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2007 proved to be an interesting year for investors: from July 2007, the global financial markets experienced significant volatility, which could continue into the latter months of 2008, before entering a more settled period in 2009. During such uncertainty, clients often have concerns about their portfolios and worry that they should be moving out of the market; however, in our experience, it is usually better to sit tight and focus on your medium- and long-term goals, rather than getting caught up in the panic. Volatility is not necessarily a bad thing, after all - with volatility comes opportunity and there are many areas which are predicted to show positive growth over the next 12 months. As long as your long term plan is still within your sights and you remain focused on this, then there should be no reason to react to this volatility.
China continues to prop up the world economy and will continue to feature strongly in 2008. Emerging markets both in Europe and Asia are also likely to have the potential for positive returns. This has given rise to a much broader range of funds available in these areas, including some now investing in Africa and the Middle East.
Reaction to banks' exposure to the credit crunch may be overstated and this could lead to an improvement in returns of fixed income funds as the banks assess their balance sheets. That said, we would anticipate more jitters in the market since the credit crunch crisis has not yet run its full course.
Property markets continue to be uncertain and this can be understandably disappointing for clients, particularly when this type of investment is deemed to be more of a "safe option". However, as with most investments, if you hold on, and ensure that overall you have a balanced approach, then it should all come good in the end. Property prices have fallen in the US and are likely to stabilise in the UK. Positive growth in property is still likely in the East.
Though concern remains about the US market, recession is by no means inevitable and there is still value to be found in the marketplace by selecting the right companies in which to invest. There is some evidence to suggest that the world economy is not linked as directly to the US economy as it used to be, but the connection is still very important, particularly if the downturn in the US market extends to US consumers. The US remains a significant economy on the world stage.
Though global inflation remains a concern and could become a more dominant issue in 2008, we still remain optimistic about potential earnings growth globally continuing at double digit levels.
Stock selection continues to be a significant factor in gaining positive performance and this is why Independent Women continues to favour actively managed funds. In the UK market, focus is likely to be on investing in larger companies with a strong financial positioning.
Over the longer term, equity backed investments are likely to outperform cash assets, particularly if you are invested in a range of companies in many different economies throughout the world. The key to a successful portfolio is diversification, i.e. investing in a wide range of different assets and geographical areas, thus spreading your risk across companies with low debt and liabilities.
Equities and bonds are likely to outperform property and cash in 2008 however past performance is no guide to the future.
Our clients remain interested in ethical investments and also funds that promote environmentally positive objectives. Given the continued growth in these sectors, there is more scope to accommodate these objectives within a diversified portfolio.
Warning: The value of your investments can go down as well as up and you may not get back your original investment.
