5 investment lessons in 3 minutes
By Barry McCall
Always expect the unexpected
If the political events of June and November 2016 taught us anything ahead of 2017, it’s that we should always prepare for the unexpected. The British Brexit vote and President Trump’s surprise election in the US have loomed large over markets in 2017 – but not necessarily in the ways which might have been predicted.
For example, some commentators anticipated a strengthening in the value of the dollar in response to the incoming president’s ‘America First’ policies. Instead, we have seen the dollar fall from above €0.95 at the end of 2016 to around €0.84 by the end of November.
The volatility in the value of sterling is another case in point. The currency appeared to respond more to political rumour, than economic fundamentals like a rise in the Bank of England base rate.
The currency started the year worth €1.17, fell to €1.14 in March, climbed back to almost €1.20 in April, dropped to around €1.08 in August and by late November it was back at around €1.14. Not one for the faint-hearted investor.
The lesson: Markets don’t always agree with the experts or logic.
Ireland is still a good place to invest
The Irish property market recovery is a well told story, with residential and commercial property experiencing double-digit increases in value year-on-year. While the quiet and steady performance of the ISEQ (Irish Stock Exchange) in 2017, may have escaped many people’s notice.
In fact, as November drew to a close, the ISEQ index had added more than 5% in value since the start of the year.
The lesson: Savvy investors know past performance isn’t a guide to future performance, but my advice is not to ignore Ireland when making investment choices.
Good as gold (or maybe not)
2017 was a good year for gold investors. At the end of 2016 the precious metal was valued at $1,147 per ounce and by the end of November it had climbed to $1,275 – a very healthy rise of 11.1%. If we look back five years, gold ended 2012 at $1,675 per ounce – 31% higher than the current price.
Investors clearly shouldn’t be tempted to invest based on a single year’s performance.
The lesson: All that glistens is not gold.
A great year for equity investors
Many equity investors will look back on 2017 with considerable fondness. The S&P 500 ended 2016 at 2238.38 and by the end of November had climbed to 2647.58, an increase of 18%. The weaker dollar combined with ultra-low interest rates and bond returns undoubtedly contributed to this stellar performance, but it was hugely impressive nevertheless.
It was a very good year for European stocks too. The Euro Stoxx 50 index saw gains of more than 8% to the end of November. A strong performance indeed, particularly when the improving value of the euro is taken into account.
Asia also performed well, with all the major indices reporting good years. For example, the Japanese Nikkei had ups and downs over the course of the year, but by late November, it had risen 18.9%, when compared to the end of 2016.
The lesson: Time in the market is a lot more important than timing. People who invested in 2015 or 2016 and held fast will have benefited from the 2017 performance, while those who delayed won’t have done quite so well.
Diversity still pays
All investment assets experience value fluctuations. Lower-risk assets tend to have fewer ups and downs and lower potential for return, while higher-risk investments can produce better long-term returns for those prepared to risk more.
However, it shouldn’t be a case of either or. You can have the best of both worlds. The combination of less volatility with lower-risk assets and potentially higher returns from faster-moving asset classes is available through multi-asset funds offering exposure to a wide variety of assets.
The lesson: if you’re looking for stronger returns, but don’t fancy the risks associated with direct equity investments, diverse multi-asset funds are an excellent option.Year-end figs: 31/12/2016. Nov figs: 30/11/2017.