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Many questions hang over the global markets in 2020 which are causing some investors to wonder about the investment outlook for this year. The UK finally left the EU on 31st January 2020, and whilst the transition period seems calm (at the time of writing) serious questions hang over the possibility of a “no-deal” scenario at the end of this year when it expires.
Tensions still hang over the U.S.-China trade war. Moreover, the recent outbreak of the Coronavirus has caused China to largely close its economy to the wider world as it seeks to contain it, leading to Hyundai factory closures in South Korea and Tesla plant shutdowns in China. A spectre seems to be hanging over global supply chains, with much uncertainty about what happens next.
Given these and other challenges facing the global economy in 2020, how should investors react? Here at Cedar House, our financial advisers are regularly taking such questions and wanted to offer a first word of advice. Do not panic, and do not make impulsive investment decisions out of emotion. Voice your concerns to your financial adviser and make sure your investments are following the strategy you originally established to meet your long term financial goals. We also wanted to offer this short article to explain why global equity investing is still important in 2020, and why it would be a bad idea for investors to try and retreat from it.
If you’d like to discuss these matters with us or speak to us regarding your own investment strategy, please get in touch to arrange a free consultation with a member of our team:
020 8366 4400
Remember that ebb and flow is natural
If you are concerned that the markets might fall in 2020 and your portfolio adversely affected, ask yourself one simple question. Did you expect your investments to simply always go up? If you crafted an investment strategy with a good financial adviser at the beginning, you will have likely accepted the fact that your equities would almost certainly have good and bad years going forwards. However, you also likely accepted that despite this natural market movement, your portfolio would gradually grow in value overall.
Cast your mind back to 2009 when the markets hit rock-bottom during the infamous Credit Crunch. Since that time, U.S. equities have bested their international peers by 6.2% on an annual basis and have been relatively stable. The FTSE All-Share Index also stood at 2761 in 2009, yet at the time of writing now stands at 4,170.89. Here, we’re not trying to argue that every index will inevitably rise in value, and so you shouldn’t worry at all about the future. However, we are encouraging investors to step back and take a wider view of global market history. Volatility is normal, and over time you can reasonably expect your portfolio to grow if t is constructed and managed appropriately.
Why global diversification has power
As much as some investors might want to retreat their portfolio to a “safe” corner of the world, it’s important to recognise that this is practically impossible. In 2019, for example, over 50% of global market capitalisation emanated from the USA. Moreover, nearly 50% of the revenues from the US companies comprising the S&P 500® Index came from outside the country. Clearly, exposure to global markets is basically inevitable when investing.
Yet this is something to be celebrated and leveraged, not feared. Remember, spreading your investment across the world (in line with your risk tolerance and strategy) is a great way to diversify yourself and avoid unnecessary risk exposure in one region or country. Different parts of the world are likely to perform differently, which helps to shield your portfolio from complete disaster and also allows you to tap into new opportunities to generate returns. Consider, for instance, that in 2014 the top capital market performer was the USA (13.4%), yet in 2017 it was the emerging markets which came out on top (37.8%).
In other words, the goal for investors in 2020 should not be to minimise their exposure to global markets. Rather, the emphasis should be on investing for the long term, keeping any short-term falls in perspective, and keeping an appropriate blend of developed markets and emerging markets within your portfolio (in line with your personal goals, risk tolerance and strategy).
If you would like to discuss your financial plan with a member of our team, then get in touch today to arrange a free consultation: 020 8366 4400 or firstname.lastname@example.org.