There are some signs of hope emerging after a couple of very difficult weeks and some very extreme initiatives by Central Bankers and Governments to counter the shutdown of the economies.
Our RBA has done whatever it takes to stabilise the bond market which in turn has helped to avert a shortage of money and a repeat of the problem we saw during the GFC. This has allowed the banks to extend credit and together with various re-financing efforts by business has so far helped to stabilise the situation.
There will be many more capital-raising and dividend cuts ahead for equity investors which is in stark contrast to fixed-interest investors who will continue to receive their regular interest payments.
In Europe there are some examples where the regulator has forced the banks to suspend paying any dividends and to cancel any share buy-back activities for the foreseeable future!
Bonds have played a very important role in providing much needed certainty in these very uncertain times which once again highlights the importance of diversification in investment portfolios.
If the roller coaster of the equity markets is making you nervous there is a very simple solution – keep on adding to your fixed interest portfolio. This way you can lock in your returns for the foreseeable future. You know how much you will earn, when it will get paid and more how much your bonds are worth in the future! Can you say this about your other investments?
The big questions for our future will be, firstly, when will the world find some form of antiviral drug which will be effective enough to allow the wider population to move around freely and safely again? And second: how do we manage a gradual reopening of the economy?
One result of the government action seems to be very obvious, which is, that interest rates will stay low for a very long time and eventually when some sort of normality returns the massive amount of money will start looking again to get some sort of sustainable and safe returns which bonds can already provide.
With this variability in the market, good fixed interest buying opportunities become available so please phone us to discuss how to take advantage of them.
How is the lockdown impacting you? Are you worried there will be more or hopeful about the future? Call me now on 02 8076 9343 or email me your ideas!