By Balance team, Feb 13 2018 07:38AM
What has been going on?
As you will no doubt have seen, the investment markets have been back in the news over the last week. We’ve seen a familiar series of headlines of market wobbles, volatility and panic.
One of the most followed market indices in the world, the US Dow Jones, recorded its biggest fall since 2011, down roughly 4%, with markets across Asia and Europe following on with similar falls. As we have written about before on our blog posts, the globalised nature of economics means that when the US stock markets start to shake, the tremors are felt far and wide.
Global markets have rebounded somewhat in recent days, but some nervousness remains.
What has caused the moves?
The moves have been triggered, mainly, by fears of rising interest rates in the US. Interest rate rises are typically used by central banks as a way of controlling inflation. Data points released last week showed that average earnings in the US have crept higher which would typically lead to a continued rise in inflation. US unemployment is also at a 17 year low of 4.1%.
There are growing concerns that this stimulus provided by central banks, which have been in force since the 2008 financial crash, may be withdrawn. It’s important to highlight that raising interest rates to more normalised levels must be taken as a sign of health of not only the US economy but the global economy as well. Interest rates have been held low since the 2008 crash and so the prospect of them being raised is one that should be taken as a sense of things returning to some sort of normality.
Here in the UK on Thursday last week, whilst keeping the base rate at 0.5%, the Bank of England has indicated that the pace of interest rate rises will likely rise in the future. To many people, the notion of normal interest rates will look something nearer 5%, 10% or even 15%! This gives an indication of how ‘not normal’ things have been in recent years.
Should I be worried?
It’s important put into context just where this recent bout of volatility registers, from a historical perspective. The markets have been on a strong run since 2009 and anyone invested over this period will have enjoyed strong returns as a result.
Some will have fresh memories of the 2008 financial crisis, and with good reason. The major market indices are all a lot higher than they were before that crash, and the moves over this past week are nothing like the crash of 10 years ago, where on the worst day the US S&P 500 fell over 20% in one day.
The extended run of strong performance will not and cannot go on forever. Markets go up and down, and whilst some experts believe that valuations are high, market highs are normal in the same sense that corrections are.
Any removal of stimulus by central banks would be coordinated very slowly, and so the over-used term of ‘hiking’ interest rates should be taken with a pinch of salt.
During periods of volatility the more defensive asset classes like property, will fare better than others, which leads us to the same conclusion. An all-weather long-term approach to investing is always the most sensible. Diversity is the key.
Our advice to investors
The adage of time IN the market as opposed to TIMING the market is always a good one during times like this. Trying to be too clever by buying and selling at different points in time is rarely a successful strategy, even for the experts!
Our advice remains that investors should make sure investments are diversified and structured suitably for your long term financial plan. Investing as part of a sensible financial plan should not mean you having to check the stock market moves daily, if it does, then you’re probably not investing your money in a way that suits you.
If you would like to speak to us about any concerns you have over your own investments or overall financial plan, then please get in touch. We are always happy to discuss concerns people have in relation to their personal financial situation. We take a holistic approach, so don’t just focus on the market moves or your income, we look at your entire wealth and how planning can help achieve your lifetime goals.