The opportunities in the markets have arisen largely from developments in fixed interest markets which have had a flow on effect into share markets. Simply put, nervousness about the quality of fixed interest investments has sent jitters right around the world, with investors retreating to high quality, low risk investments, leaving parts of the market strapped for cash, stripped of buyers and in some cases crumbling to dust. Prices of bonds and other fixed interest investments have fallen, and new issues have been cancelled.

The strange thing is that when retail goods are on sale at bargain prices, the buyers rush in, but not so when investment prices drop. The reason for that is how investors perceive risk. If you can buy a can of baked beans at half price, you know with certainty that even though it's cheap, it's still a can of baked beans. Buying investments cheap is a bit like buying a cheap can of baked beans with the label removed - when you get it home and open it, there might be lemons inside!

Market confidence has taken a beating with the discovery of lemons - and the worst part is - they were selling in disguise at full price, not half price. If you're a risk adverse investor, you need to know exactly what you are buying. Right now, risk adverse investors are opting to keep their funds in the bank, taking advantage of historically high interest rates.

Cash is king - high return and low risk. Staying in cash is a reasonable approach for a short term investor. However, investors with an eye for the future will be thinking about which way markets will move over the next two years or more.

Interest rates are likely to come down. The drop in the price of bonds means that you can now buy AA rated bonds with four years until maturity that will return you well over 8%. That may seem a little low now in comparison with short term rates, but will be looking good when short term rates drop.

For investors willing to take a little risk there are fixed interest funds that have dropped in value. Much of this drop in value is due to market sentiment based on fear, and fixed interest funds will rise in value as market sentiment changes and as interest rates fall.

For investors wanting to sit on the fence a little longer, but with a higher return than cash, there is a new issue of highly rated perpetual securities with a rate that is reset annually. These securities can be sold through a broker at any time.

Mortgage backed funds are also a low risk option with a variable interest rate and reasonable liquidity. Opportunities are not just restricted to the fixed interest market, however. Share markets have only partially recovered from the panic a few weeks ago. Those who were quick to act on the sharp drop will have already made a good return and if you have a long investment time frame there is plenty more upside potential yet.

Article by Liz Koh

Liz Koh is a financial adviser. A copy of her disclosure statement can be obtained on request and free of charge by calling 0800 273 847.

Ph: 0800 273 847

This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

www.moneymax.co.nz

Be first to comment this article

Only registered users can write comments.

Please login or register.