With great risk comes great reward is a quote famously attributed to Thomas Jefferson. An investor's risk tolerance is a very personal thing and their appetite for risk will change over time. 2022 has certainly begun with a bang and investors may be wondering what risks are necessary to achieve favourable rewards. This year investors are facing uncertain times where the only certainty seems to be market volatility. Currently there is geopolitical conflict with the war between Russia and Ukraine, many countries are fighting inflation along with central banks increasing interest rates.

This week saw the US Federal reserve increasing interest rates for the first time since 2018. This has been done to try to curb soaring inflation in the US. But what does this mean and how does this affect investors here in Jamaica?

February 24, 2022 will go down in infamy as the day Russia invaded Ukraine. In response, the West has never been more united in a coordinated effort to isolate and punish Russia for its so called “special military operation” in Ukraine. In a few short days, many countries have transitioned from the decades-long policy of trying to make peace with Russia to hitting it with sanctions the likes of which have never been seen before. They have frozen Russia’s foreign assets. They have removed many of its major banks from the Society for Worldwide Interbank Telecommunication (SWIFT) network.

Once you are part of the investment world you will quickly come to realize that investment returns are unpredictable and volatile. This is true at all times- during peace and war, boom and bust, summer and winter.

“Time is Money” is a famous phrase attributed to Benjamin Franklin that many of us have heard before. So why is time so important to an investor and is time really money? The simplest answer is yes. The time value of money is a concept that a sum of money is worth more now than the same sum of money in the future. The underlying premise is that you could invest the money and grow the initial sum due to its earning potential in the interim.

In the realm of economics, a bubble refers to a period in which current prices of an asset greatly exceed the fundamental value of the asset. Prices are inflated and purchasers are willing to pay or are paying very high premiums. A bubble can be formed around a single stock or the entire stock market, a financial asset or asset class and can even be formed around the entire financial market. Over time, the price of these assets begins to diverge upward from their true value and may not easily be noticed until the “bubble” has already been created.

It may be a good strategy to keep some cash as part of a well-balanced investment portfolio, for planned and unplanned expenses or to take advantage of investment opportunities that may arise, especially in a rising interest rate environment. When market prices go down, investors with cash have the opportunity to sweep up normally expensive assets at bargain prices.

Imagine you have been comfortably holding your bond for several years and you see on the financial news the issuers of your bond have made a tender offer to buy back this bond. What would you do? This may cause instant panic or feelings of uncertainty, especially if you have never experienced this situation before. What is a tender offer? Why would the issuer of the bond do this? Is your investment secure?

Many fixed income investments have a predefined maturity date. When making the investment the date is stated in the contract and known by the investor. There are also some investments which may have embedded clauses to allow the issuer of the investment to repay investors early. This is known as a “call feature”. The details of the criteria or circumstances which allow the issuer to “call” the investment, along with the dates when the call feature can be exercised, are stated in these types of investments.