While investors should always be prepared for ups and downs, recent events have made markets particularly volatile. Investors wondering what the future holds are asking how they can protect their assets.
Yet another wobble for the markets
After a rocky few months characterised by rising interest rates and falling bond values, the bad news keeps on coming. In March 2023, financial headlines have been dominated by banking failures.
First, markets were rocked by the failure of Silicon Valley Bank and Signature Bank in the US. A few days later Swiss banking giant Crédit Suisse’s troubles caused further market drama.
These events have sparked much media noise about whether we are headed for a repeat of 2008’s global financial crisis.
If you’re an investor, you won’t be alone in wondering what you can do to protect your investments.
The solution: diversification.
What is diversification?
A well-diversified portfolio is absolutely key to successful investment. If you haven’t come across the concept before, it is really very simple.
Assets are generally held in the form of equities or shares, bonds, cash, property and commodities. Diversification means investing in a variety of these asset classes rather than putting all your eggs in one basket.
In fact, many experts claim that how you choose to allocate your assets is a much more important determining factor influencing returns than your choice of specific stocks or funds.
How does diversification protect investors?
Diversification of assets balances risk because different asset classes will react differently to changing economic conditions. With a diversified portfolio investors can offset the losses of an asset class that is struggling with others that are proving more resilient. This is the best way to protect your investments.
Risk can be spread even further by diversifying within each asset class. Examples include owning shares across different geographical areas or choosing bonds that mature at different times.
A long-term investment strategy is key
Assets should be allocated based on your personal risk parameters. Taking more risk offers a greater potential upside but this needs to be balanced against factors such as your age, goals and your investment timeframe.
This last point is absolutely crucial. The nearer you are to needing to cash in your investments, the more cautious you should be in your approach because you won’t have time to recover from the hit of a loss.
While good news is thin on the ground for investors right now, market experts report that conditions are not the same as they were in 2008. So while caution is recommended, for now, it is generally agreed that imminent disaster on the scale of the global financial crisis has been averted.
What certainly doesn’t make sense in the current market is to crystallise paper losses with a wholesale selloff of stocks. If you can ride out the storm and stay invested, current losses are likely to be a blip in the upward trajectory of long-term gains.
Asset allocation advice
Investing doesn’t need to be complicated but expert advice will give you peace of mind that your portfolio is sufficiently balanced. A professional financial adviser can help you assess your tolerance to risk with sophisticated risk profiling tools and devise a financial plan that aligns your asset allocation to your financial goals.
Infinity has been advising expatriates in Asia since 2004. We have a wealth of knowledge and experience to bring to your financial planning. Our advisers maintain active and ongoing relationships with their clients, who can seek advice and reassurance at any time. Regular reviews ensure that their assets are sufficiently diversified to minimise risk and maximise return, whatever is happening in the markets.
If you’re an expat in Asia and looking to work with an adviser who puts your needs first, contact us today.
A leading provider of expat financial services and wealth management services across Asia.