Tag Archives | Market Risk

Playing safe might hurt in the future

Wye Creek038

 

Tom Hartmann, resident blogger at sorted.org.nz , recently posted about comparative risks in investment decisions. Specifically he looked at the classic ‘now risk’ vs ‘later risk’, or how “taking greater risks now means reducing them later, and vice versa: taking too small a risk now means it will loom larger down the line.”

With KiwiSaver, fund managers present these risks in different investment profiles from which the investor can choose to suit his or her preference. So growth assets like shares and property typically have greater returns in the long run but tend to have more volatility along the way than income assets like bonds or cash.

But for many investors the greater ‘now risk’ in the short term is outweighed by the ‘later risk’ of not having enough to reach their investment goals.

As Hartmann concludes: “Most of us have an allergy to risk – we naturally tend to put it off for the future. Somehow we need to overcome that.”

A discussion with us about your investment goals and our recommendations on how best to achieve them is a good place to start.

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High Frequency Trading

This is a type of trading that has become more prevalent over recent years. It is where computers connected by the latest fibre optics technology are programmed to make thousands of trades a day betting in tiny differences in share price movements. Backed by engineers and mathematicians they now account for approximately 55% of all US stock trading. On the positive side they provide better liquidity for markets as there is always some algorithm willing to trade when you want to buy or sell a share.

 

Data Centre for High Frequency Trading

Data Centre for High Frequency Trading

However, when these programs go wrong they go very wrong. Knight Capital Group lost $440 million dollars in less than an hour as a rogue algorithm automatically traded the firm out of existence. Last month the technology publication Wired produced a fascinating article looking into this new force shaping world markets. For those of you interested in finding out more about, we would recommend reading the article in full here http://www.wired.com/business/2012/08/ff_wallstreet_trading/.

 

 

 

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