Five Things to Know about FINANCIAL MARKETS

Graham Bishop, CIO of Handelsbanken Wealth & Asset Management, details some important things to know about investing.

1. Financial markets are made up of three main types of assets

When we talk about investing in financial markets, we are usually referring to shares, bonds, and ‘alternative assets’. Shares (or ‘stocks’) are a unit of ownership in a company, and their value is tied to the fortunes of that company, its industry, and perhaps the economy. Bonds, on the other hand, are effectively IOU notes, issued by governments and companies to raise money. When you buy a bond, you’re making a loan to its issuer, who should repay you at a future date and make interest payments along the way. Finally, the term ‘alternative assets’ covers the vast range of assets besides traditional bonds, shares and cash. This includes hedge funds, property and commodities (like gold and oil).

2.Markets are global in nature, but not uniform in behaviour

Financial markets span diverse industries and geographies across the globe. These individual markets all behave differently, reacting to different triggers and to different degrees. Global investors can access a range of risks and opportunities, blending together a mix of assets in varied industries and geographies. This also has the potential to reduce overall volatility within a set of investments, creating a smoother investment journey over the long run.

3.The real world has a habit of showing up in financial markets

Financial market performance can be impacted by a huge number of external factors, including the health of the wider economy, natural disasters, and the actions of central banks and governments. Over the past few years, we’ve seen markets react strongly to the COVID-19 pandemic, increases in interest rates, and open warfare in Ukraine, to name but a few. Some regions and sectors of the market are naturally more sensitive to external events than others.

4.Risk is a natural and essential feature of investing

Investing without risk is impossible. Financial markets are changeable, and all forms of investment (even simply holding onto cash) involve some risk to your capital. But risk works both ways: alongside the risk of loss comes the possibility of gain. What’s more, you should find that you’re paid to take on risk – higher risk assets should compensate investors with a greater potential for financial reward. It’s really important that you always understand the risks you’ve taken on, and that your investments have a suitable amount of risk for your financial goals.

5.Taking a long-term approach is important

Given that markets are varied, volatile and affected by a large range of factors, the value of your investments will inevitably move up and down – especially over the short term. Taking a longerterm view can give your investments time to perform in different market and economic conditions, and allow for a better assessment of how these assets are working. As a result, we think that a longterm, global approach, investing across a range of assets, is the sensible option for most investors.

If you’d like to learn more about investing, please get in touch with the staff at your local Handelsbanken branch, Manchester Trinity Way on 0161 834 7166 or manchestertrinityway@handelsbanken. co.uk.