Investment Markets UpdateEoin Buckley
Recent weeks serve as a useful reminder that short term volatility will always be part of the investment journey. Equities recovered some ground this week, having endured a torrid time in recent weeks. Even though there was an initial strong start to 2018, which saw equities rise by 3.5%, extreme short-term volatility has re-emerged and the global equity index (in euro terms) lost 4% last week and currently, the year to date loss stands at 2%.
Recent equity losses appear to stem from concerns over the threat posed by higher bond yields. While it is difficult to fathom, it is upbeat economic data that lies at the heart of recent investment losses. Strong economic data, starting with the US jobs report at the start of February, and ‘hawkish’ comments from major central banks have accentuated the view that investment market participants may have underestimated the path of future interest rate rises on both sides of the Atlantic. Volatility has awoken from its slumber and short-term losses have been the result.
Putting it all in Context
If you have met with Seán or I, you will be familiar with illustrated investments, the BIG Picture chart here & video here. The BIG Picture chart shows that since 1926, an investor who bought the S&P 500 in the US, yielded an average return of almost 10% per annum (before inflation).
In our summer 2017 newsletter, we outlined our belief that the future outlook for investors over the next twenty years will be more challenging and investors are unlikely to receive returns in line with the long run average and consequently investors do need to lower their expectations.
That said, hopefully by viewing the BIG Picture chart, you will note that there always has, and always will be short term and even medium-term market declines however these should not dissuade us from our long-term investment journey. Over time, we can be certain that the investment markets will encounter and move through many a future crisis.
In the recent past, an over exposure to Irish property and Irish bank shares has given many investors a very harsh and costly lesson on the dangers of specific risk. As always diversification remains the most important overall objective. Diversification across all five asset classes (cash, bonds, equities, property & alternatives) followed by diversification within each asset class (i.e. equities spread by geographical and industry sectors).
For those with a shorter-term outlook or for those unable to withstand the volatile journey ahead, there are things you may choose to do. You could de-risk by moving to lower risk multi asset funds or take extreme action by moving to cash.
Please feel free to make contact should you have any queries on the attached and of course I would be delighted to meet up so we can revisit this article together and review your plan going forward.
abm financial advisers limited is regulated by the Central Bank of Ireland