Is investing in equities really that risky? Providing your portfolio of investment is sufficiently diverse, it could be argued that in the long term, equity investments are less risky than bonds. The yield from bonds can after all be reduced to next to nothing, after taking into account inflation.
And yet, two years or so ago, when equities were still plummeting, fund managers, and most noticeably Standard Life, were forced to sell equities in order to stay within the rules for insolvency introduced by the FSA. That was of course, at just about the time when markets had bottomed. As a result, many fund managers suffered at the hand of a falling market, moved into bonds, and then continued to suffer as the long term rate of interest fell, and equities started their comeback.
On Friday, we brought you news of a report from Deloitte that it was advising funds to invest in derivatives, hitherto thought of as the most risky investment you could make.
The Sunday papers leapt on the report, with the Observer headlining “pension fund urged to take risks.”
The Independent put it more forcefully, with Hamish McRae saying: “it is nuts. The people behind our pension schemes understand zilch about markets.” He said: “Our regulators and advisors should be aware of the enormous damage they are doing in forcing pension funds into poor investment choices.”
Comments
Trackbacks