Friday, November 2, 2012

Risk Appetite

There must be a person, or perhaps an office somewhere that writes the main copy of the financial analysis about why the market went up or down on any given day.

I follow the Canadian TSX market about as closely as the US, because they have their debt under control and all those natural resources ( though their economy appears to get jerked around by the US and Euro economies). In an analysis I was reading it said that economic news increased risk appetite so the market went up.

Just a few seconds ago I was reading Google Finance and it said:"Asian shares advanced to their highest in nearly two weeks with risk appetite returning on signs that a trend of global recovery is stabilizing, particularly in the United States and China." Awesome, but just how do they know that the news of the day is actually the force driving the market. Earnings reports, I understand, inflation and the concern that a fairly sizable economy will default on its debt, I understand. Risk appetite, that I have less understanding of.

I get risk appetite at the personal level. As you start approaching retirement you want to smooth out your returns and try to be conservative to ensure that one blazingly bad day in the stock market will not wipe you out. I am in the process right now of trying to set up two single pay annuities that will pay Kathy and I until we die. I realize it is a TERRIBLE investment in terms of returns compared to X, Y and Z. However, we were lucky enough to have made a couple investments in cyber security startups that did well and also lucky enough to have worked for a great company that pays well. So, as part of our portfolio, we can afford to have a couple of low return ( right now about 4% ) income streams. Now, that is all I am going to do right now, because I believe interest rates will go up and I will have the opportunity to work with CDs and Municipal bonds at a more reasonable interest rate. But the majority of my portfolio is in stocks, but that is OK because investors have risk appetite and the market went up today right?

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