The financial market in 2017 appears to be full of uncertainties. With Donald Trump brand of politics to be introduced, looming trade (dis) agreements likely to happen and interest rates set to increase, investors across the world might be forgiven for wanting to sit on the investment sideline in 2017.
But is that really the right thing to do? To better answer this question, we took a look at the investment outlook provided by Goldman Sachs Asset Management.
With Uncertainty Comes Opportunity
It’s textbook knowledge that the best investment opportunities come whenever there is market uncertainty. Deep down, everyone knows that.
Yet head knowledge doesn’t always translates into the right actions. More often than not, investors are seen scrambling for the exits whenever there are unexpected news introduced to the market. These include Brexit and Trump’s election win.
On one hand, it’s easy to understand why. There are short-term traders out there who are making trades based on current information. For short-term traders, these changes matter, since the trading algorithm they use may be affected by unexpected news. Hence a sell-off by these short-term traders may cause asset prices to drop in the short-run.
For long-term investors, such a sell-off should not be a reason to panic. Rather, it could lead to opportunity to accumulate stocks at a lower price.
The fundamentals behind why we invested in these companies should not be changing every time there is external news. Otherwise, that means they were not good fundamentals to base our investments on in the first place.
Don’t let you investment actions to be dictated by the objectives of short-term traders. Instead, take advantage of it.
Global Growth Have Remained Remarkably Stable Over The Past Decades
Given the unpredictable world that we live in, one would expect market returns to be volatile over different period of time.
According to Goldman Sachs Asset Managements however, market growth globally have been remarkably steady with average returns of about 3% per annum. This suggests that despite what you might be reading in the media, there is no reason why long-term investors should not continue to stay invested in the market.
Source: Goldman Sachs Asset Managements
Watch Out For Specific Sectors
With uncertainty over regulatory matters from both the U.S. and Europe, it’s important for investors to stay updated over how any potential changes could affect specific sectors.
For example, Goldman Sachs Asset Managements highlighted that regulatory appointment from Trump administration will be a key indication of the extent of de-regulation in the U.S. financial sector, which would in turn impact financial regulations in Europe and the UK. Trade tariffs introduced due to protectionist measures could also affect some business sectors more than others.
Opportunities may arise from these transitions. Naturally, some industry will be better off than others. Savvy investors should be familiar with the implications that these policies may introduce to their portfolio.
Interest Rate Matters
When it comes to evaluating financial markets, U.S. interest rate is a subject that cannot be ignored.
U.S. interest rate affects tons of other investments. These include strengthening the US Dollar (USD), which in turn affects just about every company that has U.S. related operations, emerging markets that are heavily reliant on USD-based funding, and also local investments such as the Singapore property market.
Regardless of the type or size of your investment portfolio, it would prudent for you to understand the various implications that rising interest rates may have on your portfolio. Even if you think the impact is insignificant, it doesn’t hurt to at least understand it.
Understanding The Macro Picture Helps You Become A Better Investor
While our investment decisions should not be dictated by the constant changes in the financial markets, it doesn’t mean we should simply ignore what is happening out there.
Having a good macro picture on what’s happening provides you with a better perspective on how your investments may (or may not) be affected. It allows you to evaluate whether something is worth looking into, rather than to constantly react to news and to make poor decisions based on what others are saying.
What are some other important key areas that investors should be looking out for in 2017? Share your thoughts with us in the comments section below, or on Facebook.
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