Although 2017 provided global markets with some volatility – in part due to concerns relating to President Trump, the Australian property market, and various national elections – it turned out to be a good year for diversified investors who remained aligned to their investment strategy.
Many believe that 2018 is likely to remain a good news story for diversified investors. The investment cycle still favours growth assets, however volatility is likely to persist, and constrained returns are likely to continue.
In 2017, we learnt that:
- The post-GFC hangover has faded with high levels of confidence helping drive stronger investment and consumer spending.
- The reversing of quantitative easing didn’t lead to economic chaos.
- Europe is far more resilient than many believed.
- Retreating to cash on the talk of war with North Korea would have led to missed returns.
- Sticking to a diversified investment strategy remains important for positive long term outcomes.
In 2018, we are expecting:
- Favourable investment returns on the back of rising global economic growth.
- Higher volatility due to inflation and interest rate movements in the US.
- Rising company profits and continued easy monetary conditions supporting global share growth.
- Continued moderate earnings growth in Australian shares.
- Rising bond yields leading to ongoing low returns from bonds.
- The heat to come out of the Sydney and Melbourne residential property markets.
- Cash to continue to provide poor real returns.
- Strength in commodity prices.
- A falling $A vs the $US due to higher US interest rates.
Things to watch out for:
- President Trump – expect renewed political pressure from the mid-term elections.
- US Inflation – how quickly it turns up and the Fed’s response.
- The March Italian Election – which may lead to investor angst.
- China – and if they embark on a more reform focussed agenda.
- How quickly the Sydney and Melbourne property markets cool.
- Global business conditions indicators overall.
It is important for investors to remember:
- To stick to an investment strategy – to prevent being blown around by distractions.
- That markets do cycle up and down – allow for it and don’t get thrown off course by the noise.
- Diversification remains the key to a sound long term investment strategy.