Stock market prices under pressure: Why long-term investors should be careful about stock ETFs

Stock market prices under pressure: Why long-term investors should be careful about stock ETFs

Have you been watching the value of your portfolio fall for a few weeks instead of increasing? According to an article on amp.focus.de, a turning point is currently taking place in the capital markets, which long-term-oriented private investors in particular should be aware of. An important role is played by the increased interest rates, which have risen more sharply in the last twelve months than ever before in history.

The current interest rates of around 4.5 percent in Europe and 5.25 to 5.5 percent in the USA are giving some investors pause. In some cases they are above the inflation rate and not far from the average return on the world stock market of around seven percent. Investors therefore ask themselves whether they should achieve a five percent return with bonds with relatively little risk or a seven percent return with stocks with a high level of risk. Given uncertainties, such as a possible recession or geopolitical conflicts, many investors are currently switching to bonds, which is putting pressure on stock prices.

A survey by the Managing Partners Group (MPG) shows that 72 percent of institutional investors have already increased their bond positions due to increased interest rates. They also expect further price gains, as interest rates will most likely not continue to rise, but rather fall. In a possible scenario of an interest rate reduction to three percent, bond prices could rise disproportionately and investors could achieve a price gain of 11.9 percent and an additional 4.7 percent return.

Falling interest rates can also usually have a positive impact on stocks, but not if the economy goes into recession. In this case, profits and stock prices could fall despite falling interest rates. Economic experts therefore recommend long-term investors to continue their ETF savings plans on stocks such as MSCI World, but also to shift part of their portfolio into long-term government bonds. An example of such an index is the TLT, which invests exclusively in US government bonds with maturities over 20 years.

In the long term, stocks continue to offer the highest returns. However, it is advisable to be cautious when a storm is approaching.

According to a report by amp.focus.de