We are no doubt in a challenging time for investors who are seeking the returns they need to live their lives.
Investor optimism has increased as the spread of Covid-19 appears to be falling in Europe and the US (although the situations in Russia and South America are still of deep concern). The gradual re-opening of businesses after lockdown has encouraged investors, plus sentiment was also helped by the European Union reaching agreement on a €500 bn aid package to help the EU recover from the devastating impact of Covid-19.
Public finances have however deteriorated rapidly (restoring them will take years) with government borrowing increasing at a rapid rate. Negative interest rates already exist in Eurozone, Switzerland, Japan and some Nordic countries and may be adopted by the end of this year in the UK and other countries. Just the fact that they are under consideration could see money market rates reduce, which would in turn affect all of the main forms of cash-derived investments – such as debentures, ‘high’ interest bearing and other fixed term cash accounts available to individual investors.
Tensions between the US and China continue, and Asian equity markets have reflected this unease. This and the progress of Brexit negotiations will add to volatility.
Equity market sentiment will be driven by current economic data as countries around the world start to move out of lockdown, restart their economies from recessionary levels and hopefully avoid a second (and in some cases third), serious outbreak of the Covid-19 virus.
This leaves investors at somewhat of an important crossroads. With interest rates coming down, potential credit risk of financial institutions going up and stock markets around the world having already declined from pre-crisis levels, now is the time to determine what will best deliver your objectives. If lower cash rates no longer will and your mirror does not give you the answer you expected, then advice should be sought, and alternatives considered.