I was recently asked by Financial Planner magazine, the official magazine of the Institute of Financial Planning, about my investment predictions for 2015.
At this time of the year, we are often asked to make an educated guess about how investment markets might look in the future.
Rather than fall into the usual trap of predicting where the FTSE 100 might end up – commentators rarely get it right and it doesn’t matter all that much anyway – I instead wrote about some of the main investment themes and pitfalls investors need to consider in 2015.
Here’s what I had to say:
“May you live in interesting times”, is the readily accepted English translation of a traditional Chinese curse.
As far as the investment markets go, we’ve been living in those interesting times since the global financial crisis first struck. Thinking ahead to 2015 (and beyond), there seems to be little prospect of things becoming any less interesting.
It’s currently tough to look beyond market risks and identify genuine opportunities.
Perhaps the biggest risk is the continued intervention from central banks. Nothing feels particularly natural about equities or bonds right now, artificially inflated as they are by quantitative easing.
QE is a powerful drug, one which markets need to beat their addiction to before investments can return to anything resembling normal.
We’ve already seen the hissy fit markets threw when the US Fed suggested they might slow the rate of QE; not stop or reserve it, just slow it down.
At some point, investors need to accept the consequences of what happens when QE is withdrawn and then, eventually, reversed.
Debt is another risk, especially in the Eurozone where sovereign debt problems were never properly resolved.
Recent market wobbles as the European debt crisis has raised its head again have been less severe than in the past, so hopefully here there is scope for a calm, rational solution from policymakers.
As we finish 2014, many parts of the world are in political turmoil. So-called Islamic jihadists seem resistant to Western air strikes in Iraq and Syria, Boko Haram are stepping up their campaign of kidnapping in Nigeria, violence is escalating again in Israel and Gaza, and Russia belligerently refuses to temper their ambitions for Ukraine, despite increasingly punitive economic sanctions.
We have worrying developments in North Korea, murderous drug cartels in Mexico and sabre-ratting by China and Japan over uninhabited islands. You can stick a pin in a globe and stand a reasonable chance of identifying a trouble spot.
Closer to home we have a General Election in May which, whilst unlikely to redefine British politics, could continue its journey away from a two-party system to something incapable of generating a majority government.
Austerity measures will need to continue, regardless of which colour party forms a coalition, as the country cannot keep loading more debt onto the existing national debt. Deflation could also become a risk here as it has been in Europe, threatening economic recovery.
Throughout all of this, Financial Planners will have their work cut out keeping clients focused on the long-term and investing to meet specific goals.
Diversification, asset allocation and goals-based investing; cutting through all of the noise we will no doubt continue to hear in 2015. Financial Planners have a great opportunity to demonstrate their value.
