Markets are calming down in the aftermath of the Greek elections and the recent US Federal Reserve Meeting. In the end, the Greeks voted for austerity over leaving the EU, and although the US Federal Reserve did not come in with a massive stimulus package, they reaffirmed to keep interest rates low for a long time and continued their buying of long term debt.
Spain is still being tested by the markets, but barring any immediate negative news coming out of Greece or Europe, I think these will gradually subside. In short, Europe may have bought themselves some time. The problems in Europe are not solved by any means, but after this round of market turbulence, the European leaders should realise that they can’t keep on postponing the problems indefinitely and so, hopefully, a more lasting solution will eventually be raised.
Markets in general, though they saw a rebound from their lows this month, have not really moved up by that much. In the first place, I think the selloff was not too severe either. At its worst, many Asian markets were down 8 to 12% from their peaks this year. So, when the rebound started to happen, it was not a very strong one either. Also, being plagued by problems from Europe for about 2 years now, few investors believe that the European debt crisis will not again resurface as a potential issue, and so caution reigns in the market right now.
This does mean that valuations remain quite cheap for most markets. For those who are still very cautious at this time, then diversifying is the way to go. Adding bonds to your portfolio in the form of bond funds is a good way to diversify away equity risk. Especially if the bond funds we are talking about are Singapore bond funds or short term duration bond funds. These move on a very different cycle from stock markets. When I call up the fund selector to sort out all the Singapore bond funds, I get eight and all eight have positive over periods ranging from 6 months to 10 years. Over the last 3 years, the best performing of them registered an annualised 7.39% return while the worst performing still achieved an annualised 4.4%.
I think there is still a misconception that unit trust means investments, and that once we start talking about investments, it must be high risk, and involve stock markets and such. Investments are not all high risk. There are many like the Singapore bond funds I mentioned which resemble much more fixed deposits and savings accounts than they do the high octane equity funds. While I remain positive on equity markets at this point, I do think that the ups and downs of equity markets are not for the faint of heart. For those who just want a decent return on their money without having to take the risks which involve stock markets and their volatile cycles, then the low risk bond funds like Singapore bond funds should certainly be considered. They fit the bill, in more ways than one.
Message from IM$avvy Admin: Visit www.cpf.gov.sg > Calculators/Games to better plan your finances via the various calculators.
Category: Investment | 1 Comments