When investors analyze their investment portfolio, it is common to compare the past yields of fixed income investments linked to the CDI with risk ones. Undoubtedly, to evaluate the adoption of any risk alternative, it is necessary to have a reference and the obvious choice in Brazil is the CDI, but the form of analysis is usually wrong. In this sense, one of the questions I receive the most today is: is it worth taking risk in the investment portfolio, considering the interest rates we have?
I have been active in the financial market for almost a quarter of a century. I’ve been through times when the Selic rate was 45% per year and others when it was 2% per year.
Undoubtedly, when rates are high, the choice between taking risk or not seems obvious. However, the level of interest rates does not make it very easy to answer the question in the first paragraph.
Just because interest rates are low doesn’t mean you should take a lot of risk or take little risk when rates are high. For example, even with the average Selic of 4.5% in 2021, investing in stocks was not interesting that year either.
Today, it seems easy and logical to have little risk in your portfolio because you are looking at what happened in the past. That is, your decision is being based on the past and not the future as it should.
Just because interest rates are high doesn’t mean the stock market outlook is negative.
Risky assets are priced by discounting future flows at interest rates plus a risk premium. It so happens that at that moment when rates are high, the risk premium is also usually high. Therefore, risk assets, at these times, are usually trading with an even higher potential return than normal.
Therefore, in order to decide whether to carry risk in the portfolio, it is necessary to assess not only the level of interest rates at the moment, but, mainly, the trajectory of these rates in the future and how the economic perspectives should evolve. Also, align this with the investor profile.
Simply put, your decision should be based on two responses.
1 – Is your prospective scenario one of worsening economic conditions in the horizon of 12 to 36 months?
2 – How frustrated or distressed are you to see your portfolio yielding less than the CDI?
The second question is related to your investor profile. Anyone who accepts taking a risk has to understand that there is a reasonable chance of losing fixed income over periods of one to three years. Therefore, before thinking about the economic scenario, think about your investor profile and consider whether you have the ability to take risks.
The answer to the first question is for you to reflect on the possibilities of gain in taking risk.
If you do not see a potential improvement in economic conditions, it makes no sense to take on risk or at least have only a small exposure, as interest rates would possibly remain high for longer and the balance of return per risk for the stock market would be unfavorable.
Right now, the scenario looks binary enough to justify having little risk in your portfolio and having greater exposure to fixed income.
I have over 10 years of experience working in the news industry. I have worked for several different news organizations, including a large news website like News Bulletin 247. I am an expert in the field of economics and have written several books on the subject. I am a highly skilled writer and editor, and have a strong knowledge of social media. I am a highly respected member of the news industry, and my work has been featured in many major publications.
