FINANCE | 05.07.2020
All your eggs in one basket?
Head of Investments of MAPFRE Gestión Patrimonial
If we look back a few years and imagine for a moment that we had been offered the chance to purchase 10 pens online from a Chinese company cheaper than those at our local stationery store, we would have thought it was a scam or a joke.
However, we now all know what Alibaba does and how many people use it. The world has changed very quickly and it is often difficult to notice since daily developments cloud our memories.
Although the change may have been more gradual, the same is happening in the financial world and in the way we manage our investments. A few years ago, if we had been asked whether we wanted to invest in companies in Asian countries, we would not have considered it, and now it is vitally important to consider them when creating a portfolio.
Before the financial crisis of 2008, the life of the Spanish saver or investor was relatively easy: The rates paid by bank deposits were acceptable, public debt bonds had decent coupons, and if you wanted to take on something with more risk, turning to the Ibex 35 was enough to receive an extra yield via dividends assuming more volatility. In addition, we in Spain have always looked very positively at investing in real estate, always assuming that it is a conservative and safe investment.
Today, the situation has changed radically, given that the alternatives we have to invest in closest to home are not so attractive, and we have been forced to leave our “comfort zone” by looking at other regions or other assets. The market and the evolution of the various assets has reminded us and taught us that one of the most important considerations in creating a portfolio is diversification and, for the retail investor, the best product is certainly the mutual fund.
Once we have understood that we can look for other options, it will be time to decide where to invest and what to include in our investment portfolio. If we start from the idea that there are more than 20,000 funds available in Spain, it is clear that this is not a simple decision. It is therefore worth remembering that we can seek help from a professional who advises us and clearly explains to us the rules of the game. As I said before, the Internet has in many ways simplified our lives and saves us time and money, but it has also made it possible for everyone to give their opinion or for data to reach us that is often not placed in its context at all. Moreover, the more information and the more alternatives, the more complicated it is to make a decision.
So, just as when you have a legal problem and you don’t hesitate to hire an attorney to help you organize your ideas, neither should you hesitate to get the help of an advisor when dealing with your financial planning, in order to make sure your investment portfolio is well diversified according to your characteristics, which can give you immeasurable long-term value.
If we look at what has happened on the financial markets in the last three months we can fully understand how important it is to create a diversified portfolio according to your financial situation. We have seen Asian countries behave better than many developed countries. We have seen how the technology sector, which resisted very badly in other crises, has been the strongest sector this time round. We have seen how sectors that had resisted well in the past have not done so this time. We have seen investment funds lose value more than we could ever imagine. We could continue to list countless cases where history has not repeated itself.
In short, it is important to always remember that if you decide to put all your eggs in one basket, that basket must be well constructed, well diversified and, of course, well advised.