nottheaverageactuary

Actuarial news and views from Cape Town and beyond

Investment strategies meant as buffers to volatility may have deepened it.

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“The cure is proving to be nearly as bad as the disease”- Landon Thomas Jr.

The link for the article:

http://www.nytimes.com/2015/09/09/business/investment-strategies-meant-as-buffers-to-volatility-may-have-deepened-it.html?_r=0

In summary, the article talks about how Wall Street’s investment strategies to protect investors from risk have backfired and have actually contributed to the recent market volatility. The investment strategy had involved investing large sums into risk-parity funds and E.F.Ts. It is feared that investors, anxious about the poor returns, will start selling out of their positions and send stock prices plunging.

The author also states that China’s decision to weaken its currency has also lead to the turmoil experienced in the market. Bonds, which were meant to provide stability in investor portfolios, have declined in value. Central banks in China and other Asian countries have then made matters worse by “selling out of their positions” in U.S Treasury securities, in an attempt to defend their weakening currencies.

On the other hand, the article (http://bigstory.ap.org/article/5f820b28b1de4a4ca6a80dc90f2269e7/stock-prices-sink-ordinary-americans-keep-their-heads) suggests that as Wall Street panics, many American individual investors are not yet worried about their investments. They are not planning on adjusting their investment strategy because they expect stock prices to rebound.

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