Time for another update on market movements and happenings.
Those clients that I have met face to face with recently will be aware that my general thoughts on imminent future market movements are that we are unlikely to see major upwards gains in the markets in general in the near and medium future but that during that time I expect high volatility – ie lots of ups and downs.
This is good for those saving regularly as it enables the effect of ‘pound cost averaging’ to take effect - see http://greenfinancial.blogspot.com/2011/02/pound-cost-averaging.html
However for those already invested it probably represents more of a roller coaster ride.
Do remember, that the lower risk (or volatility) portfolio content you have, the lower the exposure you have to equities and the markets, so the lesser effect any drops (or rises) have on your investments.
For those in the lower numbered portfolios it is actually more like just a bumpy road than a roller coaster!
As ever, if you have any concerns, please do contact me.
Onto the commentary…
Just when the situation in the Eurozone appeared to be moving in the right direction with the agreement last week (has anyone else noticed every time I leave the country markets seem to rise…? Perhaps I should operate from abroad?) on a further bailout package and a voluntary 50% haircut on Greek sovereign debt, we had the unexpected announcement this week that the Greek government has decided to hold a referendum on the latest euro-zone package, probably in December or January.
In reality, the Greek government is simply trying to foster public support as it provides the Greek population with the decision between continuing austerity and membership of the single currency. Some might call it a gamble.
Data from opinion polls suggest that although 60% are opposed to the new Eurozone package (and continuing austerity), approximately 70% want to remain in the Euro. And let’s be clear about it… if Greece want to remain in the single currency then it will have to take the medicine prescribed by the Eurozone governments (primarily Germany and France). The alternative is for Greece to leave the Euro but this route is not (publically at least) on the table for Greece or the other sixteen members of the Eurozone.
I felt that the global market reaction to last Thursday’s announcement was overdone (again) as we had only seen headlines from the Eurozone governments with little detail on how these packages and targets would be achieved. Certainty is a crucial factor for global investment markets and the re-emergence of uncertainty has led to the significant falls in global equity markets yesterday and today (writing at 9:30 am Weds).
As I have said in the past, in my role as Advisor / Manager of your portfolio(s), part of my job is to read, research, analyse and assimilate as much information as possible to inform and then blend the asset allocation models and investment strategy. It is far from a rosy picture for the global economy at present but, as I have stated in the past, ‘investors’ or ‘the markets’ do have a tendency to overreact to “news”, either on the upside or downside, and I believe that this is the case today. Investor sentiment, rather than economic data is the key driver of global investment markets in the very short term.
Although it is far from easy, I continue to believe that patience is important, ultimately economic fundamentals will win out and the vast majority of clients should remain invested in line with the diversified Model Portfolios.
As I say at the outset of this post, I expect an extended period of volatility in global investment markets – and this will no doubt be magnified in the run up to the proposed Greek referendum, and I will continue my regular dialogue to ensure that client portfolios are positioned to meet the dual mandate of creating and preserving wealth based upon our your attitude to risk and volatility.
Showing posts with label markets. Show all posts
Showing posts with label markets. Show all posts
Wednesday, 2 November 2011
Monday, 3 October 2011
Client Market Update October 3 2011
Well, I suppose it had to happen sometime, didn’t it…?
This is the first time, since early 2009, that I have had a minus figure of any note to report to clients on a quarter.
That said, given the magnitude of the numbers you will no doubt have heard on the news (‘markets down 12% in quarter’), a reduction that is ‘only’ 4-5% seems OK.
It is important to note that as always, these figures have to be produced at a point on a day – it is just a snapshot in time.
With the current volatility in the markets, had I run the reports a day or two earlier or later, it could easily have shown a small positive or a larger negative.
Perhaps most important of all is to remember that whilst it is always frustrating to see a minus figure over a quarter, that is a short term piece of data, and your portfolio is managed over the long term to match your life & lifestyle / income requirements.
Looking at the major markets like the FTSE100 and S&P500 – even though as I write the FTSE sits just above the 5,000 mark on news of Greece’s deficit, they are up around 50% since the lows of 2009.
So again, whilst I appreciate seeing the funds go down is never nice, I see no long term concern at all.
In fact this very process of rebalancing now means you’ll be buying into equities when they are low and will therefore see the commensurate gains in future when markets rise again, as they always do.
I hope you read (and enjoy – or at least find of interest) the various investment updates I send out, whether the regular monthly market commentary (MMC – next edition due within a week) or the ad hoc blog posts and emails such as this one.
If you do I am sure you’ll have read my thoughts on what is going on.
As you know, what worries me, is that much of what is reported is ‘selling newspapers’ – For example, when I was in the USA just over a week ago, when markets dropped by 5 points in a day the UK headlines I read online were along the lines of ‘crash’, ‘plummet’, ‘billions wiped off values’ etc
When markets went up by 5% last week, headlines were nowhere near using the opposite language and were quite muted – ‘markets up’, ‘rebound’, ‘rally’ etc
No talk of ‘billions added overnight!’
So that is the first thing, ‘don’t believe (all) the hype’!
And much of what is written then drives markets via investor sentiment – not facts.
I have written a number of times about market movements just because of investor sentiment when an announcement is made but actually there was no new news.
This is why I, as a professional, can take these more rational views when markets move in irrational ways.
But I am not pretending it is sunny when it is raining.
The volatility in markets is real, the problems around the world are real, and I assure you the way we manage the portfolios reflects all this.
In fact this very process of rebalancing now means you’ll be buying into more equities when they are low and will therefore see the commensurate gains in future when markets rise again, as they always do.
That is the very essence of the ‘triangle’ rebalancing process we manage for you. And as I always say, it needs ‘Time’. Those clients who, by their own defined investing timelines, have less time until the money is needed (one example would be approaching encashing a tax free lump sum in a pension), have less exposure to the markets. Those with a longer time horizon (one example would be those starting to save regularly in a pension) can afford to have greater exposure to the markets (see also http://greenfinancial.blogspot.com/2011/02/pound-cost-averaging.html
for the benefits of long term investing regularly in volatile market conditions)
What if you sold everything and went into cash now? If you sold into cash now, you would be doing the opposite of what everyone wants to do, which is “buy low, sell high”.
You’d be “buying high and selling low” – so I really can’t endorse that action.
However, if you fear that markets will continue to fall for the lifetime of your portfolio (ie until retirement and beyond) then of course you may wish to sell – but to repeat myself, that is not something I would professionally recommend in any way.
At the risk of repeating what I have written in the MMC a number of times, it is COUNTRIES that are making the headlines but it is COMPANIES that we/you invest in.
Corporate earnings are high, many companies (certainly outside the financial sector) have cash on their books and the outlook for mergers and acquisitions is positive.
The overwhelming message from leading economists at the conference I spoke at in the USA at the end of September was that markets look cheap at present (as long as you have the time to wait until they rise again)
Looking at earnings compared to equity prices (the oft mentioned p/e ratio) equities actually look cheap.
If anything, arguably now is the time to buy. And you don’t have to believe me, you can look at who many call the world’s greatest living investor, Warren Buffet, for evidence of that.
He is even buying banks!
It is always good to measure your portfolio (ie your pension and ISA etc) against what you want it to do, when you want it to do it (for example: provide a lifetime of income when you retire) rather than match it against an arbitrary index.
This is the first time, since early 2009, that I have had a minus figure of any note to report to clients on a quarter.
That said, given the magnitude of the numbers you will no doubt have heard on the news (‘markets down 12% in quarter’), a reduction that is ‘only’ 4-5% seems OK.
It is important to note that as always, these figures have to be produced at a point on a day – it is just a snapshot in time.
With the current volatility in the markets, had I run the reports a day or two earlier or later, it could easily have shown a small positive or a larger negative.
Perhaps most important of all is to remember that whilst it is always frustrating to see a minus figure over a quarter, that is a short term piece of data, and your portfolio is managed over the long term to match your life & lifestyle / income requirements.
Looking at the major markets like the FTSE100 and S&P500 – even though as I write the FTSE sits just above the 5,000 mark on news of Greece’s deficit, they are up around 50% since the lows of 2009.
So again, whilst I appreciate seeing the funds go down is never nice, I see no long term concern at all.
In fact this very process of rebalancing now means you’ll be buying into equities when they are low and will therefore see the commensurate gains in future when markets rise again, as they always do.
I hope you read (and enjoy – or at least find of interest) the various investment updates I send out, whether the regular monthly market commentary (MMC – next edition due within a week) or the ad hoc blog posts and emails such as this one.
If you do I am sure you’ll have read my thoughts on what is going on.
As you know, what worries me, is that much of what is reported is ‘selling newspapers’ – For example, when I was in the USA just over a week ago, when markets dropped by 5 points in a day the UK headlines I read online were along the lines of ‘crash’, ‘plummet’, ‘billions wiped off values’ etc
When markets went up by 5% last week, headlines were nowhere near using the opposite language and were quite muted – ‘markets up’, ‘rebound’, ‘rally’ etc
No talk of ‘billions added overnight!’
So that is the first thing, ‘don’t believe (all) the hype’!
And much of what is written then drives markets via investor sentiment – not facts.
I have written a number of times about market movements just because of investor sentiment when an announcement is made but actually there was no new news.
This is why I, as a professional, can take these more rational views when markets move in irrational ways.
But I am not pretending it is sunny when it is raining.
The volatility in markets is real, the problems around the world are real, and I assure you the way we manage the portfolios reflects all this.
In fact this very process of rebalancing now means you’ll be buying into more equities when they are low and will therefore see the commensurate gains in future when markets rise again, as they always do.
That is the very essence of the ‘triangle’ rebalancing process we manage for you. And as I always say, it needs ‘Time’. Those clients who, by their own defined investing timelines, have less time until the money is needed (one example would be approaching encashing a tax free lump sum in a pension), have less exposure to the markets. Those with a longer time horizon (one example would be those starting to save regularly in a pension) can afford to have greater exposure to the markets (see also http://greenfinancial.blogspot.com/2011/02/pound-cost-averaging.html
for the benefits of long term investing regularly in volatile market conditions)
What if you sold everything and went into cash now? If you sold into cash now, you would be doing the opposite of what everyone wants to do, which is “buy low, sell high”.
You’d be “buying high and selling low” – so I really can’t endorse that action.
However, if you fear that markets will continue to fall for the lifetime of your portfolio (ie until retirement and beyond) then of course you may wish to sell – but to repeat myself, that is not something I would professionally recommend in any way.
At the risk of repeating what I have written in the MMC a number of times, it is COUNTRIES that are making the headlines but it is COMPANIES that we/you invest in.
Corporate earnings are high, many companies (certainly outside the financial sector) have cash on their books and the outlook for mergers and acquisitions is positive.
The overwhelming message from leading economists at the conference I spoke at in the USA at the end of September was that markets look cheap at present (as long as you have the time to wait until they rise again)
Looking at earnings compared to equity prices (the oft mentioned p/e ratio) equities actually look cheap.
If anything, arguably now is the time to buy. And you don’t have to believe me, you can look at who many call the world’s greatest living investor, Warren Buffet, for evidence of that.
He is even buying banks!
It is always good to measure your portfolio (ie your pension and ISA etc) against what you want it to do, when you want it to do it (for example: provide a lifetime of income when you retire) rather than match it against an arbitrary index.
Friday, 5 August 2011
Client Communication re Investment Markets
No doubt over the coming days and weeks financial journalists will have a field day with what is going on in the markets. I recently read a report in the Economist that considered the type and variety of language and grammar used in differing stockmarket conditions. Typically the language used when markets were rising was restricted in variety and impact. Fairly everyday words like ‘gain’, ‘rise’, ‘up’ were commonplace and frequent. But when markets headed the other way lesser used words such as ‘crash’, ‘slide’, ‘tumble’, ‘dive’ and ‘plummet’ all appeared along with many more such alarming verbs.
[As I type, I just read on Twitter: "FTSE dives as global rout triggers new recession fears " - I couldn't have proved my point any better if I wrote the headline myself!]
That is not to say markets are not down, just to caution against getting caught up in media hyperbole.
As a client, you will remember one of my investment mantras is “Time, not timing”. What this means is time in the markets is what matters, not trying to beat the market by timing your moves.
The recent market manoeuvre I advised was in response to a potentially extraordinary event whereby I suggested exiting many equity markets just in case the US defaulted on its debt. I didn’t think they would, nor did most commentators and as it turned out they didn’t. But if they had things could have been very bad – indeed I may have had to type words such as tumble, dive and plummet!
Going back into the markets shortly after the decision probably saved around 2%*
*actual figure per individual will depend on exactly when you came out and went back in
Since then, many world stockmarkets have fallen (or crashed, tumbled and plummeted depending on what you read) further and this is where it is good to remember the usual Green Financial Investment Management Process which we discussed in regard to your financial aims.
Next time we rebalance your portfolio, towards the beginning of September, if markets have recovered, all well and good. But if they haven’t, the regular process will continue and in taking the percentages back to your normal mixture (the ‘pyramid’, or ‘triangle’ I drew when we discussed your investments) we will be using lower volatility assets, such as cash and fixed interest to purchase more of the higher volatility assets such as stocks and shares.
In effect, there will be a sale on in the stockmarket and you will be buying when prices are low, in order to one day sell when they are higher – surely the aim of investing?
Whereas those that believe what they read in the papers and are now selling equities are doing the opposite. They bought high and are selling low. Madness!
The above, of course, relies on that word again, TIME.
I always ensure the amount of money in the markets is appropriate for your stated attitude to volatility and risk including appetite for loss and need for gain.
Stockmarkets WILL return to their previous levels. They always do. I just don’t know when that will be (and no-one else does - if they claim to, they are lying or a fool).
So if you are worried or concerned by anything you see or hear please do contact me.
[As I type, I just read on Twitter: "FTSE dives as global rout triggers new recession fears " - I couldn't have proved my point any better if I wrote the headline myself!]
That is not to say markets are not down, just to caution against getting caught up in media hyperbole.
As a client, you will remember one of my investment mantras is “Time, not timing”. What this means is time in the markets is what matters, not trying to beat the market by timing your moves.
The recent market manoeuvre I advised was in response to a potentially extraordinary event whereby I suggested exiting many equity markets just in case the US defaulted on its debt. I didn’t think they would, nor did most commentators and as it turned out they didn’t. But if they had things could have been very bad – indeed I may have had to type words such as tumble, dive and plummet!
Going back into the markets shortly after the decision probably saved around 2%*
*actual figure per individual will depend on exactly when you came out and went back in
Since then, many world stockmarkets have fallen (or crashed, tumbled and plummeted depending on what you read) further and this is where it is good to remember the usual Green Financial Investment Management Process which we discussed in regard to your financial aims.
Next time we rebalance your portfolio, towards the beginning of September, if markets have recovered, all well and good. But if they haven’t, the regular process will continue and in taking the percentages back to your normal mixture (the ‘pyramid’, or ‘triangle’ I drew when we discussed your investments) we will be using lower volatility assets, such as cash and fixed interest to purchase more of the higher volatility assets such as stocks and shares.
In effect, there will be a sale on in the stockmarket and you will be buying when prices are low, in order to one day sell when they are higher – surely the aim of investing?
Whereas those that believe what they read in the papers and are now selling equities are doing the opposite. They bought high and are selling low. Madness!
The above, of course, relies on that word again, TIME.
I always ensure the amount of money in the markets is appropriate for your stated attitude to volatility and risk including appetite for loss and need for gain.
Stockmarkets WILL return to their previous levels. They always do. I just don’t know when that will be (and no-one else does - if they claim to, they are lying or a fool).
So if you are worried or concerned by anything you see or hear please do contact me.
Tuesday, 22 February 2011
Pound Cost Averaging
If you set up a regular savings plan investing in one or more markets that have the potential to rise and fall over time (typically shares based investments) you may benefit from a phenomenon known as Pound Cost Averaging.
When markets are high, or perhaps arguably at any time when there is the chance of a fall (perhaps anytime?) care should be taken when investing lump sums.
If you invest £1,000 and it falls by 20% (so by £200 to £800) you now need a rise of 25% (£200, ie 25% of £800) to get back to £1,000.
However if saving regularly a market fall in the early years of a share based investment can actually be beneficial over the longer term!
To see why, please see the table below.
This shows how it can be more effective to buy when a stockmarket is fluctuating in value than by investing in times of sustained growth.
Of course no-one knows exactly when markets will rise or fall so you may wish to consider a mix of lump sum and regular investments if you have the ability.
But if you do not have a lump sum and are starting to invest in the markets for the first time, you can see how fluctuations are nothing to be concerned about over time thanks to Pound Cost Averaging
When markets are high, or perhaps arguably at any time when there is the chance of a fall (perhaps anytime?) care should be taken when investing lump sums.
If you invest £1,000 and it falls by 20% (so by £200 to £800) you now need a rise of 25% (£200, ie 25% of £800) to get back to £1,000.
However if saving regularly a market fall in the early years of a share based investment can actually be beneficial over the longer term!
To see why, please see the table below.
This shows how it can be more effective to buy when a stockmarket is fluctuating in value than by investing in times of sustained growth.
Of course no-one knows exactly when markets will rise or fall so you may wish to consider a mix of lump sum and regular investments if you have the ability.
But if you do not have a lump sum and are starting to invest in the markets for the first time, you can see how fluctuations are nothing to be concerned about over time thanks to Pound Cost Averaging
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