Market update: Don’t fear the winter
Selma, your friendly bot, thinks that cool heads will prevail in the current difficult market environment.
In a nutshell
- Markets are still in a soul-searching phase, so a long-term perspective remains important. Now is a time when level-headed investment decisions based on facts can make a difference🕵️♀️. Investing remains the best protection against inflation!
- If you have real estate in your portfolio, Selma will use some money from your investments in US company shares to buy a bit more real estate.
- Selma will optimize your portfolio through replacing some funds with products that should better suit your needs.
A tentative stabilization
You notice winter is coming when you see gingerbread in supermarkets and the puck is dropping again in ice hockey stadiums. 🏒
Financial markets seem to have been in some sort of “winter” for a while, after the crash in the first half of this year. Concerns about an economic recession remain at the forefront. They are based on the tragic war in Ukraine, fears about a subsequent energy shortage, and worries about persistently high inflation. Given all this doom and gloom, here are some “fun” market facts that give us some courage! 🤓
Did you know that…
- …economies are growing far more often than they are shrinking?
Since 1960, the Swiss economy has spent almost 90% of its time growing, and just around 10% in recessions.
- …recessions are nevertheless an absolutely normal part of economic development?
Over the last 62 years, Switzerland has had 16 recessions (meaning the economy shrinks two quarters in a row), so on average every 4 years a recession happens.
- …stock markets often recover so quickly that their average return during recessions is actually positive? The US S&P500 index has returned 3.68% during an average recession since 1945! 🙃
As so often in financial markets, patience is needed. As of writing, several major stock market indices are on track to end this quarter at the same level where they began it. So, markets still struggle to rebound. However, on a more positive note, the third quarter saw some stabilization after two negative quarters in the first half of 2022.
Why you shouldn’t sell now, or wait for cheaper markets
If these facts haven’t been enough yet to convince you to stick to your long-term investment strategy, we have some further insights for you:
- The best trading days often happen right after the worst, e.g. in 2008 and in 2020. If you missed the ten best trading days in the last 20 years, your performance would have been halved 😮(based on a simple example of just owning the main US company share index, see here).
- Time is on your side. One or two years can be bad, but the longer the investment horizon, the more likely a well diversified portfolio will generate positive returns.
- 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. Historical evidence suggests that timing the market is a futile attempt.
Time in the market...
...beats timing the market! 😬
More real estate for your portfolio
The real estate market has continued to hold up well relative to stock markets. At the same time, valuations have remained fair on a global basis. Thus, a slightly larger portion of your portfolio will now be allocated to real estate (if you have real estate in your portfolio – see how Selma puts your investments together).
Recently, the US market has become more expensive relative to company earnings. Hence, Selma’s buying of real estate will be financed by a slight reduction of US company shares in your portfolio. Here you can find more information about how Selma does long-term measurements of over- and undervaluations.
Selma replaces some funds
Changes in market conditions warranted some changes in Selma’s product selection: Going forward, you will see a new Swiss company shares fund that includes more than 210 companies (better diversification 🦾), compared to just 20 companies in the old one. There will also be a new fund for Japanese company shares with lower transaction costs. This will save you money every time there is a transaction, like when you add or withdraw money from your portfolio, or when Selma buys or sells a few more shares to make sure your share of investments in that fund are at their target weight.
Furthermore, your loans to companies will be in a fund that features “currency hedging”. This means that you don’t bear US dollar vs. Swiss franc exchange rate risks on this fund anymore. It’s important because exchange rate swings can be unnecessarily large for these funds, which should play a more stabilizing role in your portfolio.
Your 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 the 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 which 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 keeping your head cool.
- Do not panic! 😱 Everybody feels a bit shaken now, not just you! As a comparison, if you had sold everything when 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 your investments are right for you.
- Invest in many different things at once. This limits the influence of one company or sector to the overall development of your investments – a great way to handle 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