Despite The Potential For Blowups From Investors Taking Higher Risk In The Search For Returns, 2012 Showed That Present Dangers In The Financial System Are Manageable

Wednesday, January 02, 2013 08:08
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Despite The Potential For Blowups From Investors Taking Higher Risk In The Search For Returns, 2012 Showed That Present Dangers In The Financial System Are Manageable

Tags: diversification | investor behavior | risk

The year 2012 was a watershed year in that it proved that, after the near collapse during the financial crisis of 2008, present dangers in the financial system four years later remain manageable.
 
What could have turned into a year of living dangerously actually turned out OK for a lot of investors.

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Other investors stayed out of the markets because of fear and uncertainty about the economy and the stock markets.
 
There were plenty of opportunities for blowups. Investors of all types—money managers, universities, hedge funds, and individuals—took more and more risk in their hunt for income in a historically low interest rate environment.
 
And as 2013 begins, the appetite for risk is only expected to increase. Exotic investments in exotic parts of the world will likely attract more investment dollars as investors search for returns.
 
Whether the invest-with-abandon attitude will backfire will depend on the health of the economy and the pricing of different assets.
 
Many global economies are still climbing out of recession. The US Fed is betting on looser monetary policy to spur consumer demand and job creation.
 
Those are the elements that will determine the future, much more so than the fiscal policy vacuum of the last few years.
 
To gauge investment professionals’ views of returns this year, the CFA Institute polled its members and fond that over half expect the stock market to do well in 2013. That’s up from 41% in last year’s poll.
 
Only 8% expect the bond markets to outperform. But there are economic wild cards still out that could continue to hold back investment in equities. Bonds and hard assets like gold are often viewed as safer havens in such an environment.

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