Two bits of good news in one morning?
My last post looked into how our environmental changes the way we feel. So, do things like better weather and reducing inflation help us feel calm and stable too?
The research suggests yes.
So what happens when it won’t stop raining and the financial news is bad?
Is stability worth seeking or is it better simply to improve how we manage instability?
The answer is probably both.
There’s little point in pretending stability exists if it doesn’t. But equally, things being less stable needn’t mean we all become inveterate gamblers – putting our faith in Evensequalsdoublemymoney out of Trap 6 at Catford greyhounds only to see Trap 3, Orloseitall, romp home by ten lengths.
Just as weather fluctuations seem to be getting more extreme, so are those in investing.
Triple A rated safe havens are reducing in number. So although German, UK and Danish government bonds appear to be secure places to have your money, their popularity as safe havens have driven prices up dramatically.
So, despite falling inflation, you’ll still be losing money in real terms by investing in Berlin or Copenhagen.
And with more than 30% of UK gilts purchased by the Bank of England, sovereign bond prices closer to home have ‘false market’ written all over them.
When we also consider that as recently as May 2010, Spain was rated AAA with a stable outlook by Fitch – now BBB with a negative outlook – even today’s safe havens may not carry the confidence for the future that they once did – and indeed, their rating would imply.
In summary, it’s not difficult to make an argument that the risk:reward profile of gilts is unattractive, even to the investor looking for safety at all costs.
So what’s left?
- Pile into equities?
- Property that may be prone to further falls?
- Natural resources?
The fact is:
- Things are volatile out there, so we’d like more stability
- But, rock solid investments provide negative real returns AND may not be as rock solid as they appear
- And other assets appear flat, risky or frothy
So, what should we do?
- Bury our heads in the sand?
- Get depressed?
- Agree that greyhounds maybe a more sensible investment option than we first thought?
Hopefully, none of the above. Despite the (Western) world’s finances having turned very nasty in recent years, an optimistic view might be that if things can turn ugly quickly they can brighten up just as fast?
Maybe we will have to work for longer than we planned? But need this be a disaster? Surely we don’t spend most of our lives in purgatory so that we can have a few years at the end watching ITV3 and stair lift infomercials? Part time work post 65 may well increase and may well be a good thing.
Should we invest in slightly riskier asset classes than in the past, but spread the risk across a wider array of asset types? Some in geographic emerging markets, some in natural resources, some in private equity for start ups, some in sector emerging markets?
Certainly, we should we take a more active role in our investments than we have in the past?
Real time technology wasn’t available in years gone by. As people increasingly monitor their own portfolios, they will work with their adviser to identify the right strategy and opportunities for their needs?
And as a result, maybe investing (for the long term) will win the battle against trading (for the short term), producing an increase in… stability.