Financial markets have gone crazy. While economic fundamentals were still relatively good in 2017, the unpredictability of political leaders has created significant uncertainty and stress on the real economy and the financial markets. Between the Sino-US trade war, the Brexit, the instability of the government in Italy, the changes of government in Austria, Spain or the possibility of new default in Argentina, politics has become the predominant element for investors. Fundamentals of corporations or valuations matter no more, the world revolves around the “tweets” of Trump and populists of all colors.
In this context, the pursuit of security has benefited gold and government bonds and of high quality whose yields have continued to decline. In Switzerland, over ten years, the bond yields of the confederation went from 3.00% to -1.00%! In other words, the performance of bonds, whose prices are inversely proportional to performance, have been exceptional. Since 2008, the Swiss AAA-rated BBB bond index has risen by 47%, or more than 3.50% p.a This is reflected in the performance charts of bond funds that banks are happy to show to their clients. And it is true that these charts are very attractive in the current context.
However, as we know, past performances do not reflect future performances. Today, the investor who buys bonds or funds invested in Swiss bonds invests his money at negative returns. To this negative return must be added the management fees of the bank or the investment fund. Thus, investing in 10-year bonds of the confederation at a negative return of -1.02%, if we add bank charges of 0.50% p.a., amounts to investing at -1.6% p.a. The investor thus invests CHF 100.- today to receive only CHF 86 at maturity. This makes no sense. Over time, at least stable dividend stocks, such as Swiss large stocks, will generate a stable income for the investor, as they have for the past 30 years.
To the contrary, high-quality bonds today guarantee their investors to lose money. In these crazy times, it is essential to keep the "North" in terms of investment.
This is not a recommendation but just our opinion. Please consult with your financial advisor before investing!
Financial markets have gone crazy. While economic fundamentals were still relatively good in 2017, the unpredictability of political leaders has created significant uncertainty and stress on the real economy and the financial markets. Between the Sino-US trade war, the Brexit, the instability of the government in Italy, the changes of government in Austria, Spain or…
Against all odds, the beginning of 2019 has been very good for the financial markets. Shares, bonds rose between 5 and 10% depending on the indices. Oil has risen by more than 21%, zinc has gained 9%, copper 7% and even gold has appreciated by 3%. The optimism seems to be taking place on the…
The year 2018 begun with great investor optimism against the backdrop of a growing global economy. Yet the year ended in panic. The capitulation obviously occurred at the end of the year, with the window dressing transactions for December 31st. However, we know that markets often exaggerate and can change direction without warning.
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