Given the extended sell-off and thus fall in stock markets this week, we believe it’s important to give some background to the moves and also a timely reminder of how our portfolios are built for you to take account of the ups and downs of markets.
On the other side of the water, the stock market has seen more losses amid growing Wall Street worries about a trade fight between the U.S. and its trading partners, rising interest rates and continued weakness in shares of Facebook and other tech stocks. This has followed a sell-off on Wednesday initiated by the Federal Reserve’s decision to increase base interest rates and point to a further 3 potential rises in 2018.
A little closer to home, the UK markets have fallen on the back of the Bank of England’s vote to keep interest rates as they are leading to a rise in the pound.
It’s at times such as these that it’s important to remember that our portfolios are built based on our client’s risk tolerances.
The risk profile completed as part of our advice process allows us to use a number of sophisticated factors to create an asset allocation (a set of parameters of where to invest) that enables us to diversify both in terms of geography (across different continents and countries), but also in terms of asset class (cash, bonds, shares, etc).
The above-market update explains that stock markets have fallen and as a result of this, what we often see is a ‘flight to safety’, meaning that investors often move to less risky assets such as bonds. This would then improve the values of bonds, for example, due to supply and demand.
As your portfolios are diversified across these asset classes, whilst elements of your portfolio will be exposed to some of the falls, you also have diversified exposure to the ‘less risky’ asset classes at the same time so you benefit from their protectionary nature and indeed potential increases in their value. We have also explained during our quarterly reports that we have been carrying a larger allocation of low-risk assets such as cash as we've seen that some volatility such as this week is probably likely.
This means that your portfolios are set to manage such situations and whilst it’s still no fun for anyone with such volatility (ups and downs) in investments, be rest assured that we design and manage your portfolios to only move within the levels at which your risk profile will permit.
Again, it’s important to reiterate, we invest for the medium to long-term and investment decisions are made in that way.