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Making the most of Quantitative Easing

Euro

Today marks the day that the European Central Bank will probably announce the start of its quantitative easing program. Assuming that the ECB starts purchasing Malta Government Stocks in March, the typical Maltese investor used to hoarding Government Bonds, has the opportunity to maximize their return on their investments over the coming months.

The following are some thoughts that an investor should keep in mind.

Change your MSE account into a nominee account with your broker

This is a practical consideration. The market maker at the Central Bank will be reluctant to purchase small retail volumes. Your broker will be able to aggregate small amounts and trade at an advantageous price with the market maker. Your financial advisor will be able to guide you.

Don’t be too attached to your Malta Government Stocks

The months ahead are probably the right time to part from your much treasured Malta Government Stocks. The Central Bank will probably continue with the purchase program at least up to September 2016.

Let us be honest, three percent for the next 25 years on your investment is miserable. However, the capital appreciation that may result due to quantitative easing may provide the necessary incentive to part from your investment.

In addition, several investors have seen their investments in Malta Government Stock appreciate beyond their initial dreams.

One very important hint; check with your financial advisor how much your investment in Malta Government stocks are worth today. I am positive that many have no idea and are just happy to receive their yearly interest.

Timing the Exit

Everything has a price. However, investors will need to balance delaying selling Malta Government Stock with the opportunity cost of missing out from gains from alternative investments. Investors have to keep in mind that once sold, the funds will probably have to be invested in a different asset.

Speak to your financial advisor on timing the sale. In truth, only a few will sell at the highest, but this is less important than making an informed decision, getting a good price and good advice on what to do with the proceeds.

Buying additional bonds with the intention to trade in the medium-term may also be a successful strategy if managed well.

Get into the equity market

The European Equity market is probably at a sweet spot to be at the moment. Quantitative Easing, a depreciating currency, ultra-low interest rates and the first hints of an economic recovery are driving equity prices higher.

Since hints of Quantitative Easing emerged in early January the price of the European Equity Benchmark has increased by over 17 percent. The actual start of the program should push equity markets higher.

It is important to keep in mind that equities do not have the same risk profile as Malta Government stocks. However, the growth potential justifies an allocation.

Buy something nice

Finally, if you have realized a good profit, treat yourself, go and buy something nice for yourself and your family, you deserve it.