HOW EXACTLY TO Protect Your Investments Against Volatility

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Our ethos at Hassium is to concentrate on prosperity preservation. Whether you have £10,000 or £10m, lots of the same guidelines to invest apply. You need to concentrate on the future. Stock markets will be increasingly volatile – a measure of market risk – so that it is important to be reasonable in your objectives for investment earnings.

Your key factors for deciding where you can allocate your cash are risk, liquidity, and diversification. We advise focusing on the five big strategic investment decisions you will need to get right to be able to weather the “volatility storm”. At least 80% of your profile should be in liquid investments, i.e. cash or cash-like financial devices.

This is not because we think the world is dropping apart but rather because we believe there will be some amazing buying opportunities for investors over the next few years. Part of this strategy is to keep about 30% of your investable resources in cash and short-dated bonds. If the most severe were to occur (the so-called “Black Swan” event), the pricing of all major asset classes – bonds, shares, property – would become highly correlated. In this particular event, cash and short-dated bonds would be the only real way to diversify your risk from financial markets.

Traditional asset allocation and stock portfolio diversification would go directly from the window. Depending on your base money, we would recommend sticking with top quality government bonds within the longer term – UK gilts, German bonds, and US treasuries only. We suggest most of our clients not own government bonds with more than 2 yrs in maturity.

High-quality short-dated corporate bonds are an alternative solution, and may offer more returns over cash and authorities bonds, but are more dangerous. Traders should avoid taking significant credit interest and risk-rate risk and understand that chasing produce, or income, is the worst thing possible. Remember that all cash-like investments should maintain your foundation money.

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Investments in other non-base currencies are speculative in character and add more risk to your profile. The big global investment players have previously made their long-term money allocations to silver. Although we recognize that prices may yet go higher, we would not be allocating new money to gold at market levels.

Gold remains in bubble territory and anyone buying at these levels is actually speculating, not trading. When market volatility is high, traders sell their gold, as it appears to be viewed as a short-term provider of liquidity or cash. When markets recover, investors again sell their gold and then reallocate their money into riskier assets, such as shares and commodities. It’s important to keep in mind that ongoing company profitability and earnings are what drive share price rises, not geopolitical events. Over the future, we are motivated by reasonable valuations in many international stock marketplaces, along with better-than-expected income numbers. The US is the engine of the world economy still and bigger than the combined economies of China, Germany, and Japan.

If you want to place your cash into property, hedge funds and private collateral, then be certain to keep your exposure low. Remember, you are taking much higher risks when putting your money into these broadly illiquid “alternative investments” than if you invest into global share markets. It seems sensible to truly have a significant long-term allocation to oil, agriculture, and specific growing markets.

After an extended period of extreme caution, we’ve been more optimistic about goods and emerging marketplaces recently. Exposure to commodities and emerging markets is a long-term play on the global recovery and provides some diversification to an investment portfolio. Last and by no means least, understand that fee leakage equates to wealth damage over the future. Total fees should be only 1%. This includes management charge charges, execution costs, custody fee charges, and any retrocessions or rebates, which should continually be coming back to you as your client.

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