Business hates uncertainty and so do investors. Where to put your money next year?by Andy Davis / December 12, 2018 / Leave a comment
Business hates uncertainty, we are constantly told. Well, investors aren’t all that keen on it either and since we seem to be enjoying a super-abundance of uncertainty at the moment, this is a peculiarly uncomfortable time to have your capital at risk in the markets. Between Brexit, the potential disintegration of the EU, weak economic growth and rising US interest rates there are few encouraging signs in any direction.
For those scratching their heads over where to put their money as 2019 begins, we highlight three trends to watch for in the year ahead and offer three thoughts on possible opportunities for these uncertain times.
Inflation and Currency Risk
Higher UK inflation is likely for two reasons. If we get a poor or disorderly exit from the EU, the pound will weaken. This will push up the prices we pay for imported goods, notably oil. Even if Brexit is orderly, the government’s new immigration policies are likely to cause labour shortages, which will feed through to higher wage demands. Both a diving pound and higher wage inflation (in an economy that already has very low unemployment) point inexorably towards higher interest rates. Highly indebted households, companies and the property market, which have grown addicted to low rates, could be in for a shock.
Financial Education and Free Advice
Many people struggle to understand everyday financial products and therefore make poor decisions, but help may be at hand. In January, the new Single Financial Guidance Body—formed by combining the Money Advice Service, The Pensions Advisory Service and Pension Wise—officially starts work. The opportunity to create a universally available, free financial guidance service that spans everything from teaching the basics in primary schools to preparing people for retirement is too big and important for the UK to mess up. In 2019 we might just see real progress on financial capability.
Year Three of the US presidential cycle
Historically, US markets have usually performed strongly during the third year of the president’s four-year term in office. According to MarketWatch, over the past 90 years the Dow Jones Industrial Average has done well almost every time, gaining an average of more than 21 per cent. This may be because presidents time disruptive economic reforms such that by the second half of their term—when re-election may be looming—they’ve got the pain out of the way…