What next?

Investwise Group’s Further Reflections and Thoughts on the Global Financial Crisis. 

What will happen, where will the financial markets go now? Many professional investors have struggled with the convolutions of the past couple of years, so what chance is there for the average person planning for the future, their family, their retirement?

In March, our last article on this subject, we felt that the bottom of the market was close:

“…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.”

Also we suggested, as we consistently do:

 “…timing for a single sum is always difficult,… so a gradual move over several months (or years) is always recommended”

Since then, most markets have recovered by 20%-30%, so many who held their nerve a year ago (when it was too late to react anyway) have seen their investments recover to some extent and those who increased their participation should be showing pleasing gains (certainly far better than cash with interest rates at record lows).

This “recovery” has been against a background chorus of, “bear rally” “it won’t last”, “double dip recession”, etc. etc…. Valid arguments, but many analysts who “predicted” the 2008 collapse were calling it for years and had to be right eventually. Certainly true is the fact that the recent rally means some of the immediate “sizable” market gains have occurred and the chance of value reductions is possibly greater than it was in March.

Recently many clients, attracted by the recent rally, have been considering greater participation. This is a common reaction, but not a course we are comfortable with. An investor not comfortable with the potential market fluctuations in March, should be no more so (arguably less) now.

Our view remains: establish the level of investment risk you are comfortable with and stick with it. Individual levels of risk can be discussed and agreed with the help of your adviser and there are many factors – your circumstances (e.g. those close to retirement usually need to avoid uncertainty), the time horizon over which you want to invest, your investment objectives be they income, capital growth or a combination of the two, whether you want to invest in funds that take account of ethical or environmental issues or not, your personal attitude to investment risk.

Having established a risk level then some variation may be appropriate e.g. a little more participation in March when values were good, perhaps reducing now that a rally has been enjoyed. Timing however remains the issue and one that is difficult to call hence our ongoing advice is worth repeating:

“…timing for a single sum is always difficult,… so a gradual move over several months (or years) is always recommended”   

This remains our view. 

Please note, the information provided does not constitute advice. You should contact us to arrange a financial review should you require any further information. 05/01/2009.