Eurozone: Investors switching to cash

20th June 2012 by Darius McDermott

So another week has passed with the markets rising in relief at some good news (Spanish banks being bailed out or ‘Spailout’ as someone suggested on Twitter) only to fall again, within minutes it seemed, as reality set in. And the same pattern after the Greek elections. Hope, excitement, relief, more nervousness and disappointment, all following each other in quick succession. A bit like watching England play football most of the time. And like Italy with a 1-0 lead, investors have retreated into their own half, looking to defend their savings.

May to September are usually quiet months for retail investors but so far this year we’ve seen more activity. Not in buying, but in switching. We’ve seen a lot of clients, in their 60s in particular, switch part of their investments into cash. Some may be surprised that people in their 60s were taking more risk in the first place, but these investors know they need their money to last longer these days as they hopefully live longer in retirement. But they are making sure that any money they need in the short term isn’t going to decrease in value in the next couple of months.

However, like any good team that wants to make sure of a win, these same investors have been making the most of the opportunities that present themselves and have reinvested cash when the markets have sold off. Again, perhaps unsurprisingly, income funds have been the beneficiaries of any moves away from cash. But not just UK equity income or bond funds, Asian equity income has been extremely popular too.

No one really knows how, or when, the Eurozone crisis will be resolved, but investors are definitely getting more used to volatility and are trying to make it work in their favour. Some are busy making substitutions to their team, others are sticking to their players, believing they will perform well in the long term. Let’s just hope Europe’s leaders don’t make any bad refereeing decisions.

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