Risk taking
With interest rates still low –
some government bonds offer negative interest rates – the Eurozone crisis stabilizing
and the US economy healthier, investors are emboldened.
A huge amount of liquidity has
been sitting in cash or negative yield bonds out of fear. As that recedes, a
wall of money is flowing into financial assets. Debt markets are very
accommodating and there is a lot of capital sloshing around.
Some of the governments are more
desperate than others – in the UK there has been serious discussions on imposing
negative interest rates as a stimulus measure. This will further undermine the savers efforts
to earn meaningful money to preserve the capital against inflation.
Spread between yields for
highly-rated and lower-rated companies bond is far narrower than it is used to
be. Investors are chasing returns, sometimes at all cost. It is not unheard off
that emerging markets institutes rated at BBB- successfully selling bonds at
3.6 per cent in USD. This makes bonds rather risky and pricy investment.
Investors are putting money in
the assets they would not do otherwise for the premium they are getting – stock
market at the current returns. Markets are almost at all-time high, while the returns
are very low. There is a risk of not
only erasing value of the money, but erode the returns as well.
Currency Wars.
The countries are on the brink of
currencies war, to protect their economic growth and well being. It is also very
efficient way to get rid of the debt.
-
Japanese
Yen October 1st till today 78 to 93 or 20% loss of its value
-
Both
British Pound (GBP) & Canadian dollar lost 3-4%, while British pound lost
almost 25% of its value to USD since 2007.
However historically wise situation is
not so bad:
Such data is not entirely
representative, as different countries have various inflation rates over the
period of time. One would imagine that it would be about the same in globalization
market among the developed countries. In the last decade inflation in the UK has
been significantly higher than in the USA, while in European Union expenses
where much butter controlled.
However if you are earning your money in the same currency you are spending
and all your obligations are in that currency as well, the diversification
presents merely opportunity, rather than risk.
One need to remember that diversification whether it is currency, or
mutual funds spread the risks but potential reward as well. It is if you would beat on different car manufacturers
– there will be always be winners and losers.
Broad market presents opportunity
to go across the sectors and seek opportunities there. However this might not
to present desired diversification as those are independent companies in the
relevant sectors and you still might lose it all. An appropriate analogy would
be not spreading bets at the same table but betting on multiple tables at the
same time. Investing is not a gamble but a calculated risk, however the
important word to understand is risk.
Satisfaction
I do enjoy what I am doing at
work. There is ups and downs but in general
I am quite content. On administrative side of things there is huge uncertainty
with duration of the contract and the future.
On personal side of things I am
finding it stressful and not particularly comforting. Fact that at the current savings rate I am unlikely to achieve financial independence before my “normal” retirement age
does not help.
On the other hand I have a roof
above my head, food on the table and be relatively in a good health. I received a small bonus for the last year –
in a region of $ 10 K and I am planning to invest it in full in stock
market. It should give me about $200 - $400
income a year for life during retirement. Every little helps.
I have been quite fortunate to
secure a relatively good contract for next year, this should help to fulfill
financial goals. I find it somewhat
challenging to save the money and delay consumption.
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