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5 Investment Dangers for 2020

Don’t be fooled by the strong performances across all asset classes last year, 2020 is a brand new year with a lot on the horizon that could greatly impact economic prosperity.

This does not constitute advice and advice should be sought in all instances before acting on it.

While gold and oil continue to be reliable earners, equities haven’t started the new year out right thanks to American foreign policy in the Middle East.

Do you know what else you should be aware of when building your portfolio?

A solid investment portfolio consists of mixed assets so that you can reduce your overall risk. If one asset doesn’t do well, your bottom line won’t suffer too much because you’ll have spread your money across multiple assets. When building an investment plan, be sure to take note of a few other things that could impact your finances.

1. Relying on China-US deal

The trade dispute between the USA and China has proven problematic for the rest of the world. But there’s cause for cautious optimism as they draw closer to a resolution should see the scaling back of tariffs.

Unfortunately, this puts us at the mercy of China on a number of issues. It shouldn’t come as a surprise that the longer these talks go on, the further reaching the impact of the potential deal will be. If you add in the existing Coronavirus outbreak that China is dealing with, the talks could take even longer than anticipated.

2. Increasing oil prices

Brent crude is already hovering around the $70/barrel mark after America’s bold foreign political moves renewed tension in the Middle East. Historically, if oil rises by more than 50% year-on-year, the global economy tends to slow. In the event it doubles, consumer spending and corporations operating expenses will take a hit, then a recession is oft not far away, Luckily, oil has remained fairly flat compared to last year and it would take extravagant growth to trigger that kind of reaction.

3. Disappointing corporate earnings

Despite a sudden increase in share prices – exceeding 20% last year – corporate profit growth has been low, coming in at only 4% according to the Federal Reserve. It seems share buyback and financial engineering have helped strengthen numbers for earnings per share.

FTSE 100 aggregate earnings were no lower in 2019 than in 2011, indicating valuations are rising faster than earnings. If earnings don’t live up to expectations because of a trade dispute or an oil price surge, then shares prices would take the focus.

4. Inflation

Less isn’t always more. Low growth, low inflation, and low-interest rates have pushed us all to seek an investment strategy that provides better returns than cash. Equities and bonds appear to be the answer with the consensus that will likely remain true for the foreseeable future. A spike in inflation would come as quite the shock and force another re-evaluation of your portfolio. Traditionally, bonds and long duration assets (like tech stocks) don’t fare well against inflation.

5. Stricter monetary policy

If inflation were to surge due to a loose monetary policy and lax fiscal policy, investors would need to ensure they’ve identified other assets apart from cash for their portfolio mix. Tightening the purse strings is a tactic that’s worked in the past, so it could potentially be a solution next time around.

Stay up to date

There’s no guarantee what shake-ups might be on the horizon this year, so it’s important to stay up to date and in touch with your financial adviser so you can ensure your investment strategy reflects the state of affairs.

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