When Will the Sharemarket Recover?
Reports Suggest Recovery is Underway, How Rosy is it Really?
Feb 9, 2009
Price volatility is still prevalent in global share markets. Be aware that financial advisers across the globe have got many clients in products which have greatly diminished in value and income generation. There are financial advisers who are trying to save their reputations by selling the fact that this is just a temporary situation. Many investors need to know just how temporary this situation is though. Timing is everything for self funded retirees.
Economic Generators are in Place
The economic generators have been started by all the major OECD countries through large fiscal stimulus packages and exceptionally low interest rates. Monetary policy has never been quite as expansionary as it is right now. Companies have begun their restructuring and cost cutting programs. It does appear that with share prices at these levels, bargains may be found. Ensure the companies being considered for investment have indeed completed their restructuring and cost cutting programs and are therefore in a better position to reap benefits for coming months. If they haven't changed anything, there may be more bad news to come.
Look for Confirmation in Economic Data Releases
Until further economic data is released over the coming months, do not ignore the current forecasts by the International Monetary Fund (IMF) which indicate that global growth for 2009 is likely to be barely 0.5 - 1.5%. This is the lowest rate since World War II and is only positive due to negative growth of the advanced economies being offset by the positive growth of emerging economies. (www.imf.org World Growth Grinds to Virtual Halt, IMF Urges Decisive Global Policy Response, 28 January 2009)
Advanced economies are still expected to experience further rises in unemployment as companies restructure and demand continues to slow into the year 2009. Some economic reports suggest that an economy is not recovering until unemployment stops rising.
Do Your Research and Learn from Earlier MistakesInvestors should do their own research as well as accept advice from qualified experts. Research should present a balanced view of the value or income generation and the risks inherent in that opportunity. The mistakes made from the 2003-2007 bull run indicate that investors abandoned their valuation models in favour of the trend of the time. The age-old warnings of "high risk, high return" were greatly ignored. If an opportunity is predicting a return of significantly more than its peers, take note and research the risks. Investors in older age groups who are looking to retire or who have retired need to safeguard their investments and perhaps be happy with a slightly lesser return and therefore less risk.
Investors Should Understand All the Risks
It would be great to see investors who have lost significant amounts of retirement savings in recent months reaping the benefits of a share market upturn. It is easy to tell investors "don't worry, this is a temporary situation" but reality is, for some retirees, how long can their eroded capital fund them before an actual market recovery is well on the way to rebuilding their nest eggs again?
This is not a time to look through rose coloured glasses. This is a time for being realistic about mistakes made by the so-called experts and rectifying one's financial situation with products which are best suited to their needs. Investors really need to understand the potential volatility of capital and income returns of an investment in all market conditions, not just when times are good. If an investor is left susceptible during the bad times, then it is not the right investment for them.
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