Investwise Group's further reflections and thoughts on the global financial crisis.

The "wait and see" approach of our Autumn newsletter has stood the test of time and over the Winter months, there have been many significant developments: 

  • Equity markets saw a brief "Bear Rally", before falling to new lows.
  • A clearer picture has emerged of how just how deep and far reaching this Crisis is and the focus has expanded from the financial sector to the whole economy.
  • The whole financial and economic landscape has changed, bringing new challenges (opportunities?) even for experienced professionals.
  • Inflation fears have eased to be replaced (temporarily?) by fears of deflation.
  • There has been a raft of government measures, the latest being "quantitative easing" - governments creating money to buy assets (gilts, bonds etc.).
  • Interest rates and therefore cash returns have dropped to near zero.

What should you consider doing now? 

This is amongst the worst bear markets ever, with further falls being possible, but we are closer to the bottom and recently, market reaction to bad news appears to be improving. Markets often recover long before the economy does. 

Nevertheless, everyone is struggling to call this market and significant participation now is only for the adventurous, or those with very long horizons. For the adventurous, many asset prices may be considered a "bargain". 

For those with a more moderate approach to risk and with cash returns falling, then some increased participation may be considered. However, timing for a single sum is always difficult, let alone in this market, so a gradual move over several months (or years) is always recommended. 

For the cautious and those with short horizons, then the markets still represents a significant risk and, whilst cash now offers little return, safety, not return, has been the main virtue of cash, so cash remains the safest way to preserve capital. 

For all investors: 

  • Reassess you risk tolerance and investment needs.
  • Consider tactical repositioning of your portfolio to take advantage of the asset classes that are expected to lead the recovery when it comes.
  • Active management of the cash element of your portfolio, savings accounts or ISA's, should be a priority. Interest rates range from below 0.5% to above 3.5% - so chasing the best rate is particularly worthwhile. 

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information. 21/03/2009.