The week that was has served an important pointer. The story certainly got tough for the risk averse investor. The fall in inflation triggered a sharp fall in bond yields. This effectively closed the option of investing in bonds as most of the gains already seem to be in the price. Gold is continuously getting sold off by global ETF’s. The returns from debt are clearly set to drop making it extremely difficult for investors. The hunt for returns is only set to get tougher as returns drop in debt, gold and real estate. The sharp uptick in equity is possibly a pointer that smart money has begun its move into equity. We have clearly reached a point where betting against the economic recovery will not work. Asset choices clearly are set to change.
If you are not willing to risk the unusual, you will have to settle for the ordinary. -Jim Rohn.
Most of the time, investors are betting for or against the economy. If we think the economy will do well, equity finds favour. Investors choose to take on economic risk over the shelter of a safe haven. When the prospects of the economy are bleak, we move our investments into safe havens. Debt is the first among safe havens. Weak economic prospects often lead to gold becoming the default choice as we tend to have less faith even in debt. Real estate is often a preferred choice when investors believe that it is safer to speculate on capital appreciation rather than bet on return yields. An economic recovery will see capital shift from safe havens back into the economy. Lower returns from safe havens tend to force investors to take on risk. The savvy investors anticipate this and make the shift to risk ahead of others.
Equity is set to return better. Ignore it at your own peril.