What is happening to long term plans and portfolios?
By Digoy Fernandez THIS blog is inspired by a lament from one of my relatives who sent us an email wherein she stated her frustration at the huge decline in the values of country-issued bonds, like those of the ROP for example. In a normal market situation, conservative investors find solace in long term bonds, or issues like second tier capital requirements of well known banks. This is no longer a normal world, nor are the financial and capital markets behaving normally in the sense that we have known them to be. Consider therefore, a corporation that dutifully set aside its contributions to a pension and health plan for its employees. It is a safe bet to make that, unless the monies in the fund were invested in super secure and bullet-proof assets, that one would find a serious decline in said pension fund (and in most others besides). Is there really such a thing as a bulletproof investment these days? Probably not. But it pays to know ones fundamentals and limit oneself to going for the safest investment alternatives that your financial planner can suggest. Most derivatives would certainly be thrown out of the window. Country bonds? Only if you are in for the long haul and will not choke at seeing the lower redemption rates that are prevailing in the markets today. Long term deposits? Only if your bank(s) is/are doing their job conservatively and not taking long positions on risky assets. It would be a good idea to visit your local banker to examine the values of your investments. If you set aside trust accounts for your kids, it may also be wise to see if the investment strategy once presented to you as bulletproof is still holding up in the rather heated and irrational markets of today. Then, one could work on a more reasonable strategy. In today’s modern world, banks and financial institutions trade over the Internet in the trillions of dollars daily. Each assumes that the other will fulfill its obligation. After all, one of the sacred stones upon which the trade and commerce regimen is built is the substitution of a bank’s good name and creditworthiness for that of a client. This is seen in the use of LCs and other instruments that offer a safe alternative to barter trade between two parties who would like to ensure that the transaction proceeds without a hitch. Imagine, therefore, the situation when banks begin to fail and other banks refuse to accept their guarantees or papers!!! It is interesting to note that the banks least affected by today’s financial problems are those that did their banking the old-fashioned way. They stuck to the boring formulas of lending (knowing their clients very well) and borrowing (accepting mostly old-fashioned deposits) and keeping a wary distance from what value investor Warren Buffet has called “financial instruments of mass destruction”. Even his value-based fund has had to take a beating, what with the good stocks going down with the bad. But value investors will have a better chance of surviving the violent swings and surges of today’s market, certainly much more than those who invested on the basis of rumors and so-called inside info. It is necessary to go back to conditions that ensure fair trade and a conservative return on one’s investments and deposits. To do this, you will have to let the institutions you deal with that you want to know what they are doing with your money. They must treat your money as if it were theirs to lose.
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