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Investing in 2019: Endurance is key

2018 will most likely be remembered as a year of volatility in the global markets. With a continued torrent of predictions relating to the performance of markets in 2019 - where should your focus be? Read what our investment experts Matthew Hodge and David Horowitz think.

2018 – in review

Last year was a record-setting year for stocks, but sadly for many of the wrong reasons. It is likely that 2018 will be remembered as the year in which volatility made a striking comeback into global investment markets. 

The first quarter of the year saw a significant period of growth. However, these gains were eroded by the poor performance in the final three months of the year where the autumn/winter stock market sell-off eliminated 2018’s gains. 

The downturn of 2018

Last year’s downturn was driven by a number of factors. However, the most pervasive themes were the trade conflict between the United States and China, fears over rising interest rates, political dysfunction, inflation fears and the geopolitical circus of Brexit. 

The FTSE All-World index, which tracks thousands of stocks across a range of markets, fell 12% during 2018. This represents the index's worst performance since the global financial crisis, and a sharp reversal from a gain of nearly 25% in 2017.

The FTSE 100, the largest market index in the UK, tumbled by 12.5% during 2018, its biggest annual decline since 2008, wiping out more than £240bn of shareholder value. The rest of Europe also suffered from poor performance in 2018. Frankfurt's DAX declined more than 18% and German carmakers were hit especially hard by trade war fears and new emissions tests. The main stock market in Milan, Italy, slumped 16% amid worries over spending plans proposed by the country's populist government. Spain's IBEX dropped 15%, and France's CAC 40 was down 11%.

The US, which for much of the year defied global market trends, was not in the end fully insulated from the downturn. While annual losses may not be as steep as in some other markets, Wall Street was and still is, in an historic period of volatility. The S&P 500 was up or down by more than 1% nine times in December and 64 times throughout the whole 2018. This only occurred eight times in 2017.

The market that experienced the most damage last year, was China. The world's second largest economy felt and is still feeling the effects of a darkening trade outlook, despite government attempts to rein in risky lending after a rapid rise in debt levels.

2019 – Stock forecasters making fortune tellers look good

January is typically awash with economists, banks and investment advisors making dramatic predictions for the year ahead whether they be positive or gloomy. If you take away one key bit of advice today, it’s that your investments are unique and dramatic headlines and predictions are often just that rather than being worthwhile, personalised guidance. 

Jeremy Siegel, Professor of Finance at the University of Pennsylvania’s Wharton School of Business, recently provided a pretty optimistic outlook for the year ahead. Speaking in an interview on CNBC’s Squawk on the Street, Siegel predicted that equity markets in the United States would have “quite a good year,” rising in the range of 5 to 15 percent. However, before you rely on his current prediction, here's a quote from an article he wrote on 7 January 2008, giving his predictions for 2008: "Shares should have a good year, returning 8% to 10%." The S&P 500 lost 37% in 2008.

Famous Wall Street investor David Rosenberg’s outlook for 2019 is antithetical to that of Siegel’s. The chief economist and strategist of a large Wall Street institution has warned that the global economy is on a collision course with a recession. However, this is the same person who, in a note to clients in May 2010, confidently told them that it's time to "take chips off the table." The FTSE All-World index subsequently rose 6.8% in the remainder of 2010 and 73.5% to the end of 2018.

Our point here is that trying to second guess what a market is going to do is not only a virtually impossible task, it’s also dangerous. Our primary aim as financial planners and investment managers is to preserve and grow the real value of your assets over the longer term - not speculate with your money. 

2019 Considerations

So, 2019 is here and you most likely want to make sure that you’re making the right decisions this year. Well if you’re reading this, it’s a step in the right direction. 

Endurance is key

We work with our clients to position their portfolios, so that it can endure volatility while maximising long-term growth. 

How can you make sure that your portfolio is stable? You need to understand what your financial goals and objectives are. This will help make sure that your investment portfolio is set up with the most suitable level of risk and expected return. 

Let’s put it this way, if 2019 is the year in which you think you will be making a large capital expenditure, it would not make sense to be fully invested in the markets. However, if you still think you are a number of years away from drawing capital, your capacity for loss may be higher and you can probably afford to ride out any volatility. 

If the Brexit fog persists and the uncertainty between the US and China remains unresolved, short-term volatility and swings in value may well continue. In times like these, we advise clients to think and act with a clear mind.  It may be impossible to completely ignore the market ‘noise’, but factor it in rationally, and make sure your plan is set for the long-term.

Not quite convinced yet? Think about it like this, if you had held £500,000 just before the 2008 financial crisis in a portfolio with a balanced/medium level of risk* , this would have plummeted in value to around £367,954 (26% loss on paper) at the height of the crisis. However, that same £500,000 would have been worth £805,738 (61% increase) by the end of 2018. As Warren Buffett is fond of saying, ‘it is time in the market, not timing the market’.  

Do you need help realising your financial goals and objectives for this year? Get in touch.

*Based on the average return of the “IA OE Mixed Investment 40-85% Shares” sector. Funds in this sector are required to have a range of different investments. However, there is scope for funds to have a high proportion in company shares (equities). The fund must have between 40% and 85% invested in company shares.


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