The equity markets took a hit last week as the market sold off due to a variety of issues. It appears that the issue of subprime loans have affect banks, Bear Stearns hedge fund blow up also affect the markets. Credit Default Swaps (or insurances) have seen their spread widen. High Yield Bonds (junk bonds) have declined and talk is that it will now be harder for private equity to continue their buying binge of large public companies as financing through banks and the capital markets become more costly. As a result of these developments, money managers are also being forced to sell “good positions” to face margin calls. Traditional fund managers who have bought equities based on “potential private equity takeover” has seen their positions decline in value.

Across the bloggersphere, I see different pf bloggers react differently to last week’s equity sell off. SVB wrote a recent post about how to react to a equity market fall. Frugal from 1st Million at 33 wondered whether to buy or to sellafter last week’s market correction. The growing money blog speculated early last week if the markets were due for a fall?.

What about us (as in Mrs Credit Card and myself)? Well, we could not really be bothered with our investments. A while ago, we had our risk profile analyzed and invested in a “moderatedly aggressive” portfolio which was roughly 70% in equities and 30% in bonds. The equity portion was split up by market capitalization (ie large, mid and small caps) and between growth and value. There is also an allocation in international equity. The bond component consist of the usual US treasuries, mortgages, corporates etc.
The portfolio is managed according to this allocation and rebalanced.

Hence, to me, it is all really on autopilot. Because it is rebalanced, I do not worry about allocating new money to uderperforming sectors. I do not have to think like a contrarian as SVB mentioned. The only thing that I am thinking about right now is whether to invest new savings in a portfolio of global resources funds and some “managed futures”. I do not even bother about the headline news too much. I find our new arrangement to be a really great thing because in the past, if the market tanked, I tended not to look at our portfolio. I also realize that the day to day management of one’s portfolio and investments is best left to professionals whose job is to live and breathe the markets everyday. Another side effect is that I have totally stopped watching CNBC!

Instead, the only things that is interesting about the markets is for me to write about my state of mind and how we reacted to last week’s equity meltdown. Answer is : we have no reactions and it is a great feeling. The great feeling we get when our investments is on autopilot.

How are you reacting to last week’s market correction? Is your investments on auto-pilot? Share your thoughts here.

This entry was posted on Wednesday, August 1st, 2007 at 5:09 am and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.