Global stocks rose broadly but modestly as investors reacted favorably to the US Federal Reserve's release of its April policy meeting minutes, which indicate a reluctance to raise interest rates until the US economy strengthens further. Japan reported a pickup in first-quarter economic growth, but China showed continued weakness.
By Ryan Mullen, MFS Senior Managing Director, Head of
Defined Contribution Investments
Defined Contribution plan participants know retirement is a
long-term goal, but sometimes their investment decisions can be shortsighted.
With easier access to real time investment information, participants can see
every zig and zag in the financial markets and watch their account values
Unfortunately, this can lead to reactive, short-term
investing, or a follow-the-pack mentality. As evidence, during the global
financial crisis (October 2007 to February 2009) $208 billion flowed out of
equity funds in the last 12 months of the downturn.Then, from March 2009 to December 2013 $161
billion flowed into equity funds during the last 12 months of the rebound.The sellers likely sustained losses, and the
buyers probably missed participating in a significant part of the upswing.
Investors are always interested in maximizing the returns on their invested capital. The question is this: How much risk is it prudent to take in the pursuit of returns? And, also, what additional constraints are considerations in deciding on a particular investment strategy or approach?
Investment constraints can take myriad forms, including, for instance, the requirement for a certain degree of liquidity or the desire to screen out certain types of securities for environmental, social or governance reasons (so-called ESG investing). The interplay between risk tolerance and these kinds of investment constraints largely determines the course an investor chooses to chart for a portfolio.
by R. Dino Davis, CFA, Institutional Portfolio Manager
Investors today are as concerned about protecting capital in market downturns as they are with earning returns in up markets. The numerous financial crises in the past 15 years have demonstrated just how damaging volatility can be to investment performance over time.
by Bill Adams, MFS Chief Investment Officer, Global Fixed Income
As most marathon runners would tell you, how they pace themselves through the entire race rather than when and how they start has a much bigger impact on how well they do in the end. Fixed-income managers and investors might do well to take the same approach. Rather than base investment decisions on how soon the US Federal Reserve will begin hiking interest rates, make those calls with the entire interest rate cycle in mind.