Tag: investing

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Investments

How to Assess Investment Risk

Managing Investment Risk

How to Assess Investment Risk

“The essence of investment management is the management of risks, not the management of returns” — Benjamin Graham 

3 min read

Managing Investment Risk

How to Assess Investment Risk

“The essence of investment management is the management of risks, not the management of returns” — Benjamin Graham 

3 min read

Investing always involves some level of risk, you know this.

Long-term success comes from understanding and managing that risk rather than trying to avoid it entirely.

Whether you are building wealth, planning for retirement, or preserving capital, assessing risk appropriately is the cornerstone of any sound investment strategy.

But, how do you do it? How do you assess risk in a way that enables you to invest appropriately to achieve your goals? You are in the right place to found out! Read on below.

Know the key types of risk 

To start making progress, you first need to understand the key types of investment risk. It comes in many forms, and different types of risk affect different parts of your portfolio.

Remember, no investment is risk-free.

Recognising where these risks lie is the first step in managing them effectively. 

You can read more about risk on our dedicated page: Investing and Risk.

Market (systematic) risk  

Refers to the potential for broad economic factors to affect the value of your investments, such as inflation, interest rates, or geopolitical events. These are typically areas that you have no control over (with the exception being if you are in a government or policy decision making position).

Company-specific (unsystematic) risk  

This arises when individual shares or bonds underperform due to issues specific to that organisation.

Currency risk 

If you hold investments in foreign currencies, changes in exchange rates can impact the value of your returns. Even if the underlying asset performs well, currency movements can either amplify gains or reduce them.

Liquidity risk 

This is the risk of not being able to sell an investment quickly without significantly affecting its price. Assets that are less liquid may be harder to convert into cash when needed, particularly in volatile markets. The most popular example here being a property sale that could take months or years.

Legislative risk 

Changes in laws, regulations, or tax rules can impact investments. For example, a change in capital gains tax rates or pension legislation could alter the attractiveness or outcome of a particular strategy.

A well-diversified approach can help manage these risks more effectively over time.

Understand your risk tolerance and capacity for loss

Risk tolerance is your emotional comfort with the ups and downs of investing (the ‘investment rollercoaster’). It reflects how well you cope with seeing the value of your investments fluctuate (‘volatility’).

Some investors are comfortable with high levels of volatility if it means the potential for long-term growth, while others prefer more stable journeys even if the overall returns might be lower.

Capacity for loss, on the other hand, is your financial ability to absorb a downturn without it affecting your existing lifestyle. It is not about how you feel, but about for what your situation allows.

For example, how much value can your investments lose before you can no longer continue your lifestyle in its current state? Can you lose 10% and live normally? 20%? 30%? Perhaps you are you able to sell other assets to make up for the shortfall?

In simple terms, the larger loss you are able to absorb, the higher your capacity for loss (and the reverse is also true).

This means that you may not be in a position to take on significant investment risk, even if you feel emotionally confident doing so.

Risk tolerance and capacity for loss should be considered in tandem. Simply being comfortable investing in 100% equity does not necessarily mean it is appropriate if your financial circumstances cannot support the potential volatility.

Your portfolio should reflect both your mindset and your real-world limitations.

Align risk with your goals and time horizon

Investments are best tailored to your objectives. If your goal is to preserve capital for a short-term purchase, a high-growth equity strategy is unlikely to be appropriate.

Conversely, if your goal is to grow wealth over 15 to 20-years, holding too much in low-risk, low-return assets (cash for example) can be a risk in itself.

Matching the level of investment risk to your time horizon is a key part of maintaining discipline through market cycles. 

Diversify across asset classes and sectors 

Diversification is one of the most effective ways to manage investment risk. By spreading your assets across equities, bonds, property, and alternatives (further diversifying across regions and sectors), you can reduce the impact of poor performance in any single area.

Naturally, this is with the hope that the better performing assets increase by more than the poor performing assets decrease.

A well-diversified portfolio does not eliminate risk, but it does reduce the likelihood of significant losses from any one event or trend.  If the economy is crashing and every asset class is falling, you will make losses.

Review regularly and adjust when needed 

Now you have a basic understanding of the key factors at play when managing risk, you should know that it is not a “set and forget” exercise. Your financial situation, goals, and attitude towards risk are likely to change over time.

Reviewing your investment strategy periodically helps to keep your risk level consistent and remain aligned with your evolving needs, preferences and market conditions.

Luckily, such reviews are part and parcel of our service at Patterson Mills. You do not have to do it alone, get in touch with us today by e-mail to contactus@pattersonmills.ch or call +41 (0) 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Mortgages

Key Tips for First-Time Buyers

Property-First-Time-Buyers

Key Tips for First-Time Buyers

“To buy your first home is to plant a seed for your future” — Oprah Winfrey

2 min read

Property-First-Time-Buyers

Key Tips for First-Time Buyers

“To buy your first home is to plant a seed for your future” — Oprah Winfrey

2 min read

Getting a foot onto the property ladder has always presented challenges.

However, research in recent years has suggested that first-time buyers (FTBs) could be experiencing the most expensive conditions in 70 years.

Who is most affected?

In the current property market, a successful first purchase often requires two high incomes plus financial support from family members.

Therefore, those who are buying alone, have lower incomes or cannot access help from family, are at the most risk of losing out.

Delaying proceedings

Ongoing market uncertainty has led many aspiring homeowners to pause their plans. Studies indicate that over the past few years, 49% of prospective FTBs have postponed buying a home*.

Among those delaying, 53% cited high house prices as the primary reason*.

Making a compromise

For those determined to buy, compromise has become an essential part of the process. Data shows that 38% of homeowners who purchased in the last five years had to adjust their expectations to make their first purchase possible*.

Common compromises include purchasing a property that required renovation (40%) or relocating to a different area than originally planned (34%)*.

Practical tips for First-time buyers (FTBs)

Despite the challenges, there are several key steps you can take to navigate the property market and help guide your approach.

Explore mortgage options

Do not assume your bank will offer the most competitive deal. It is worth reviewing offers from multiple lenders, or seeking advice from an independent mortgage broker.

Some may offer fixed-rate loans, while others favour variable rates, so understanding what is available can make a significant difference to your borrowing costs. Depending upon the interest rate environment in which you find yourself, your preferences will differ.

Determine your budget and consider all costs

Your deposit and mortgage repayments are only one part of a much larger picture.

Remember to account for legal fees, taxes, valuation costs, insurance, utility bills, and ongoing maintenance.

Having a clear view of your total financial commitment from the outset can help prevent surprises and avoid overstretching yourself.

Consider price, location and condition

These three factors form the foundation of any home search. You will typically be able to prioritise two, but may need to compromise on the third.

For example, if you want a prime location and excellent condition, the price may be higher than your budget. Alternatively, you might find value in a property that needs renovation or is in a less central area.

Clarifying your non-negotiables and your ‘nice-to-haves’ will help keep your search focused and realistic.

Plan for unexpected expenses

It is easy to become emotionally invested in a property, but practical considerations must come first, even if it feels like the perfect match.

Be prepared for potential issues that might arise from surveys or inspections, and allow room in your finances for repairs or improvements.

Flexibility and patience are vital, as the right home will meet both your budget and your needs.

Take control

Ultimately, buying a home is a highly personal decision and should be guided by what fits your individual needs and long-term plans.

Some countries offer more favourable borrowing conditions, with lower mortgage rates and more flexible lending terms, while others continue to see rates remain higher for longer. What matters most is how property ownership fits within your broader financial planning strategy.

Fortunately, whether you are buying now or waiting for conditions to improve, careful planning can help ensure your decisions are financially sound and aligned with your wider goals. 

Where do you go for such planning, you ask? Patterson Mills have access to independent mortgage contacts that can help you acquire the home of your dreams. Get in touch today for a free quotation with no obligation attached and get your foot on the property ladder.

E-mail to contactus@pattersonmills.ch or call +41 (0) 21 801 36 84 and we shall be pleased to assist you.

*BSA 2024, ONS 2024, Nationwide 2024

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

The Cost of Waiting to Invest

The Cost of Waiting to Invest

“The best time to plant a tree was 20 years ago. The next best time is today” – Chinese proverb

4 min read

The Cost of Waiting to Invest

“The best time to plant a tree was 20 years ago. The next best time is today” – Chinese proverb

4 min read

There is an old saying you have might have heard: “It is time in the market, not timing the market.” While this phrase is often repeated, its relevance remains strong as ever. 

With market volatility an ever-present feature of investing, whether influenced by geopolitical events or economic headlines, it is tempting to delay investing until the ‘right moment’. Yet, what many people do not realise is that these delays can quietly erode their long-term outcomes in ways that are not always immediately visible. 

This article explains why delaying making your investments may cost you more than you think, and how compounding, inflation, and market rebounds work against ‘timing the market’.  

The influence of Global events 

In early April 2025, markets experienced a sharp correction following a landmark US tariff announcement (‘Liberation Day’) that rattled global trade expectations. While the selloff was short-lived, with most major indices showing clear signs of recovery by month’s end, it served as a reminder of how quickly global events can shake markets. Fear and uncertainty can often lead investors to make reactive decisions, hoping to time their way around volatility. 

But this event, like many before it, could have been related to almost anything, whether a geopolitical development, a central bank comment, or a natural disaster. The reasons and severity may vary, but the pattern is familiar, with short-term volatility triggering reactive behaviour, even as long-term fundamentals remain intact. 

The result?  

Historically, many people would delay investing, waiting for the “right time.” However, for those who remained invested, the brief dip ultimately became a small footnote in an otherwise upward trend. 

The real cost of waiting 

It is understandable why you may want to delay investing. Markets feel uncertain, headlines are unsettling, and it may seem safer to hold off until conditions feel more stable. But waiting, even for what feels like a justified reason, can come at a cost.

Let us consider two hypothetical investors:

Investor A invests 100’000 on 1 January 2025.

Investor B waits until 1 January 2026 to invest the same amount.

Assuming a 7% average annual return, Investor A ends up with 761’226 after 30 years. Investor B, who delayed by just one year, finishes with 711’426, a difference of nearly 50’000 due to purely waiting one year.

This gap exists not only because Investor B missed a year of growth, but because Investor A’s money had more time to compound, generating returns on top of returns year after year.

Even if the time you enter the market initially appears volatile, or it seems like a better opportunity is just around the corner, history has consistently shown that markets recover and those who stay invested through the noise tend to be rewarded.

Short-term movements often smooth out over the long-term and the cost of waiting tends to outweigh the perceived benefit of trying to time things just right.

Inflation never waits 

There is another factor quietly working against those who wait to invest and that is inflation. 

While your money may appear safe in a bank account or savings vehicle, it may be losing value in real terms. When the interest earned is lower than the rate of inflation, your purchasing power declines year after year.  

For example, a cautious saver earning 2% interest while inflation runs at 3% is effectively losing 1% of their purchasing power annually. That erosion may not be immediately obvious, as the monetary balance of the account does not reduce, but your money will continue to buy less and less over time, diminishing its real world value.

This silent loss can be just as damaging as market volatility, especially when left unaddressed over many years. While waiting may feel like a safer option, doing so in a rising-cost environment steadily diminishes your wealth.

Market timing: A game few win 

Research consistently shows that even professional investors cannot time the market with accuracy. More often than not, you miss out on the best days by being out of the market during times of volatility. 

One of the greatest examples of this is with the S&P 500. If you had invested in the S&P 500 over the past 20 years but missed just the 10 best trading days, your return would have been cut by more than 50%. 

It just so happens that these ‘best days’ often followed closely after market selloffs which is precisely when many investors choose to exit or delay entry.

If you do not wish to invest everything at once, you can use a staggered approach, such as dollar-cost averaging, to help manage risk and smooth your overall returns. This can be useful to manage risk through changing market conditions.

What this means for you 

Timing the market is rarely effective and often costly. The most consistent outcomes come from staying invested, not from trying to predict market moves.

The cost of waiting can be easy to overlook, but between lost compounding, inflation, and missed recoveries, the long-term impact can be significant.

At Patterson Mills, we help you cut through the noise with long-term investment strategies that are built to weather market ups and downs. Rather than trying to time the market, we focus on creating a clear, structured plan tailored to your goals.

If you are not sure where to begin, get in touch with us today to learn more about how we can help.

E-mail to contactus@pattersonmills.ch or call +41 (0) 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

How To Diversify Your Portfolio

How To Diversify Your Portfolio

“As in most subjects relating to money management, there’s a wide diversity of opinion on portfolio concentration versus diversification” – Whitney Tilson

3 min read

How To Diversify Your Portfolio

“As in most subjects relating to money management, there’s a wide diversity of opinion on portfolio concentration versus diversification.” – Whitney Tilson

3 min read

You will often hear that diversifying your investments is a crucial strategy to mitigate risk(s).

What you will find less often is exactly how to do this.

Read on to find out how you can diversify your portfolio, considerations you need to make, and what to look for as you continue, or begin, your investment journey.

What is Diversification?

First of all, it is important to know just what diversification involves.

In brief, it involves spreading your investments across various asset classes, sectors, and geographies, with the goal being to reduce exposure to any single investment, thereby minimising the impact of poor performance in one area on your overall portfolio.

Using equities as an example, you would invest in more than just one single company.

Why Diversify?

The reason you may want to consider diversification is quite simple.

It aims to reduce risk, enhance returns, and achieve a good balance for stability in all market conditions.

Asset Classes

There are many asset classes, even beyond what you will see below.

However, the first step in diversification is understanding the main different asset classes. 

These include:

  • Equities
  • Bonds
  • Cash
  • Real Estate
  • Commodities

Equities represent ownership in a company, and bonds are loans to governments or corporations.

Cash includes savings accounts and money market funds.

Real estate investments are in property, and commodities invest in other physical assets like gold or oil.
How Do You Diversify?

There are many methods of diversification, including between sectors, geographies and within asset classes themselves.

Sector Diversification

Investing in various sectors would mean spreading risk between sectors such as technology, healthcare, energy. and consumer goods.

Each sector offers different advantages (and disadvantages) such as high growth but volatile, steady but less growth, etc.

Geographical Diversification

Geographical diversification does what it says on the tin; spreads risk between different countries and regions.

This can help with risk associated with economic and political instability.

Domestic investments include those within your country of residence.

International investments include exposure to global markets.

Diversifying Within Asset Classes

Diversifying within asset classes helps you differentiate between large-cap stocks, small-cap stocks, growth stocks, or value stocks.

Large-cap are generally established companies, small-cap are, you guessed it, smaller companies (but with high growth potential and more risk), growth stocks are those that are expected to grow faster than the market, and value stocks are companies trading below their intrinsic value.

Investment Funds

Investment funds like mutual funds and exchange-traded funds (ETFs) are excellent tools for diversification.

They pool money from many investors to buy a broad range of assets, providing instant diversification often at a very low cost.

How Much Diversification Is Too Much?

This question is an entirely new article in itself!

There are many debates over how much is too much, but one thing is for certain: it depends on your personal circumstances.

If you want to know the answer that is best for you, make sure to get in touch with us today and book your initial, no-cost and no-obligation meeting.

Your successful financial future awaits!

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

Investing in Rare Wines: A Unique Blend of Passion and Profit?

Rare Wine Investing

Investing in Rare Wines: A Unique Blend of Passion and Profit?

“A bottle of wine contains more philosophy than all the books in the world” – Louis Pasteur

3 min read
Rare Wine Investing

Investing in Rare Wines: A Unique Blend of Passion and Profit?

“A bottle of wine contains more philosophy than all the books in the world” – Louis Pasteur

3 min read

For those with a refined palate and an eye for quality, the world of fine wines can be an enticing investment opportunity.

Today, we will look at how you can build wealth through rare wine investments, for whom such investments may be suitable and, importantly, for whom they may not be!

If you have considered investing in rare wines, it is not often as easy as you may think. Read below to find out why.

Understanding the Wine Market

The rare wine market operates differently from traditional investment markets. It requires a deep understanding of the product you are buying (wine!), including its provenance, vintage, and quality.

The value of rare wines can appreciate over time, driven by factors such as limited supply, increasing demand, and the wine’s ageing potential. These factors can make it a stable investment over the longer-term, though there are risks with this style of investing that are not present with traditional asset classes.

Key Factors Influencing Wine Value

Several factors influence the value of rare wines, with they key factors being:

  • Vintage Quality: Exceptional vintage years produce wines with superior taste and ageing potential, thereby increasing the value.
  • Provenance: The wine’s history and authenticity significantly impact its market value. Well-documented provenance ensures the wine’s legitimacy.
  • Storage Conditions: Proper storage is one of the most crucial aspects of maintaining the wine’s quality. Wines stored in optimal conditions are more likely to appreciate in value. This means that wines stored in your cellar at home, where the long-term conditions are unverifiable, may not benefit from large value increases.

Benefits of Investing in Rare Wines

Investing in rare wines offers several advantages such as diversification, the tangibility of the asset, and a relatively stable market.

Diversification into wines can be beneficial as the asset is not correlated with the returns of traditional assets. This helps you spread (and hopefully reduce) risk.

Furthermore, unlike stocks or bonds, you would be investing in physical assets, which means you are able to enjoy them whilst they appreciate in value.

Finally, the rare wine market is relatively stable, which can be a motivator for some.

Risks and Challenges

However, investing in rare wines also comes with risks and challenges about which you need to be aware before considering this asset.

Selling rare wines can be time-consuming, and finding the right buyer may take longer than anticipated. This means that, as with Real Estate for example, you may not be able to access your funds when you need them.

In addition, knowledge is power. This means that successful wine investment requires extensive knowledge of the wine market, vintages, storage conditions, and much more. This can be a difficult barrier to entry for an individual investor as it requires a large time commitment.

As with any physical asset, you also have costs that are not present with more traditional assets. In particular, storage costs, which are necessary to preserve the wine’s quality and value.

Building Your Wine Collection

To build a valuable wine collection, the following steps are vital:

  • Research, research and… research!
    • It is inadvisable to enter this market if you are not willing and able to gain the knowledge that is required. Conduct thorough research on wine regions, vintages, and market trends.  You may want to consider talking to professionals within the sector, too.
  • Purchase from Reputable Sources
    • Buy wines from reputable auction houses, wine merchants, or directly from wineries. It can be very easy to be mis-led in this area with complex jargon, so make sure you only deal with reputable vendors.
  • Proper Storage
    • Invest in a professional wine storage facility to ensure optimal ageing conditions. As mentioned, your home cellar will not cut it!

Cheers To Your Investments

Investing in rare wines can be a rewarding venture, though there are many risks and complexities that make this asset more specialist and far less common than, for example, stocks and bonds.

However, when done correctly, it is possible to profit from what could be a unique pathway to wealth.

Before you go diving into the world of rare wines, make sure to get in touch with us today and book your initial, no-cost and no-obligation meeting.

Our team are waiting to help you decide whether rare wines is an area in which you should invest, or not.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Financial Planning

How Does Risk Change With Age?

How Does Investing Risk Changes With Age

How Does Risk Change With Age?

“Risk is how much can you lose and what are the chances of losing it” – Seth Klarman
 
3 min read
How Does Investing Risk Changes With Age

How Does Risk Change With Age?

“Risk is how much can you lose and what are the chances of losing it” – Seth Klarman

3 min read

Investing is a crucial part of financial planning, but the you take approach can vary significantly based on age.

However, it is not as easy as saying that younger investors can take more risk and older investors can take less risk. 

What is more prudent to consider is that younger and older investors have different risk tolerances and investment strategies due to their varying financial goals, time horizons, and life stages.

This could lead to older investors taking less risk than younger investors, but also younger investors taking less risk than older investors.

As with most things, there is no one-size-fits-all solution. Understanding the differences is key to crafting a suitable investment plan as, unfortunately, the answer to how much risk you should take is not quite so simple!

Risk Tolerance at a Younger Age

Younger investors, typically in their 20s and 30s, have a long investment horizon. This allows them to take on higher risks, as they have more time to recover from potential market downturns. The focus for younger investors is often on growth and accumulating wealth over the long term, though this is a generalisation and not true for everyone.

Due to an extended time horizon, younger investors can typically then afford to invest aggressively. They are more likely to allocate a larger portion of their portfolio to stocks, which, while volatile, offer higher potential returns.

This strategy aims to maximise growth during the early years of investing and can be seen as a comfortable way of investing when they have many years to recuperate any losses.

Risk Tolerance in Later in Life

Older investors, typically nearing or in retirement, naturally have a shorter time horizon. Their focus often shifts from accumulation to preservation of capital and generating income. This reduced time frame makes them less tolerant of high-risk investments, as they have less time to recover from potential losses.

However, this is again a generalisation and you could in fact have varying degrees of risk for different parts of your portfolio, subject to your needs.

To mitigate risk, older investors can adopt conservative investment strategies. This means that they allocate a larger portion of their portfolio to bonds, cash, and other fixed-income securities. These assets provide stability and predictable income, essential for funding retirement expenses. Please note, no investment is without risk and you could withdraw less than you invested.

Balancing Risk and Reward

Regardless of age, diversification remains a fundamental principle of investing. You can diversify to spread risk across various high-growth assets, or diversify to protect your portfolio from market volatility and preserve capital.

As investors age, it’s common to gradually shift their portfolio from aggressive to conservative. This strategy, known as “life-styling,” adjusts the asset allocation to reduce risk as the investor approaches retirement. This ensures that the portfolio is aligned with changing financial goals and risk tolerance.

The Importance of Personalised Financial Advice

It is easy to think “I am older now, I should reduce my risk tolerance” or “I am young and should take as much risk as I can.”

Well, individual circumstances differ and the above statements are not necessarily true.

Things such as financial goals, income needs, and personal risk tolerance should always guide investment decisions, no matter your age.

Whilst online resources can only take you so far, talking to a Patterson Mills Financial Planner can help you discover where on the risk scale you fit, regardless of age.

In fact, if you are young but plan to buy a house within 3- to 5-years, you may wish to consider a lower risk profile.

If you are older and envisage your portfolio lasting 20- to 30-years, you could consider a higher risk profile.

No matter your age, if you have financial goals you wish to meet sooner in life, and those you wish to meet later in life, you could take a proportion of your portfolio and invest in lower risk assets for those you wish to meet sooner, and could potentially afford to take higher risk for those you wish to meet later in life.

As you can see, one thing is clear; you need a tailored investment strategy that considers these unique factors, and Patterson Mills is here to give you just that.

The Best Way To Formulate Your Investment Strategy

In reality, you cannot paint any age group with the same brush.

If you are older, do not think you have to take less risk and, if you are younger, do not think you have to take high risk.

It all depends on your personal circumstances, risk tolerance, capacity for loss, financial goals, time horizon, and more!

So, look no further as your helping hand is just one e-mail or phone call away.

Get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

Managing Stress and Anxiety With Your Investments

Reduce Stress and Anxiety in Investing

Managing Stress and Anxiety With Your Investments

“The key to winning is poise under stress” – Paul Brown

3 min read
Reduce Stress and Anxiety in Investing

Managing Stress and Anxiety With Your Investments

“The key to winning is poise under stress” – Paul Brown

3 min read

Investing can be a rollercoaster which is frightening for many, and it is not uncommon for market fluctuations to cause stress and anxiety.

However, understanding the nature of investing can help manage these feelings to ensure your investments cause as little stress and anxiety as possible.

This article will give you the key things you need to know to maximise the enjoyment of your investing journey.

Why Can Investing Be Stressful?

Simply put, investing involves risk and uncertainty, which can be scary.
 
The fear of losing money can lead to stress and anxiety, and watching market volatility and constantly monitoring your portfolio can amplify these feelings.
 
The pressure to make the right investment decisions adds to the stress, as does the overwhelming amount of financial information available.
 
It is also possible to come across people claiming to have an ‘easy investing secret’ to make sure your money ‘only goes in one direction’ (up!) and remove the complexity issue, which can just add to the stress. Have these people really come across a secret that nobody else knows and can solve all your investing problems? The short answer is, no.
 
There are no secrets in the investing world (or at least, very few…) that could have significant impacts on your portfolio. This means that, were such easy tricks to exist, everyone would already be doing it!

The Cyclical Nature of Markets

Markets are inherently cyclical. They go through periods of growth (bull markets) and decline (bear markets). 

If you wake up one day and see your portfolio has dropped by 1%, 3%, or 5%, but then increased by 1%, 3%, or 5% the next day (or higher / lower), do not worry. Behaviour such as this is normal.

Understanding that these cycles are normal and inevitable can help reduce stress.

Over Time Markets Have Gone Up

The good news is that, historically speaking, markets have trended upwards over the longer-term.

Naturally, past performance is not indicative of future returns, but it can be re-assuring for short-term anxiety and stress.

Remember, investing is a marathon, not a sprint.

Avoid Always Checking Your Portfolio

Constantly checking your investments can lead to unnecessary stress. Short-term market fluctuations can be misleading and may prompt impulsive decisions. 

It is easy to become worried if your investments fall for one continuous week (or more), but if your time horizon is in another few years (which it hopefully is!), take time to breathe and relax.

Instead of constantly checking your investment value, set periodic reviews of your portfolio. This approach allows you to stay informed without becoming overwhelmed by daily market movements.

Accept That Your Investments Can Go Down

If you are involved in investing, you will hopefully have been told that your investments can go down.

Accepting that investments can lose value is critical. Markets will have ups and downs, and no investment is risk-free.

By understanding this, you can better prepare mentally for potential losses.

Up, Down, Left, Right, In What Direction Are Your Investments Going?

Investing can be stressful, but understanding market cycles and adopting a long-term perspective is key to managing stress and anxiety from your investments.

In addition, having a trusted Patterson Mills Financial Planner to help you navigate your investment journey can provide much needed peace of mind, especially in periods of low (or even negative) growth.

Get in touch with us today and book your initial, no-cost and no-obligation meeting. There has never been a better time to secure your financial future with Patterson Mills.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

How Does Monetary Policy Impact You?

Monetary Policy

How Does Monetary Policy Impact You?

“Fiscal policy, monetary policy, they need to work together to try and raise the level of growth” – Joe Hockey

3 min read
Monetary Policy

How Does Monetary Policy Impact You?

“Fiscal policy, monetary policy, they need to work together to try and raise the level of growth” – Joe Hockey
 
3 min read

Monetary policy refers to the actions undertaken by a country’s central bank to control the money supply, manage interest rates, and achieve macroeconomic goals such as controlling inflation, consumption, growth, and liquidity.

Central banks, such as the Swiss National Bank (SNB) or Bank of England (BoE), use tools like interest rate adjustments, open market operations, and reserve requirements to influence the economy.

However, once you’ve got through all of the theory, terminology and over-complexities, how does monetary policy really impact your day-to-day life? Read below to find out!

Monetary Policy Explained

In its simplest form, monetary policy is all about using various tools to stabilise prices, improve economic stability and promote sustainable growth.
 
The objectives of monetary policy are to control inflation, ensure stable economic growth, and maintain low unemployment. 
 
Central banks use various tools, including interest rate adjustments, open market operations, and changes in reserve requirements, to influence the availability and cost of money in the economy. 
 
By doing so, they aim to stabilise prices, create economic stability, and promote sustainable growth, which is exactly what monetary policy is all about!
 
Understanding monetary policy helps you, as an individual, and businesses anticipate changes in borrowing costs, savings returns, and overall economic conditions.

The Impact of Monetary Policy

Monetary policy has several impacts.

Lowering interest rates can stimulate economic growth by making borrowing cheaper, encouraging spending and investment.

Conversely, raising interest rates can ‘cool’ an ‘overheating’ economy and control inflation by making borrowing more expensive. 

As well as the above, monetary policy can affect exchange rates; lower interest rates may weaken a currency, making exports cheaper and imports more expensive.

Monetary policy also influences employment levels. Expansionary policies can reduce unemployment by boosting economic activity, while contractionary policies may increase unemployment if they slow down the economy too much.

The central bank’s decisions can significantly shape overall economic confidence and financial market stability.

The Pros & Cons

Now onto the pros and cons, starting with the pros.

One major advantage of monetary policy is its ability to quickly influence the economy.

Central banks can swiftly implement changes to interest rates or engage in open market operations to address economic issues. This flexibility allows for timely responses to economic shocks or downturns.

Monetary policy can also be a powerful tool for controlling inflation. By adjusting interest rates, central banks can manage demand and keep inflation within target ranges.

Effective monetary policy can cause stable economic growth, contributing to long-term prosperity and financial stability.

However, despite its benefits, monetary policy has limitations.

It may not be effective in addressing supply-side economic issues, such as productivity constraints or structural unemployment.

Furthermore, in periods of very low interest rates, the central bank’s ability to stimulate the economy can be limited, a situation known as a liquidity trap.

Monetary policy can also lead to unintended consequences. For example, keeping interest rates too low for too long can create asset bubbles, which can burst and lead to economic instability.

Moreover, rapid changes in monetary policy can cause uncertainty and volatility in financial markets, potentially harming economic growth.

Difference Between Monetary Policy & Fiscal Policy

Fiscal and monetary policies are both tools used by governments and central banks to influence a country’s economy, but they operate in different ways and are managed by different entities.

You can view last week’s article on Fiscal Policy by clicking here.

However, the key differences are:

  • Control: Fiscal policy is under the control of the government, while monetary policy is managed by the central bank.
  • Methods: Fiscal policy uses taxation and spending, whereas monetary policy uses interest rates and money supply management.
  • Direct vs Indirect Impact: Fiscal policy can have a direct impact on public services and individual finances, while monetary policy typically works through the financial system to influence the economy indirectly.

How Does Monetary Policy Impact YOU

The key way monetary policy directly affects you is through changes in interest rates. 

Lower interest rates mean cheaper loans and mortgages, which can boost spending and investment. However, they also result in lower returns on savings, which can impact retirees and savers. In addition, the opposite is true with higher interest rates!

Inflation control is another critical aspect. Effective monetary policy keeps inflation in check which preserves the purchasing power of your money. Conversely, poor monetary policy can lead to high inflation, eroding savings and increasing living costs.

Monetary policy can also influence job opportunities and wages. Expansionary policies can lead to more job creation and potentially higher wages, while contractionary policies might have the opposite effect, impacting overall economic wellbeing.

Managing Your Own Monetary Policy

Whilst you may be unable to influence central bank decisions, you can influence your own financial decisions.

Knowing where to start is key, and having a Patterson Mills Adviser provides you with this key to a brighter financial future.

Get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

How Does Fiscal Policy Impact You?

Fiscal Policy: How Does It Impact You

How Does Fiscal Policy Impact You?

“Fiscal policy, monetary policy, they need to work together to try and raise the level of growth” – Joe Hockey

3 min read
Fiscal Policy: How Does It Impact You

How Does Fiscal Policy Impact You?

“Fiscal policy, monetary policy, they need to work together to try and raise the level of growth” – Joe Hockey
 
3 min read

Fiscal policy, a critical component of economic management, involves the government’s use of spending and taxation to influence economic conditions.

Whilst fiscal policy is a tool utilised by governments, it is important to understand what it is, the pros and cons, and, importantly, how it impacts you.

Those are exactly what you will find out below, so read on!

Fiscal Policy Explained

In its simplest form, fiscal policy refers to the use of government spending and taxation to influence a country’s economy.

It’s a key tool for managing economic performance, aiming to achieve sustainable growth, high employment, and stable prices.

The government adjusts its levels of expenditure and tax rates to monitor and influence a nation’s economy. This approach contrasts with monetary policy, which involves the central bank’s management of interest rates and money supply, and which will have its own article!

The Impact of Fiscal Policy

Fiscal policy’s influence extends beyond immediate economic metrics.

For instance, increased government spending on infrastructure projects not only boosts short-term employment but also enhances long-term productivity by improving transportation and communication networks. This can make a country more attractive to investors, creating sustainable economic growth.

Conversely, tax hikes can dampen consumer spending and business investment, potentially leading to a slowdown in economic activity and affecting the stock market.

Furthermore, fiscal policy decisions can have significant social impacts. Government spending on items such as healthcare, education, and social security can improve quality of life and reduce income inequality. 

However, these benefits must be balanced against the risks of increasing public debt. High levels of debt can limit future fiscal flexibility and may lead to higher taxes or reduced spending on essential services, impacting economic stability and growth prospects. 

The interplay between fiscal policy and social outcomes underscores the complexity of crafting policies that balance short-term economic needs with long-term sustainability.

It can certainly be a complex area through which to navigate, and if you are interested in learning more we encourage you to get in touch with Patterson Mills.

The Pros & Cons

One significant advantage of fiscal policy is its ability to target specific sectors or groups within the economy. For example, during a recession, the government can increase spending on infrastructure projects, directly creating jobs and stimulating demand.

Fiscal policy can also provide immediate relief to the economy through tax cuts or increased public spending and the government to address income inequality by adjusting tax rates and providing social benefits.

Despite its benefits, fiscal policy has several drawbacks. One major issue is the time lag between the implementation of policy changes and their effects on the economy. This delay can make it challenging to time interventions effectively. Additionally, excessive government spending can lead to large budget deficits and increased national debt, which may have long-term negative effects on the economy. Political considerations can also influence fiscal policy, sometimes leading to suboptimal economic decisions driven by electoral cycles rather than economic needs.

How Does Fiscal Policy Impact YOU

Essentially, fiscal policy directly affects you through any changes in taxation and government spending.

Tax cuts increase your disposable income whilst tax increases decrease your disposable income.

Government spending on public services, infrastructure and social programs can improve your quality of life and economic opportunities.

It also extends to your employment prospects and wage growth. When the government implements expansionary fiscal policy (increasing spending or cutting taxes), businesses often experience higher demand for their products or services which can lead to job creation and potentially higher wages.

On the other hand, contractionary fiscal policy can result in the opposite.

Finally, fiscal policy influences the broader economic environment in which you make financial decisions. For example, government investments in education and training programs can enhance your skills and employability, opening up new career opportunities and potentially higher earnings. Infrastructure projects funded by government spending can reduce commuting times and improve access to markets and services, indirectly benefiting your personal and professional life.

However, fiscal mismanagement, leading to high inflation or debt crises, can erode your savings and reduce the purchasing power of your income, highlighting how important fiscal policy is for you and other individuals.

Managing Your Own Fiscal Policy

Whilst you may be unable to influence government decisions outside of the voting booth, you can influence your own spending and, importantly, how you build wealth.

Investing is a great way to start, and for the best possible chance of success, having a Patterson Mills Adviser is paramount.

Get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Financial Planning

The Impact of Global Events on Financial Markets

The Impact of Global Events on Financial Markets
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The Impact of Global Events on Financial Markets

“The markets are like a weather; you may not like it but you have to bear it” ― Rakesh Jhunjhunwala

5 min read

The Impact of Global Events on Financial Markets

The Impact of Global Events on Financial Markets

“The markets are like a weather; you may not like it but you have to bear it” ― Rakesh Jhunjhunwala

5 min read

Global events, ranging from political upheavals and geopolitical tensions to natural disasters and beyond, have an undeniable impact on financial markets worldwide. Such events can trigger significant volatility in financial markets and your investments, causing fluctuations in stock prices, currency exchange rates, and commodity markets. 

The interconnectedness of global economies means that disruptions in one area can quickly ripple across borders, affecting investors and businesses worldwide. Hence, it is important that you are aware of how global events influence market dynamics to be able to navigate uncertainty with confidence and continue making informed decisions.

Luckily, that is what our article is all about! Make sure you read to the end to gain a complete understanding of the what, the how and the why about the impact of global events on financial markets, and how you can optimise your investments effectively.

Heightened Market Volatility

Global events often trigger heightened market volatility as investors around the world react to uncertainty and risk. Sharp fluctuations in stock prices, currency exchange rates, and commodity markets are common during such periods.

However, it’s crucial to differentiate between short-term market reactions and long-term investment fundamentals.

Avoid making impulsive decisions based solely on market volatility or news headlines and stay focused on your long-term financial plan and investment goals whilst maintaining your diversified portfolio. In this way, you can weather the storm (short-term fluctuations) and position yourself for long-term financial success. 

In fact, you may find opportunities to acquire some assets at discounted prices, thereby capitalising on market volatility to enhance long-term returns. However, such action should only be taken in discussion with your Patterson Mills Adviser.

Ultimately, by understanding the impact of global events on market volatility and maintaining a disciplined investment approach, the aim is then that you are able to navigate uncertain times with confidence and resilience.

Examining Historical Events

We can learn much from looking at historical events. There are important lessons about market behaviour and the effectiveness of various investment strategies during times of crisis. For instance, the 2008 financial crisis highlighted the importance of risk management and the potential pitfalls of excessive leverage in financial markets. Similarly, the recent pandemic underscored the significance of diversification and the resilience of certain sectors, such as technology.

Geopolitical tensions, such as trade disputes or military conflicts, have also shown how market sentiment can shift rapidly in response to geopolitical developments, emphasising the need for vigilance and adaptability in investment decision-making.

Overall, drawing such insights from historical events will enable you to perhaps better anticipate market reactions, mitigate risks, and capitalise on opportunities in what has proven to be an ever-changing global landscape.

Strategies You Can Use To Navigate Uncertainty

As usual, we aren’t just going to tell you what happens without providing any strategies to mitigate the negative impact on your investments!

In short, diversification, asset allocation, and risk management play crucial roles in mitigating downside risks and capturing potential upside opportunities. Additionally, staying informed, maintaining a long-term perspective, and avoiding impulsive reactions are essential principles for successful investing.

For some more detail, maintaining a diversified investment portfolio across different asset classes can help spread risk and reduce the impact of market volatility on overall returns. If one asset you hold goes down, the objective is that other assets you hold will have gone up! What’s more, asset allocation strategies that are tailored to your risk tolerance and investment objectives provide a framework for balancing risk and reward effectively. 

You can also take more proactive risk management measures, such as setting stop-loss orders or regularly monitoring and rebalancing your portfolio.

There are many more strategies you could use, though this article would become substantially longer, so contact Patterson Mills to find out more!

Looking Ahead

As global events continue to shape financial markets, you should consider focusing on building a resilient portfolio with your Patterson Mills Adviser.

Whilst the strategies and information presented in this article can be a useful guide in helping you build such a portfolio, nothing is guaranteed. However, for the best possible chance of success, get in touch with Patterson Mills and book your initial, no-cost and no-obligation meeting. You will be pleased that you did!

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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