September is shaping up to be a busy month. With North Korea again flexing its military muscle and the US hotly debating the debt ceiling while also struggling to contend with two natural disasters taking place almost back to back. What could all this mean for the financial markets, and your investments in turn? And could it be time to think about reassessing your investment portfolio?
We are now in a bull market. By normal metrics, most equities are currently overvalued, but this is a statement that would have been accurate at any time during the past two years. Markets continuously hit new all-time highs. But having seen all-time highs in 2000 and 2007 followed by 50%+ declines in the stock market, the phrase ‘all-time highs’ is unnerving to many investors.
However, this is a perfectly normal process that has been repeated throughout history, and since 1950, there have been over 1,100 new all-time closing highs in the S&P 500. This means that the market has closed at a new high roughly every 1 out of every 15 days it has been open, and it will continue to do so in the future as globalization continues to open up new markets and improving standards of living create a steady stream of new consumers.
The Equity (stock) indices being high is not surprising when we consider the volumes that stimulus banks have been pumping into the markets since the financial crisis of 2008.
However, current global events may destabilize the markets in the coming weeks, giving us reason to reassess the markets and re-evaluate our investments. There are 3 major current events that you need to be aware of that may affect your finances and investments in particular.
USA
With massive damage being caused by the Hurricanes Irma and Harvey, the cash-boost needed by the US to aid in the recovery and aid efforts may be enough to finally help push through the heavily contested increased debt ceiling.
The debt ceiling—the limit to the amount of money that the US government can borrow to help cover their annual budget— was described by President Trump as “not necessary”, and that eliminating it altogether “could be discussed” and that there would be a lot of good reasons to eliminate it.
Over the past few years, the debt ceiling has become more of a political tool than an economic one, with different factions of the US government making demands in order to raise the cap. However, eliminating it without an adequate replacement in place, could create a number of long-term problems for the US economy.
German Elections
The German elections are imminent, and Angela Merkel appears to be very well placed to secure a victory for the 4th time since her ascent to the chancellery in 2005.
Coming after a year marked by growing resistance to globalization, Merkel’s victory over the far-right populist parties, including the anti-immigration Alternative für Deutschland (AfD), will lead to a continuation of her policies such as the open-border policy for refugees, which may lead to more political hurdles within the EU in the months to come.
On the other hand, Germany, under Merkel’s steady leadership and with its booming economy may be able to lead the way in fostering more stable markets all through Europe.
North Korea
North Korea has once again become more aggressive in their actions just ahead of the annual US and South Korea joint military manoeuvres. Though it’s difficult to discern exactly what they are hoping gain, they may be hoping that the pressure placed on the West to come to a peaceful solution would lead to them either pouring more aid into the country or easing off of sanctions. However, since the UN unanimously passed fresh sanctions on North Korea that, among other things, ban its oil exports, suppress smuggling efforts, and end its overseas labour contracts, this strategy may have backfired.
But as long as the possibility of a diplomatic solution remains open the markets could remain relatively stable. But many investors have still decided to play it safe and are temporarily moving their savings into more secure sectors such as gold and bonds. As an expat, you should also be taking steps to protect your investments and reassess your portfolio to ensure that you will be able to weather the markets in the uncertain weeks ahead.
How can you protect your investments in uncertain times?
Now more than ever, It’s crucial to learn how to properly prepare and protect your investments. At Fern Wealth, we have a unique and proactive approach to giving our clients the best risk management strategies to protect their investments in uncertain times.
Here are our three our three top tips for protecting your investments
1. Set clear targets
Setting clear targets for what you are looking to achieve is a mandatory first step. Open channels of communication with your wealth manager and think about the parameters that define what your tolerance to risk is.
2. Analyze The Risks
Riskier funds will experience more short-term price fluctuations. As the prices drop, consistent savers will be able to buy more units for the same amount of money
If, for example, you put your money into two funds, Fund A being more stable and fund B being more volatile (risky), the lower unit prices in fund B will mean that investors are able to buy more units as the price drops. At the end of the period, when both fund A and fund B have the same unit prices, and Fund B investors will come out on better off. The greater the ratio of equities, the greater the risk and, in turn, the return.
Risk management means choosing investments that will provide the right balance between risk and reward. Every person has their own unique risk tolerance, and Fern Wealth offers wealth management services for all investments that are tailored to each of our client’s individual needs.
3. Allocate your Assets
Asset allocation is a crucial part of building any investment portfolio. You are at a much greater risk of losing significant amounts of your savings if something goes wrong when you put your money in a single class than if you had spread your investment money across several different classes.
We at Fern Wealth continuously analyze the markets to find the best way to divide your investment money between various asset classes such as cash, bonds, and shares in order to secure the best returns.
We are conscious of all the different factors that have affected the markets and what will be happening between now and the end of the year. However, at the moment all we have witnessed is a sell off of European equities over the summer months.
For the time being, events and market reactions are only in line with a correction and have not given us enough reason to believe that a longer term bear market is upon us. We will be continuously monitoring events and should our opinion change, we will not be shy in acting upon this new view.
So what does all this mean for your money?
Despite the terrifying headlines lining the newspaper stands, the markets continue to remain relatively stable. But now is the time to get proactive, and analyze your portfolio to weed out any investments that you feel may be too insecure.
