With this as a background, investors have to take risk to get a return. Investors who want a consistent and regular income – who wants an irregular income? – have to take even more risk. So are we actually becoming too opportunity averse? Where are the risk takers?
The global financial crisis and the realisation that, despite Gordon Brown’s best attempts, the cycle of boom and bust remains, has forced investors to naturally be more risk-aware and regulators have followed suit.
But investors are risk-aware not risk-averse. Fund managers and portfolio managers spend more time explaining potential risks than the potential upsides and as long as they and the regulator are doing their job properly then good risk management will continue to have the emphasis that it does.
Investors (be they portfolio managers or the individual client) are the ones who need to cover their backsides if they lose money. All things being equal, they should not necessarily take the blame but they should take the responsibility for clear communication with a client, especially over the risk warnings.
By coincidence, the latest thoughts from Chris Iggo (Axa IM’s fixed income CIO) have just dropped in to my inbox. His opening line is hardly encouraging: “Prospective returns from developed equity and bond markets are unexciting given the tepid growth outlook.”
As I read through it, it does not improve: “I was discussing markets with my equity colleagues this week. The outcome was not very encouraging. Return expectations are limited by the current valuation of equity markets and the lack of earnings growth, itself a reflection of the tepid top line environment.”
I am not predicting, or suggesting, or foreseeing a ‘throw caution to the wind’ investment strategy of sex and violence investing. But markets will crash again; investors will lose money again; fund and portfolio managers alongside investors will take risk again so let’s not see risk as a dirty word.
