The past quarter was a challenging quarter for equities, with a return decline of -0.6%. Only money market investments and corporate bonds showed a positive investment return. The persistent rise in interest rates could potentially slow down economic growth and corporate profits, leading to increasing uncertainty in the financial markets. But what does this mean for your investment plans?
Central banks also raised the short-term interest rate last quarter with a view to controlling inflation. The US central bank raised the rate by 0.25%. In the eurozone, the 3-month interest rate rose slightly by 0.3% compared to last quarter, reaching a level of 3.7%. The further rising interest rate made investors realise last quarter that economic growth could be slowed down as a result. This may also lead to lower corporate profits. That is bad news for equities, which showed a worldwide decline in value. Investors are factoring in high interest rates in the foreseeable future, which caused the value of government bonds to fall. The volatility of the equity markets is increasing, which indicates more uncertainty about future developments.
Best fund performance in the third quarter of 2023:
Northern Trust Global High Yield ESG Bond Index Fund +2.42%
Last quarter brought a positive investment return for the investment categories money market investments and corporate loans. The high-yield corporate loans showed the highest return, with European corporate loans performing better than American ones last quarter. The short-term interest rate has risen, meaning the return for money market funds was slightly higher again than last quarter. Based on the current interest rate, the return on money market funds for 2023 is expected to be 2.9%, which is more than what many savings banks offer in interest.
We are seeing the VIX index, which is the index that measures the expected future volatility of stock prices, increase. This means that uncertainty in financial markets is rising. Should you then radically lower the risk profile of your investment plan so that you divest all your equity investments? No! History teaches that you cannot estimate beforehand when stock prices will fall or rise. The only way to reap the long-term return on equities is by patiently remaining invested.
We continue to repeat our message: do not let the market disrupt your long-term goals. Vive's investment strategies take into account the risks that are acceptable for your plan. Check the app to see how you have set your acceptable risk level for your investment plans. Movements in financial markets are no reason to adjust your risk. A change in your personal situation could be.
If you adjust your acceptable risk level in such a way that your current investment portfolio needs to be adjusted, Vive will automatically take care of that. And consistently adhering to your investment strategy with well-diversified portfolios is the key to long-term success.