Market update: Keep calm and carry on (investing)
Selma – your friendly, but dauntless and determined bot – has found that markets actually look more attractive again and sent a signal that part of your investments should be switched out of precious metals and into international companies.
Main market update take-aways
- Markets are now more cheaply valued than before, so you are likely getting more bang for the buck over the long term when buying now. 💪 A long-term perspective is important: Time in the market beats timing the market!
- Selma will use money from your investments in precious metals to buy more international companies. Precious metals have done their job of protecting your portfolio while companies were too expensive.
- While inflation may make you mostly think of gold, don’t forget that company stocks actually offer you better long-term protection against inflation than cash or loans to countries and companies.
Markets had another turbulent quarter as fears increased
In case you were busy with finding the last affordable flights for your summer holidays 🙄 or checking your mom’s WhatsApp status (because you rightly trust Selma to take care of your money), here is a very short version of what happened in financial markets:
Market prices for international and Swiss companies got weaker because there has been a rising fear of inflation and recession. In Europe, the ongoing tragic war in Ukraine and rising energy prices have worsened the economic outlook. Generally, companies that were very expensive to start with, like US internet companies, lost a lot. One famous example is the Netflix stock, which has crashed by 70% since the beginning of this year.
Good for you that Selma does not invest in single companies but creates a broad mix of investments with the help of ETFs! 😎
Why Selma buys international companies now
International companies have now become fairly valued, or even a little bit undervalued. Selma monitors the price of global stock markets and checks if prices are high or low compared to previous years and how much companies earn. Once prices are low, Selma buys investments and vice versa. Selma does this to reduce risks (selling things that are getting too expensive), and to generate additional returns (buying things that are currently cheap) for your investment plan.
Here you can find more information about how Selma does long-term measurements of over- and undervaluations.
Why timing the market is totally overrated
Nobody can forecast the future. That’s why Selma does not rely on forecasts of any human experts, but rather on accurate numeric data and proven models. There is a well-known saying that has been demonstrated to be true over and over again.
Time in the market beats timing the market! 🤓
The past has shown that the best trading days often happen right after the worst. And missing just the 10 best trading days over decades of investing can easily reduce your return by half! (See here and here for such studies).
Why company stocks are also protecting you against inflation
If you are afraid of higher inflation reducing the value of your money 💸, keep in mind that company stocks are still a better place than cash or loans to countries over the long term. Loans and cash don’t adjust for inflation, but company earnings eventually do. And investing in companies gives you the right to participate in these earnings.
So, what about bonds (loans to companies and governments) then?
Loans often still have their place in a well-diversified portfolio, under many scenarios: In case of a deeper recession, they should partially keep you from losing money with company stocks. And if interests continue to rise over the longer term, the loans would also pay higher interest.
Some precious metals are sold to buy international companies
Investing always comes with trade-offs: Precious metals can protect you against inflation, but unlike stocks or bonds, they don’t pay you dividends or interests! Given this trade-off, valuations of company stocks have now simply become too attractive to justify a higher than normal allocation to precious metals. However, Selma will keep a minimum 5% share of your portfolio in precious metals.
Here you can learn more about Selma’s precious metals strategy!
A quick trip down memory lane: In 2021 Selma increased the number of precious metals in the portfolios in order to protect you from losing money if expensive markets turn weaker. In the first half of this year, this move paid off nicely. Although precious metals also lost some ground, they did so less than most other investments, thereby protecting your portfolio from heavier losses. Long story short, you probably lost less money with the Selma algorithm. 💰
Remember: Selma's adjustments are only done on the investment account. Your pillar 3a investments are handled by Selma's partner VZ and are rebalanced (adapted) in regular intervals.
A useful reminder of the key principles to successful investing
- Only invest money that can remain invested for at least 5-10 years. You don’t want to come into a situation where you have to withdraw money when a crisis hits. As we saw in 2020, the markets recovered within the same year! So even holding out a few months, allowed you to make it through the crisis without harm. 👍
- Do not invest everything at once, stepwise investing is a tactic that allows you to build up your investments over time and frees you of “waiting for the right time”.
- Keep investing regularly! Dollar-cost-averaging gets you a better average price and making a plan usually helps keep your head cool. ❄️
- Do not panic! 😱 Everybody feels a bit shaken now, not just you! As a comparison, if you would have sold everything when the markets crashed in March 2020, you would have lost a lot of money.
- Keep your profile at Selma updated. This helps Selma to make sure her investments are right for her.
- Invest in many different things at once. This limits the influence of one company or sector on the overall development of your investments – a great way to handle the risk of ups and downs of specific industries and markets much better.
Daniel is an economist (MSc) and financial analyst with over 10 years experience in the Swiss banking industry. He leads the investment management at Selma and he’s passionate about finding better ways to invest for everybody. Follow him on LinkedIn to get regular updates on what he thinks about financial markets.LinkedIn