As we kick-off the new year, it’s time for doctors and dentists managing or considering investments to look ahead and see what 2020 may bring. Here are seven predictions from the market.
This does not constitute advice and advice should be sought in all instances before acting on it.
Plan for lower returns on investment
2019 saw above-average returns with all the major asset classes. Assuming economic and corporate earnings growth and the institution of new trade deals, this kind of performance in the equity market is expected to continue in 2020.
However, it’s important to manage expectations because this is all still speculation and if factors change – such as a slowdown of the business cycle and declining profit margins – that would impact results. Keep in contact with your financial adviser who will be monitoring this.
Bond yields likely to remain low
Bonds, also known as fixed-interest securities, are usually seen as a safer investment option. However, this also generally means lower returns.
The low bond yield prediction is based on the likelihood that inflation will remain subdued, global growth will struggle, and banks will adapt monetary policy based on demand. With bond yields low, the discount rate will remain low for returns of risky assets. If you are risk adverse, or at a stage in your life or career where more security is a priority, you should still consider bonds as part of your portfolio.
Equites to perform well
There’s quite the dividend gap between ten-year gilts and the FTSE 100 and UK equities are experiencing an above average valuation discount when compared to the rest of Europe. While the pound remains inexpensive when measured on a trade-weight basis, even though it has recovered slightly, this fact will probably bring in overseas investors that will help boost performance.
General election results to affect market
Recently, quality/growth stocks (globally and in the UK) have been the best performing. A combination of modest growth and low bond yields has driven investors to more expensive, stable, above-average earnings growth rather than invest in “value plays.”
Brexit still remains a factor, but with the current lower political risk after the General Election, and imminent fiscal stimulus, investors are returning to more competitively priced sectors, including banks, construction, and utilities.
BoE may slash base rate
The UK economy was considerably weaker at the end of last year for a variety of reasons, but hope is on the horizon. The Bank of England’s new Governor will likely consider uniting the Monetary Policy Committee by proposing modest interest rate cuts this year, which will have a knock on financial impact on the country, including an effect on the UK housing market.
The importance of Trump tariffs
Looking further afield, the US President proposed the first phase of a trade deal with China, and there’s no end in sight to his plans. The agreement hinges on retracting the planned tariffs on US consumer goods as well as previously instituted tariffs. In exchange, China will purchase US agricultural goods.
While it will be some time before a thorough trade deal is finalised, don’t rule out the possibility of more tariffs on Chinese imports. With the US election this year, Trump will pull all the stops to remain in the competition.
Don’t forget the ESG factor
Pay attention to the Environmental, Social, and Governance aspects of a company when you’re choosing how to invest this year. With environmental impact climbing to the top of the corporate sector’s priority list, upcoming regulatory change, and a focus of the green agenda in Europe, ESG is more important than ever.
Those investments that don’t measure well against ESG standards may offer a discounted price so be sure to review them thoroughly and decide if the pros outway the cons when considering them for your portfolio mix.
Expert financial advice
With all this in mind, now is the time to get in touch with one of our financial experts to review your investment portfolio to ensure the mix will take advantage of market conditions and expectations for this year.
Want to build & protect your wealth?
Investments | Financial Planning | Retirement | Save Tax | Protection |
Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.