Go on vacation without worrying about your savings: Finance experts share some advice

August brings bad memories to many investors and professionals. Some are harder to forget than others: for instance, in 1990, there was Iraq’s invasion of Kuwait and the collapse of the giant hedge fund of the time, Long-Term Capital Management LP (which had to be bailed out by other financial entities under the supervision of the Federal Reserve of the United States). It all caused a drop of 9.5% in the Standard & Poor’s 500 Index (S&P 500). In 1998, the Russian government devalued the ruble, stopped paying the domestic debt and declared a moratorium on the payment of the foreign debt, which caused a correction of 14.6% in this index. In 2001, after the tech bubble burst, a recession led to a cut of 6.41% in this benchmark. And, just to give another example, in 2015 a devaluation of the yuan ended up sending the S&P 500 back 6.25%.

However, despite all these difficult Augusts, the general data on the behavior of the stock markets in this period somewhat contradict this perception of a month that hinders the summertime peace. In fact, from 1950 to the present, the August performance of the S&P 500 has been rather flat, with positive results in 55% of cases versus negative results in 45%. Since the beginning of the millennium, the situation has been even better: the S&P 500 has been negative in August in 39% of the years, with an average fall of -3.72%. In other words, much more positive than negative.

Still, Virginia Pérez, investment manager at Spanish private banking firm Tressis, points out that it is not uncommon to see some investors adjust their portfolios to face these hot months in peace. However, in her opinion, “there is no specific financial asset that is universally more suitable for the summer periods.” The important thing, she says, is to base investment decisions on financial objectives, time horizon and adequate selection and diversification.

With this clarification, the expert, aiming to avoid concerns in the very short term, points out that, given the persistent inflation, the resistance of the labor market and the categorical message from the central banks about possible additional increases in interest rates, “they may remain high for longer than what was expected just a few weeks ago.”

From this perspective, she acknowledges her preference for fixed-income assets in the shortest terms, “where attractive coupons can be obtained.” Pérez also mentions that, despite this search for peace of mind, in August and September people must be watchful of “any correction in the market, which we think will be an opportunity to build portfolios, betting both on the U.S. stock markets (especially in the technology sector) and the European indexes, with a lower valuation than other regions.”

Along the same lines, and while he acknowledges that movements do tend to be more abrupt in the summer due to a drastic reduction in market liquidity, Miguel Ángel García, investment manager at financial advisory firm Diaphanum, states that there is no ideal option for these weeks except for the treasury, although, he explains, “it can be incurred, aside from the expenses of unwinding the portfolio, as an opportunity cost for not having been invested.” Still, the most important thing is, in his opinion, “not to make wrong decisions at the worst times.” To gain peace of mind, he maintains that “it is time to buy 12 or 18-month fixed income to guarantee adequate returns, because we think that short-term rates are going to remain in the current situation for a few more months and that they will begin to fall as inflation decreases.” With a longer-term vision, he also recommends acquiring medium-term bonds issued by quality European companies.

Nerves of steel

Almudena Mendaza, head of sales at Generali Investments, believes that for now investors can rest easy if they favor fixed-income assets, “with which they will obtain returns between 3% and 4%, either from corporate bonds or from public debt.” In her opinion, these days, it would not make sense to liquidate investment positions to leave the money in checking accounts. “The offers in this regard are very few and, in general, those few offer short-term returns below 3%, so, in any case, monetary funds or those with yields to maturity are more attractive,” she points out. Mendaza also believes that more than the month of August, “we must be attentive to what happens after the summer.” According to her, there could be a correction in the stock markets that could invite new positions to be taken in sectors such as the energy transition or the one related to the aging of the population.

Ricardo Comín, sales director at asset management firm Vontobel, believes that this is an ideal time for conservative investors. “You can enter fixed income and simply wait for the corresponding coupon at maturity. The returns are attractive enough,” he says. “What’s more, in a not too distant future, we might think back to 2023 as far as the profitability of fixed income securities is concerned.”

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