Markets No Longer Know How to Define ‘Safe’
The prevailing feature of the recent turbulence is that nothing has really worked as it was supposed to work.
Notions of “safe” have been upended.
Photographer: Bloomberg
If the recent selloff in markets proves anything, it’s that for too many years too many people were focused solely on returns with zero consideration for risk or safety. The last time anyone really thought about safety in markets was during the financial crisis more than a decade ago, when investors couldn’t get enough government bonds or cash.
But as the economy recovered, so did investors’ appetite for risk. A sort of cult of equity developed, with the unshakable belief that stocks would keep going up, and if they ever went down – which they did fairly sharply in the second half of 2015 and the end of 2018 - they would always come back – which they always did. “Buy the dip” became an actual strategy. The American Association of Individual Investors found that its members had an almost 66% allocation to stocks in December, up from 41% at the bottom of the financial crisis.