Investing through uncertainty
It is usually foolish to claim that a certain conclusion will always be true. But in the case of the statement, "we live in a world defined by uncertainty," I suspect it isn’t too unwise.
Investors’ knee-jerk reaction to unexpected uncertainty is often to "hide" in assets perceived to be safe havens. Indeed, with the most recent crisis in the Ukraine, it is not surprising to see the Swiss franc, Japanese yen, and government bonds supported by safe haven flows. But in today’s financial markets there is no such thing as a true "safe haven," and reacting to uncertainty in a calm and measured manner is key to successful long-term investing.
The best investment opportunities often come about when uncertainty is at its highest. The tendency for markets to overreact to events means that for longer-term investors, periods of fear are usually an opportunity.
At a glance
- Investors tend to react to unexpected uncertainty by hiding in assets perceived to be safe havens.
- However, the best investment opportunities often come about when uncertainty is at its highest.
- Investors should take advantage of recent uncertainty and diversify away from the Swiss franc, Japanese yen, and high grade bonds.
- US assets including equities, high yield credit, and the dollar, should benefit in the long-term from the country’s energy revolution.
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