Investing in record-breaking stock markets with a balanced portfolio
Investments
Posted by MoneyController on 30.09.2024
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In recent months, the markets have accustomed investors to a series of records. But how prudent is it to invest at a time of stock market records? Doesn't one risk seeing the value of the securities one has just bought fall very soon?
In ‘Il Corriere della Sera’, Gabriele Petrucciani reports on some considerations by Mark Haefele, chief investment officer of Ubs global wealth management. The manager points out that history shows that investing around stock market highs is less risky than one might think. While it is true that in at least two cases, i.e. in 2000 and 2007, buying near the highs turned out to be a mistake, so to speak, in other cases it was otherwise.
According to Haefele, not investing in markets even when they have reached their highs does not take into account the risk of missing opportunities in the meantime: those who do not invest in markets at highs typically do so in order to wait for stocks to reach an attractive discount level. But this can lead to reliance on a market timing strategy, which relies on the difficult exercise of predicting the price trajectory of market stocks; an exercise, according to Haefele, that is ‘overrated’ in its effectiveness.
This is not to say that investing in the markets of record does not involve risk. So it is not surprising that the chief investment officer of Ubs global wealth management speaks of a balanced investment strategy, i.e. a portfolio in which the allocation is distributed 60% in equities and 40% in bonds; in the scenario envisaged by Haefele, such an allocation (namely 60% in US large caps and 40% in Treasuries) leads to reduced risk of loss: losses in excess of 20% occur in only 5% of cases.
Meanwhile, as stated in Petrucciani's article, other opportunities seem to be opening up for investors: on the one hand there are interest rate cuts, while on the other hand there are discounts on European equities; this price level, which is significantly different from the US, explains Oliver Girakhou, portfolio manager at Robeco, is now a strong element for European equities.
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