When the stock markets are in a downswing, investors are pushed towards more saver investments such as bonds. Because of the slowdown of the world economy and uncertainty on financial markets, the stock prices have decreased over the past few month and - overall - AEX-investors have lost 8 percent this year. According to Mary Pieterse Ploem, Professor of Financial Markets at Erasmus School of Economics and Global Head Fixed Income in the Global Investment Center of the Private Bank of ABN AMRO, shares will remain the favorite investment in terms of earnings for the coming time, despite the reduction in stock prices. However, investing in bonds serves an important purpose.
Investing into bonds offers support and risk diversification. Markets are very volatile now, so bonds will offer good counterbalance. Investing into government bonds is safer than investing into shares, because the risk of default and bankruptcy is much smaller. Investors could also chose for cash, but that does not yield any return.
Most Dutch private investors invest into bonds, sometimes without even know this. This is because many private investors invest through funds and these funds build the portfolio for the investors and, in order to do so, they have to determine the risk profile of the investor. Not many of the investors chose for the most aggressive profile with only shares. In most of the portfolios bonds are included to reduce the risk. That is also wise, says Professor Pieterse-Bloem. Because there are more risks present in the market and the interest rate is slightly increasing, one should trade its shares or high risk corporate bonds for safe government bonds.
- More information
Read the entire article (in Dutch) in De Financiële Telegraaf, 10 December 2018