Greetings and Happy Friday!
Last week we looked at the risk of cryptocurrencies which made traditional assets like stocks, property, and bonds look tame from a risk perspective, but of course, the risks are always there no matter where and how you invest, even cash.
The Biggest Risks Are Where You Aren’t Looking
As Investors, we love the reward of high returns, but we hate the risk that comes along with it. We all seek to manage risk in our investment portfolios in various ways; ensuring we have good diversification in our portfolios and keeping a cash cushion for financial emergencies are just two examples of things that can help you keep financial risk manageable.
However, no matter how hard you try, you can’t eliminate risk entirely. The reason is that the biggest risks often come from completely unexpected directions that few would ever predict. For a current example, take the Covid pandemic- who would have expected something to come along and shake up life as we know it like this virus did and is still doing!
The same thing can happen in investing. For instance, some investors think that by putting all their money into cash or bonds, they’ll avoid the volatility of the stock market. Yet in protecting against the risk of losing their money due to a stock market downturn, these investors take on risks they might never have even thought of. Inflation will erode the purchasing power of their cash savings over time. Moreover, many bond investments are subject to interest rate risk, and even a fund that owns solely bonds backed by the full faith and credit of the SA, USA, or any other government can suffer price declines if rates rise.
All too often, risk ends up looking like the ancient myth of the Hydra. Like chopping off one head would only cause the Hydra to grow another in its place, so too does eliminating one type of risk often leave you exposed to another.
Smart investors manage risk where they can, but they also embrace the risks they can’t eliminate. If investing didn’t involve risk, then the returns available from stocks wouldn’t be nearly as high. By being able to face your fear of risk and invest anyway, you’re doing what millions of people can’t bring themselves to do — and in the long run, you’ll reap ample rewards from doing so.
In the News this Week:
Friday, 21 May 2021
US equities finished higher in relatively calm Thursday trading, with the S&P500 rallying after a three-day losing streak. Growth stocks outperformed value for the 2nd consecutive day. Tech was a standout on semiconductor and software strength. Communications services saw fairly broad-based gains. Consumer discretionary was helped by pockets of strength in autos and housing, though retail was mostly weaker. Financials and industrials were among the laggards but energy the only sector closing in the red. Unemployment benefit claims fell to a new pandemic-era low, jobless claims set their lowest levels in more than a year as the labour market continued to recover.
European equity indices ended higher. Technology, financial services and auto & parts lead to the upside. Basic resources were the main laggard. Coronavirus news in Europe remains encouraging. In the UK, worries over Indian variants have eased somewhat after the UK’s PM Boris Johnson said he is increasingly optimistic the final stage of reopening can go ahead as planned on the 21st of June. Early data suggests the Indian variant was not spreading as fast as previously feared. US and European flash PMI’s are due later today.
S&P500 +1.06% Dow +0.55% Nasdaq +1.77% FTSE100 +1.00% DAX +1.70% CAC +1.29%.
Asian markets are mixed this morning. Commodity producers are lagging while tech & semiconductors are among the notable gainers in Taiwan, Japan and South Korea. Japan’s core deflation came in unchanged from the prior month against expectations for a deeper contraction. Japan’s flash PMIs showed a sharper pullback in services activity amid the coronavirus resurgence. Australian retail sales growth was much better than expected.
Nikkei +0.60% Hang-Seng -0.29% Shanghai -0.45% ASX +0.02%
SA markets closed firmer, the rand broke R14/$ after the SARB decided to keep interest rates unchanged. The SARB’s model indicates a 25 basis points rise in interest rates in the 2nd quarter of 2021 and another in the 4th quarter of 2021 but they don’t seem to be in any rush to raise rates. Retailers faired the worst, losing 2%. The 10-year Government bond closed firmer at 9.05%.
Notable Gainers/Losers
Investec +3.20% Tiberbrands +3.14% Reunert +2.80% South32 +2.04% Naspers +1.94% Prosus +1.85% Firstrand +1.79% Amplats +1.40%
Supergroup -4.75% Foschini -3.27% Ninety1 -3.25% Anggold -2.33% Pepkor -1.85% Bidvest -1.71% Sasol -1.46%
JSE All-Share +0.41% JSE Top 40 +0.49% Industrials +0.80% Resources -0.23% Financials +0.98%
JSE All-Share 66’125
S&P500 4’159
USDZAR 14.00
EURZAR 17.12
GBPZAR 19.85
EURUSD 1.22
GBPUSD 1.42
GBPEUR 1.16
AUDZAR 10.86
NZDZAR 10.06
Brent Crude $65.17
Gold $1’874
Platinum $1’203
Palladium $2’871
Sources: Factset, Yahoo Finance, Trading Economics, BusinessDay Live, WSJ
Please give us a call or email if you need any assistance. Have a great weekend!
Kind regards,
Your TurnPoint Team
Vic Hodoul CFP®
Certified Financial Planner®
Cell: +27 (0)79 353 1076
Email: vic@turnpoint.co.za
Office/Admin Manager:
Arlene Schoeman: +27 (0)21 555 1010
Email: arlene@turnpoint.co.za
TurnPoint Investments
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