This article is part of Morningstar’s Guide to Investing Ideas for 2016, click here to get your financial health in order with some new year’s resolutions for your portfolio.
If the first day of the trading year is any indication of what investors should expect from 2016, we’re in for a bumpy ride. Troubles in China caused the FTSE to lose a whopping £30 billion, as contagion spread across the global markets.
But one voice that remained sanguine throughout was stockbroker Hargreaves Lansdown’s head of research Mark Dampier.
“If there is one thing I want to say to investors at the start of 2016, it is stop worrying about the markets, the macro, the noise,” he said. “At this point in the market cycle your worst enemy is yourself. Take a 10 year view, hold on tight and remember: you haven’t lost anything if you don’t sell.”
This advice may seem flippant when news headlines rage with market turmoil – but it is essential for long term investors to remain focussed. If you are torn off-track by fear of losses, you greatly reduce the chances of achieving your investment goals.
The years of double-digit returns in developed market equities are over – the fantastic market rally in the US following the global recession may not have yet turned into a bear market, but the bull has certainly slowed down its charge. Bonds too are facing losses after a near-three decade run of positive returns. Emerging markets are troubled; China’s commitment to an investment-led economy and the oil price slump has wreaked havoc among markets. But for the long term investor who holds their nerve, Dampier assures that in time all these threats will be nothing but a memory of a bad dream.
Stability is Key
While the consensus view for 2016 is far from positive, Dampier is not the only voice to be cautiously optimistic. Multi-asset fund manager Marcus Brookes who runs among others the Bronze Rated fund of funds Schroder MM Diversity said while there was soft patches ahead, investors could expect modest growth this year.
“This time last year we were underweight emerging markets – in fact we held next to nothing, and now we have taken a small positive position,” he said. “Asset prices have thrashed around predicting the impact of a rate rise, but now things are looking more stable.”
Stability is particularly key when it comes to the oil prices says Brookes – and much more important than returning to the norms of old.
“This time last year, we were looking back at 2014 – a period where the oil price had halved. No one would have ever predicted that it would halve again over 2015, but it did. Now, I am not saying that the oil price will rise this year, but I would be very surprised if it fell any further. Stability at $40 a barrel is more important for markets than great gains or losses.”
Where to Invest for 2016?
As for where the opportunities lie, it is a case of working out what is right for your personal portfolio says Dampier.
“If you are saving for retirement, be bold and opt for Asia, Find a fund manager you trust, buy and hold. Add to your investments when the market dips and ignore the negative noise.”
For Brookes’ more cautious portfolios he says he is sticking to the markets that have delivered over the past 12 months – Europe and Japan, and adding to emerging markets for the more aggressive portfolios.
“I am wary of the impact of the US dollar,” he said. “But on the whole modest growth looks achievable.”
