Money and Investments - What Lies Ahead?
This year has been interesting, but what lies ahead for investors over the next few months? Experience has taught us to expect the unexpected, as many investors are becoming used to a wide variety of financial, economic and political factors and learning to look through the ‘noise’ to focus on what really matters. Recent political events have further exemplified the difficulty of investing on the basis of prediction. As global growth becomes self-sustaining and policymakers are presented with difficult decisions, the risk of political upset disrupting markets remains.
What we do know is that market volatility will continue and pockets of value exist, which makes asset allocation a prime tool when planning your portfolio. What really matters is identifying your attitude to risk, selecting suitable investments in line with your risk and objectives and having conviction in these decisions.
With a backdrop of modest global growth, clouded by the added complication of Brexit negotiations, there are mixed signals of growth for the UK. Theresa May outlined plans for a transition period after Brexit, telling EU leaders there is a shared responsibility to make Brexit work “smoothly”. Frontline negotiations seem to be making little progress and the clock is ticking. Brexit remains a long-term threat.
Weaker sterling has been the main driver of UK blue chip companies with high overseas earnings and benefiting those industries which export services and goods. Despite inflation remaining above target, many economists do not expect UK interest rates to rise until 2019.
Over the water
On the continent, with 17 consecutive quarters of growth in the bag, there is no longer a requirement for emergency monetary policy settings. The European Central Bank (ECB) is thinking about unwinding its quantitative easing programme, although they are approaching with caution. The rate of US economic growth picked up steam in the summer. While stock market valuations are full, equities may have further to go as a result of the improved global economic conditions, which are enhancing profit growth.
Although political uncertainty still weighs, the improving macroeconomic environment can feed corporate profits as the third quarter earnings season gets underway. The Federal Reserve has announced that it will begin to reduce a portion of the investments it made to boost the US economy following the financial crisis.
With global economies finding some momentum and the hint of normalised economic policy on the horizon, investment opportunities exist. As traditional macro concerns return to the fore, portfolio diversity holds the key to approaching your investments and managing risk. Spreading your money across different asset classes and geographic regions is sensible, especially for UK-based investors who are likely to see further sterling weakness.
If you’re making plans for your retirement and would like some professional advice, then please get in touch.