contact us - our first meeting is free and without obligation.
