Two major events took place in the past week , that had markets in a state of panic since the start of the year. On Thursday Federal Reserve Chairmen, Janet Yellen, refrained from hiking interest rates, while over the weekend Greece avoided another event which would have seen them leaving the Eurozone.
Over the weekend, Federal Reserve officials argued that an interest-rate increase is still warranted this year, laying out the case for liftoff in remarks over the weekend that counter bets by traders that the central bank will stay on hold until 2016.
Greece’s government bonds may extend their longest run of weekly gains in a year after the nation voted Alexis Tsipras and his Coalition of the Radical Left, or Syriza, into power for the second time in eight months. Syriza, which took 35.5 percent of the vote according to an official projection by the Interior Ministry based on more than half of votes counted, will enter a coalition with the same small party that helped it rule before. Syriza fought of opponents campaigning for Greece to leave the Euro Zone so that austerity measures could be avoided.
Specialist Comment:
With concerns over China also dying down in the past two weeks, the recent news over U.S. interest rates and Greece once again showed how quickly investors can be caught up in a panic over nothing. This however doesn’t mean that we have seen the end of market volatility. In fact, the delay of the Fed to hike interest rates might point to the fact that there are bigger risks that we are unaware of. And interest rates should go up all around the world, it is just a matter of timing now at this stage.
Even though there might be some temporary optimism in the market at the moment, the fact remains that investors should decide at the inception of their investment if they are willing to take on volatility. If they are willing, they should refrain from making any changes to their long term investment plans when volatility is present. Do not reduce risk during times of panic and do not take more risk during periods of optimism.
The graph below illustrates the importance of taking risk into account when making investment decisions. The Discovery Escalator-Discovery Balanced Fund lagged the JSE All Share Index at the start of the year, but caught up with the performance by the end of April due to a small market correction. It then went on to outperform the much more aggressive index because of much better risk control. Off course the All Share will outperform this fund in a continued bull market. Thus, as an investor you need to ask yourself what the chances are of us going through a strong bull market in the next 5 years and if you do not expect this, which company can offer you the best risk adjusted solution?
Regards,
Tersia van Nieuwenhuizen
Independent Contractor to Discovery Life
Direct: +27 21 975 3199
Fax: +27 21 975 3995
An authorised financial services provider - FSP No. 18147
|
|
No comments:
Post a Comment