News

Don’t panic, volatility = opportunities

by James Chu
07/02/2018
Don’t panic, volatility = opportunities

Is market volatility a bad thing? Should investors be worried when the headlines in newspapers and on TV are all mentioning that “The Dow Jones is down more than 1000 points!”

No doubt investors are trying to make sense of what happened to the market. Everything was on the up until a jobs report from the US last Friday. What has changed?

True, the non-farm payroll figures in the US indicated that wage pressure may drive up inflation and so the Federal Reserve in the US will need to raise rates faster. This affects bond markets (bond prices fall when interest rates goes up). The cheap borrowing costs that day traders have been enjoying may be over.

But the bond market only fell on Friday, not Monday. In fact, the bond market went up across the world. This showed higher demand for bonds as “safe haven” assets.

The stock market selloff has been driven by “fear”. A fear that causes day traders to cut their positions in exotic leveraged exchange traded products. A fear that drives investors to sell and park money in bonds, which are still producing relatively low yields.

I have always said that the best time to invest is when you feel most fearful. And this is the time. Long term investors should see market volatility as a chance to pick up investments at lower prices. Many companies like BP have announced solid results, which may appeal to some investors who favour blue chip companies that pay reliable dividends. If you don’t want to take individual stock risk, consider using low cost index funds. You will still benefit from rise in the broad market as the index recovers.

If you have not used your ISA allowance for the current tax year of 2017/2018, don’t delay. Invest now.

If you still feel too uncomfortable to invest now, consider our latest structured products. We have a FTSE 100 only kick out plan that is closing next week (K507 – FTSE 100 Super Defensive Kick Out Plan). This 6 year product has a barrier feature, which means you get 100% capital back at maturity unless the index has dropped more than 40%. Backed by Goldman Sachs, the product has a falling kick out level, dropping to 65% at end of year 6. This increases the likelihood of getting returns in this uncertain environment. And the starting level will be set next Wednesday, which may benefit from the recent fall in the index.

Please contact your advisers, or visit our website here for more information on how the product works. You can also contact the product team (investments@reyker.com) if you have any queries on this structured product, or indeed any other investment opportunities including our discretionary portfolio services.

James Chu

James Chu

James is Director of the Markets and Investments Team at Reyker. A CFA member and industry expert, James specialises in Structured Products, derivatives and development of service offerings for Reyker. A face at most industry events, James is sure to provide insight into some of the most controversial topics in the market today.