Where Should I Be Investing Now?
Over the past several years, the answer to that question was much easier to gauge. However, we have entered into brand new territory for a lot of newer investors. There have been times over the last several years where you could have almost thrown the proverbial dart at the wall and picked a winner—especially if you were targeting the right sector(s). Now things aren’t so simple.
For those with longer time horizons (15-20+ years), the current volatility in the markets should not deter you from getting involved and staying the course. In fact, this is possibly the best time to be entering into the market. However, for those with shorter investment timelines—people who will need to access the money in their investment portfolios in the next 5 years or so, now is a good time to consider investments offering a fixed rate of return over a short- to medium-term duration.
What exactly is a fixed return investment? As the name implies, a fixed return investment has a predefined return for a specified period of time. Unlike an equity stock (such as Apple, Microsoft, Exxon Mobil, etc) where the price can (and will) fluctuate from day-to-day, there are no fluctuating prices for fixed return products because the return has already been predetermined. The most popular example of a fixed income product is bonds.
Bonds are, quite simply, loans. They can be issued by corporations, governments, etc. that are looking to raise money for any number of reasons. A bond is a promise to pay a certain percentage of the investment (coupon rate) for the predetermined duration of the bond (aka date of maturity). At maturity, you receive your final coupon plus your initial investment (principal amount).
Whereas, historically, bonds have always had its place in an investor’s diversified portfolio, recently the returns in the bond markets have been unconventionally underwhelming. Luckily, there are other fixed return products in the marketplace other than traditional bonds that offer competitive returns. On the subject of returns, no discussion of returns can be held without discussing the correlating relationship with risk—the higher the risk, the higher the returns; and vice versa. Anyone promising you exorbitant returns with little to no risk should be viewed with a healthy dose of skepticism.
The sort of conservative returns that you can expect from fixed return products should be somewhere around 6 – 12% ANNUALLY. Yes, this is not the same exciting returns of investing in an equity stock that may move 6% in a single trading day, however these are the sort of fixed returns that ensure your lump sum of money is soundly invested and not being eaten away by inflation sitting in a bank account.
In markets with a great deal of volatility, predictable (ie boring) returns are your friend. Knowing what you can expect to receive quarterly, semi-annually, or annually allows you to sleep a little easier at night while everyone else is fretting what the markets will look like from day-to-day.
At Universal Expat Solutions, we focus on providing highly-rated products along with unparalleled client servicing. UES prides itself on its commitment to building trust and long-lasting relationships. Any financial discussions come with a guarantee of privacy, honesty, and free of any pressure. It is an opportunity for you to gather information and ask questions, so that you are able to make an informed decision on the personal viability of investment options discussed.