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Investment options, should you Stick or Twist?

I recently posted an article on Astraasia about ‘Money market funds’ [MMF] and why they are and will continue to be a popular investment for many during this volatile time.


With interest rates worldwide having increased dramatically over the past few years the temptation to invest in MMF is understandable. As we discussed in our article MMF, in USD currently offer over a 5% yield on an annual basis with a similar risk to having your funds in a bank account.


It’s also worth remembering that since the late 90’s and early 2000’s, we have not seen interest rates as high as they currently are. That is a period of over 20 years where investors have predominantly not invested in cash. During this period long-term investors in equities instead have been significantly rewarded.


The incredible advances in technology have driven the surge in US equities over the past 30 years and more, the benefits of the internet, and globalization plus a reasonably stable world. Over the past years, we have seen the trend of globalization reversed highlighted by the breakdown of trade and relations between the US and China.


Globalization succeeded in putting downward pressure on inflation and interest rates which is perhaps the key reason why over the past few decades interest rates have been low and MMF as a result unattractive. The relationship between China and the US is unlikely to improve soon as the US becomes more insular. This is also compounded by the war in Ukraine which has pushed up food and energy prices.


Over the past month, we have also seen the powder keg which is the Middle East explode as the world has allowed the Palestinian problem to fester for so long. The unbelievable misery and suffering that the Palestinians have gone through over the past many decades has violently come to the forefront of the problems of the world.


This is at a time when the Middle East and especially the Gulf States have gone through an incredible boom leading them to become some of the richest states in the world. This boom has also benefitted many other Arabs and Asians from the sub-continent who have made places like the UAE, Qatar, and other Gulf States their home.


Over the past few years, many Gulf states have also tried to normalize their relationship with Israel. A few decades ago this would have been unheard of but sadly the recent events in Gaza will almost certainly reverse this trend. It is worth noting that despite all the negative stories you hear about people working in the Gulf this does not take into account the positive impact this employment has had on the lives of literally millions.


The success of the Gulf States will have brought many families in Asia and the Indian sub-continent out of poverty as well as significantly boosting the profits and success of many global companies. With high-interest rates in the US and the current significant issues the world is facing, it is no surprise more and more people are keeping their money in ‘safe’ assets like cash.


As a financial coach every day I am asked the same questions from investors as to whether they should ‘stick or twist’. Sadly like with many things at the moment the answer is never simple and needs careful thought based on your current situation, risk profile, and financial goals. Generally, the normal advice would be that you would diversify and have a balance between cash and equities and bonds. The younger you were the more you would have in equities and the older then you would reduce your equity exposure.


Recently though more and more younger clients who would normally be happy with a reasonably high equity exposure are dialling this down. This is due to the uncertainty in the world and the ability to achieve a return of over 5% per annum at the moment in MMF.


With investing there is no right or wrong choice it is just about fully understanding the current options available and discussing them with someone who not only understands your financial goals but also understands your ability to tolerate risk and volatility in your investments. it will also help if you get access to speak with a coach when things don’t look so great and you need reassurance that you have made the right choices.



So what are you Stick or Twist options?


For those feeling worried and unsure at this moment in time then increasing or reallocating your portfolio more to MMF will provide comfort by reducing volatility and still giving you a reasonable return.


For the risk takers or ‘twisters’ in life it is fair to say that even in ‘bad times’ Mr Market will always throw up opportunities. This could be companies that are pioneers in AI or businesses that build things like cyber software. Extremely well-managed businesses are also likely to always do well and there are certain businesses which we depend on for our day-to-day needs.


The current breakdown in globalization while likely to push up inflation and affect the market in China, which we are already seeing, will instead create opportunities in other economies in the Asian region.


Over the past few decades, we have seen an incredible boom in people investing in ETFs; funds that track a particular market; and these funds have generally richly rewarded those who chose that option with minimal costs.


ETFs by their nature track everything and in a world that is becoming more dysfunctional by the day, this strategy is unlikely to be as successful going forward.


Summary:


Currently, in this complicated world, more and more people are turning to the help of a ‘wealth manager’ to navigate this complex world we live in.


A good wealth manager will not only save you money but also time and help you to become mentally more positive and understanding of the financial choices you make.

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