A year ago the world went into lockdown and investors anxiously watched how the stock market price index seemed to be falling off a cliff’s edge.
A large majority of shares and indices lost 40% of their value within a few weeks and seriously questioned the continued existence of complete industries in our world economy.
A large number of investors decided to choose for risk free investment strategies.
They sold their shares at rock bottom prices and bought into supposedly low risk government obligations.
These types of obligations pay a very low coupon rate (interest rate) but at least the value of your primary invested capital is secured.
Or is it?
Well not necessarily.
The following graph shows the performance of one of the leading long term government loan ETF.
If you bought into this ETF in August (or mid April May) you would now have lost 22% of its value.
So here we have an example of turning to a government treasury bond in an attempt to reduce risk of financial loss. This is the investment choice of a large number of registered investment advisors.
I am not so sure if these advisors are sitting so comfortably at their desks right now as they observe the dramatic drop in the value of these obligations.
I am equally curious how they are going to explain and justify this type of standard investment strategy to their clients.
However it is traditionally based on a 40% obligations to 60% share ownership ratio with the idea being that the obligation component adds stability to the whole portfolio. If the share market segment drops in value the obligation segment will rise. This strategy has worked successfully for decades.
But these past few weeks seem to be changing historical trends. On the days that the general stock market index dropped in value we equally observed a drop in obligation market value. This is a new phenomenon.
Maarten has not even mentioned the other ‘inconvenient truth’ that inflation will probably overtake average interest rates in the very near future. Instead of calling this a risk free return investment strategy, where we would at least be able to preserve the value of our initial investment, Maarten now feels that we have to call this method a guaranteed way to lose on your investment and its purchasing power.
The winning game of the obligation market seems to be over and those who understand the psychology of investors realise that they have very little tolerance for falling asset prices.
When obligations continue in this downward trend then these types of investors will eventually take a run for their money out of these obligations and search for alternative Safe Havens.
Maarten Verheyen continues to advocate one particular market segment that is still cheap, protects investors against inflation and is liquid enough to meet the needs of a growing number of investors. The physical precious metals market sector
Via the above beurs.com address you will find a direct link to his Dutch platform and a link to his personally recommended precious metal dealer.
This article is merely a translation of an email newsletter from Maarten Verheyen. He has given me the permission to share his email on my WordPress platform.
This particular WordPress account is merely a free, non profit, currently ad free site where I share my learning journey and writing style primarily to the WordPress Readers Community.
I am hoping that Maarten Verheyen will create an English speaking platform where he can directly share his personal financial vision and unique style of contraieren style investing to a wider audience. Until such time I will attempt to translate some of his free email content with you.
Thank you for reading.
Disclaimer: The viewpoint, strategy and opinions given come directly from Maarten Verheyen and as with any and all investment information shared it should not be taken or acted upon without first doing your own personal research and or seeking advice from a professional financial advisor. Any investment strategy and advice given involves not only the possibility of wealth preservation and profit but also a risk factor of loss of initial investment because no one can predict the future macroeconomic situation with a 100% accuracy.