Optimism in the face of uncertainty

In a nutshell: 

• Stabilisation and Optimism: Despite ongoing challenges, the financial markets are displaying signs of stabilisation and increasing optimism.
• Diversified Investment Strategy: Selma emphasises the effectiveness of a well-diversified investment strategy to mitigate risks while preserving long-term return potential.
• Portfolio Adjustments: Selma doesn’t let its guard down. The algorithm identifies a good opportunity to buy some more protection from precious metals and corporate bonds. Conversely, there's a slight reduction in shares allocated to international companies.

Here is Selma’s latest review & outlook of investments, so you can hopefully enjoy the last remnants of summer, before Christmas shopping begins again.

Emerging optimism

Amid the recurring market setbacks, it's important to recognize the significant improvement since last year. Since March, the market has been gradually revealing a sense of rising optimism. The volatility index (US VIX) is approaching pre-COVID levels, indicating more stable share prices. The good news here is that more stable share prices can be a harbinger of rising share prices. 📈

Tentative changes in market dynamics

Recent weeks have seen some declines in company share indices, as interest rates rose again. However, the period from March until July saw a very interesting, and positive, change: In contrast to last year, major indices rose irrespective of what interest rates were doing. This could signal markets are increasingly getting used to the higher interest rate environment.

Clouds, but no storm

While globally spread investment portfolios, such as the one utilised by Selma, have not fully recovered from the 2022 downturn, the dire predictions of banking crises and imminent recessions failed to materialise. In fact, major stock markets are now higher than their lows of last September. 

Back then, higher inflation was a new thing, and a potential energy shortage crisis threatened economic growth. While these problems have not been fully resolved, financial markets have begun to digest them. As economies and societies try to cope with the challenges, financial markets are gradually moving away from doomsday scenarios and focusing on more moderate long-term scenarios.

The correct investment horizon

In many cases there may be perfectly valid personal reasons for choosing investment horizons shorter than 10 years. We simply caution against choosing a shorter investment horizon out of fear of financial market stability. Ideally, your investment horizon should only be determined by your ability to leave your money “untouched” for that period of time, so that it can grow properly. Temporary uncertainties in the financial markets should not dictate your decision.

Immediate vs. stepwise investing

Calmer financial markets tend to favour immediate rather than stepwise investing. The sooner you put money to work, the longer it can work for you. An easy way to take advantage of this is to make regular (e.g. monthly) deposits into your portfolio. However, for larger sums, Selma would still recommend investing stepwise in order to reduce the risk of investing at an inopportune time.

Latest changes in Selma’s investment strategy

US company shares have had a nice run against European shares, after our increase of investments in US shares in May. 💪

However, Selma doesn’t let its guard down, even as we see signs of overall stabilisation. Our algorithm identifies a good opportunity to buy some more gold and silver. They both serve as protection against still high inflation and the risk of occasional market setbacks. 

Furthermore, a slightly larger proportion of portfolios will be invested in corporate bonds (if you have them in your portfolio), while investing a little less in international company shares. They generally have become more expensive relative to still sluggish company earnings.

Long-term results are the goal 

You can learn more about Selma’s use of over- or undervaluations of company share indices here. Such adjustments are designed to reduce risks and improve returns over the very long term, i.e. 10 years and more. They don’t aim to significantly boost short-term returns, for example, over the next six to 12 months. 

Please note that the valuation-based adjustments only apply to your private investment portfolio, not to your pillar 3a account.

Conclusion

Selma's Q3 2023 market update highlights the gradual return to normality in financial markets. Embrace a diversified long-term investment strategy, consider the optimal investment horizon, and stay informed about strategic shifts to make the most of your financial journey.

Disclaimer: Past performance is not indicative of future performance.