What’s in and what’s out for 2020?

20 December 2019

4 minute read

While 2019 did not look like an especially appetising year, almost every major asset provided strong returns over the period. Here, we consider what 2020 might hold for investors and how to get invested.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • A review of 2019
  • What to expect from 2020
  • How to invest.

The past year has provided yet more compelling evidence for robust earplugs to be at the top of every investor’s Christmas list. Maybe Santa could helpfully block some websites and TV channels too. Last Christmas, many market commentators, predicting imminent economic doom, managed to lure many unfortunate investors to sell out of their investments or take excessively defensive positions. Stock markets briefly plunged last December as we were once again told that the end of the economic cycle was finally here.

2019: A look back

However, losses were soon made good. As the world economy proved itself fit to carry on without major catastrophe, stock markets rallied strongly. Those who had believed the over eager prophets of doom were left on the sidelines ruing their gloom.

To be fair, even to a committed advocate of the benefits of getting and staying invested, 2019 did not look like an especially appetising year. It certainly did not portend almost every major asset providing strong returns (as at 28 November 2019). The world economy has so far not slumped into recession as many feared; however, neither has it generated the kind of growth that would more normally be associated with such share market returns. Quite the reverse in fact. The world economy has recently been flirting with negligible growth, amidst an uncertain political backdrop, and slower Chinese growth.

Headlines continue to be dominated by the Trade War, Brexit, and the next recession. Given their ability to continue to attract readership, these issues are often exaggerated to help explain more than they should or could. For example, easily the most alluring explanation of the slowdown in China is the trade dispute with the US. While there is a kernel of truth to this, it’s an oversimplification.

In the last few years, Chinese authorities have moved to reduce the flow of credit, both bank and non-bank. The aim was to combat the mushrooming potential for risks to financial stability. However, the problem was that it was the more efficient, profitable and private companies with less borrowing that suffered the bulk of the squeeze. The remaining flows of credit naturally gravitated towards the areas of the economy benefiting from an implicit state guarantee – lumbering state-owned enterprises.

This year amply demonstrates the need to be fully invested at all times. We have less ability to see the future and the recessions that lie ahead than widely advertised.

2020: What lies ahead?

However, looking into 2020, surely we can say that the risks of a recession are higher still? Not necessarily. 2020 is already looking like a year when the world’s governments decide to make more use of these rock bottom interest rates to borrow and spend a bit more. With business confidence now in the process of stabilising at low levels, a moderate bounce is now in the offing.

More importantly for investors, the act of worrying about the next recession must not be allowed to overcome the instinct to invest for the future. There will be plenty of politics to grapple with again next year. The campaign trail for the 2020 US Presidential elections will create deafening noise for investors.

Trade tensions will likely remain no matter who wins, as will growing angst about the tech titans’ increasingly apparent political and economic muscle. Developed world tax burdens may shift for both consumers and companies. However, for long-term investors this may be less important than many claim. History seems to indicate very little relationship between tax rates and the trend growth rate that is at the heart of long-term investor returns.

So we should look to the new year with the usual mix of cautious optimism and humility that a study of the past gives us. Growth remains the norm. The political backdrop is certainly disconcerting in some parts at the moment, but remains less influential than feared.

Certainly, parts of the world’s share markets are expensive, perhaps dangerously so in some instances. Investors have been guilty of paying too much for overvalued assets which provide protection in an uncertain economic environment, in the long shadow cast by the Great Financial Crisis. However, we don’t think shares are necessarily overvalued, even if the profits outlook is a little meagre. A diversified, multi-asset class fund or portfolio predictably remains the best weapon to bring to bear on all of this uncertainty and opportunity… that and some earplugs.

How to invest?

The Barclays Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Smart Investor offers a wide range of funds, and our Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that we believe have the potential to generate consistent returns over the medium to long term.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

All of these investments can fall in value as well rise; you may get back less than you invest.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.

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