Until Thursday, financial forecasters across the globe were predicting that the US Federal Reserve would ease its $85bn a month programme of quantitative easing, or QE for short. QE is credited with helping the US economy overcome the deepest slump since the Great Depression. It kick-started investment, kept interest rates down and wider borrowing rates low and stimulated investor activity worldwide.
Head of the Fed, Mr Bernanke, had indicated in June that the quantitative easing tap may gradually be turned off in a tapering phase making the money markets more nervous than at any time since the stimulus began.
This triggered disquiet in the markets and the mere hint of an end to stimulus caused the Dow Jones industrial average to drop 560 points in two days. You only need to read my blog on emerging markets to see the impact further afield.
I’m sure you have read numerous articles from financial commentators over the last few months speculating about the decision and predicting what the impact will be. So when the Fed unexpectedly announced its decision to hold off on reducing its bond-buying because it had lingering concerns about the health of the economy, stock markets worldwide soared.
Remain focused on your end-goal
This just illustrates what a frenzy so much speculation about market movements can have upon organisations and individuals, who listen to and respond to the hype. These decisions are out of the control of individual investors, so the best investment policy as far as I am concerned is the ‘buy and hold’ strategy. Keep costs low, diversify across a wide array of asset classes, and maintain your investment discipline.
After all it’s a long term game, so why listen to the hype of the financial commentators when all that matters is having a financial plan and investment strategy designed to help you achieve your own long term goals.