Worldwide Financial Planning

Since last autumn bond investors have been testing central banks’ willingness to keep rates high and have regularly had to adjust their outlooks when confronted by sticky inflation, high economic growth and central bank intransigence.

Following on from last week’s introduction to investment risk, and still using the maritime metaphors, I will cover the other risk measures you should be considering, to ensure you know the true risk of your investments and how to check them.

Markets have quickly reversed assumptions they held only a few weeks ago and the Federal Reserve is now expected to cut rates no earlier than August and the number of rate cuts expected has fallen to just two. The big drop in bond values serves as a reminder of how poor markets and central banks have been at forecasting inflation over the last few years.

Understanding the level of risk associated with your investments is akin to knowing how deep the water is before you dive in.

Central banks are reluctant to ease policy since the tightening cycle began over two years ago and this week’s jobs numbers confirm this. The private sector ADP employment report had its biggest monthly gain since July.

It would seem to be a good idea if you cared about society that you would target for prices to fall rather than rise, wouldn’t it? Falling prices would mean we have more money to spare, we would be able to work less, we could retire earlier, you wouldn’t need so much money, and you wouldn’t need for your pension to grow as much? All seems logical to me?