The Big Divide
22 January 2024
To all Financial Friends
Imagine putting all the world's worries, stress and concerns behind you and packing your bags for a warm sunny holiday! Yes, the worries would fade into the background, to face when you get back, but for now it's going to be just great! That is how I see the potential for the markets short term. Unless of course, there is significant escalation of war or a bolt out of the blue, which are potential game changers.
A touch over 3 minute read or meet me on Zoom whichever you prefer. www.calendly.com/yourfinancialfriend
Elections equal tax cuts. Inflation and interest rates potentially falling. Feel good announcements. A sigh of perhaps, premature relief, is heard across much of the financial globe. A 'soft landing', with inflation controlled and the cost of debt held by the worlds nations reducing? Maybe tax cuts and economic stimulus will lift us away from fears of recession into blue skies and brighter days? Maybe? Maybe not?
So, hopefully, for now, content with your holdings? Staying 2 steps ahead of the market in this volatility requires broader strategy, specifically in view of war and rumours of wars. The outworking of wars causes economic effects, most obviously restricting distribution of goods and foods. Limited supply and demand pushes up prices. Inflation rises again. In the Second World War inflation was rampant - I recall as a boy taking our last ration book to the sweet shop!
Exchange Traded Funds, and sometimes Investment Trusts help us to be able to invest in specific assets. Pooled funds like Unit Trusts and OEICs carry more diversification, limiting potential for reward but deemed to be lower in risk. A cutting edge may require more risk for the more adventurous.
As someone famous said, ‘Anyone who isn’t confused really doesn’t understand the situation.’ At least four worried elderly people have said to me that they 'have never known the world in such a mess'. What we can say for sure is that we live in a world of uncertainty. Something else that is sure and certain? The world of investment will continue to be volatile.
Volatility in the stock market creates opportunities that are not there in more stable times.
Assets / funds chosen and held by Financial Friends over 5 years: Technology +127.8% (14.3%pa) American Equities +66.11% (10.47%pa) Natural Resources +49.95% (8.95%pa) Gold & Silver +30.35% (5.66%pa) Global Infrastructure +25.47%. (4.81%pa) UK-FTSE 100 +12.28% (2.37%pa). This achieved, despite Covid 19 (February 2020) causing severe declines in asset values.
Lower returns were found for those holding UK Infrastructure +10.63% (2.09%pa) Corporate Bond +7.48% (1.47%pa) Multi Asset +6 .58% (1.35%pa) Global Bonds +1.68%. Across the board holdings by students represent the assets shown above. Index Linked Gilts fell by 24.19% - still a complex mix of reasons - but see comment below.
Please look out for a further e mail during the next couple of weeks. The steps you have taken (or will take) to build and maintain good investment, is to have a good Financial Friend along side you. Then choose your investment platform. Next, choose the assets to invest in. Then research the funds which will direct your money into the assets you chose. In today's markets your strategy is particularly important. To help with your thinking I am drawing up a list of strategies which will help you. Coming soon.
The Big Divide
The returns on investments shown above, despite the severe downturn caused by Covid 19, supports the view of financial friends in holding equities at perceived greater risk than defensive assets. Through the Great Depression, the second world war, the cold war, and the year 2000 'dot com bubble,' the market provided profits. Then the credit crunch came followed by Covid, the stock market survives. Ups and downs along the way but still a profitable home for investors money.
The complex issues facing us today, make some turn to defensive assets. Short term debt (via money market funds), gold, and yes gilts - the very asset that has lost 24.9% over the last five years to date. History shows that during World War II gilts experienced a significant rise in value. Equities in sectors like defence manufacturing, infrastructure development essential goods and military support, gained in value.
The above shows why I am contemplating the holding of specific assets, less diversified than traditional pooled funds such as Unit Trusts and OEICs.
Which side of the big divide are you? If you need help/discussion then do not hesitate to book a 15 minute slot on Zoom right here: www.calendly.com/yourfinancialfriend
