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Stock markets are in turmoil. Markets which had rebounded strongly at the end of the last recession appear to be entering muddy waters once more. The FTSE 100, a measure of leading UK blue-chip companies listed on the London Stock Exchange, is down over 10% year to date as we go to press. Articles in the financial press towards the end of 2010 suggesting the FTSE 100 may break the magical 7000 level by the end of 2011 now seem a distant memory. So what has gone wrong?
The European and US debt crisis continues to worry markets, with Italy the latest and largest of the developed economies to be dragged into the European crisis. As markets look for direction, to compound matters even further, the apparent inability of American politicians to get to grips with their own multi-trillion debt problem has had a number of adverse effects; one being that a major credit rating agency (Standard & Poors) has downgraded its credit rating from the magical AAA to AA+. This in turn has sent shivers through the market, particularly in China, which is possibly the largest holder of US Treasury debt. Perhaps more importantly it has increased borrowing costs to both the American central Government and its own domestic consumers, which raises the possibility of leading the United States back into recession. The Chinese themselves have their own problems as they continue to tighten fiscal policy to grapple with their own domestic inflationary worries.
With so much volatility and uncertainty in the markets the following is a logical question:
Where should my investments be positioned going forward and are they being appropriately monitored?
To answer this question you should consider what you want to achieve from your investments and ask yourself a further series of questions.
• Are you prepared to invest over the medium to longer term, minimum five years and probably longer?
• Do you understand the investment risk you are taking and are you comfortable with this?
• How far could your investment portfolio fall in value before you become uncomfortable?
• When did you last sit down with your adviser and review your investments, as well as the risks you are prepared to take?
In these uncertain times, more so than ever, you need to be confident as an investor that your investment solutions reflect your objectives and views on investment risk. Armstrong Watson, as an independent financial advisory firm, has been providing bespoke investment solutions for clients for many years.
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