| |MAY - 202319CIOReviewCXO INSIGHTS ASSET MANAGEMENT IN ONGOING TURBULENT TIMES ­ COMMUNICATION REMAINS KEY, BUT A SENSE OF UNDERSTANDING AND RISK TOLERANCE IS VITALBy Hildur Eiriksdottir, Director Asset Management, ÍslandsbankiHildur EiriksdottirNow the year is coming to an end, and we have behind us a tough year in investments where we had returned in negative territory on most assets and the worst year for world stocks since the global financial crisis. Central Banks have been raising interest rates to fight inflation, the liberal economic stimulus following the pandemic has transformed into fiscal tightening, and we see looming recessions across developed markets. The aftermath of the pandemic has also marked the year, but we see that severely disrupted supply chains are gradually recovering. The world's geopolitical risk has heightened when we still have an ongoing war in Ukraine, which has continued to cause major shocks to the commodities market.This last year in the equity markets has put investors' risk tolerance to the test with increased volatility and few places to hide from the volatility in search of yield. Keeping in mind that securities investments are long-term, where the suggested minimum investment period is always 3-5 years, the current fluctuations should not be a reason for a change in investment strategy unless the long-term investment goals or the investor's financial situation have changed. Given that the current year is not the first year of investment, a longer-term view is still likely to provide positive yields for a well-diversified portfolio, as the past few years have been quite rewarding in equity markets.The level of risk tolerance, which is screened for at the beginning of the relationship in asset management and continuously during the relationship, is being tested in these turbulent times. Correct evaluation of the risk tolerance is highly important, both to assess the diversification when it comes to investments and to help with limiting outflows of securities in high volatility. Correct evaluation limits investors in taking on risks that might affect their level of well-being, and should investments be the reason for sleepless nights, the risk is too high and must be modified. Investments should always be for the long term and aim to secure a healthy financial future, but to be able to enjoy a financial future; one must also
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