Investment Webinar: Navigating opportunities for the year ahead

On 18 April 2024, Schroders Personal Wealth broadcast a webinar exclusively for clients of our Ongoing Advice Service. This article is based on that webinar and covers a review of markets and economies and considers what we can expect in the coming months.

Economics

Looking back to the start of the year, investors thought central banks would be able to reduce interest rates relatively quickly and deeply. But global inflation, including UK inflation, has fallen by less than expected, reducing the scope to bring down interest rates as far or as fast as previously anticipated. Interest rates are a key tool used by central banks to try to control inflation.

We now expect further falls in inflation, but on a more limited basis than previously. Inflation measures the general rise in prices of goods and services and the previous sharp rise in energy and food prices has now moderated. But the overall rise in prices excluding these items remains persistent.

We anticipate a resilient global economy in the next two years, partly due to a strong expected performance in the US. In particular, we note that consumer confidence has risen, which should help boost consumer spending and support economic growth. But we need to monitor the global economy closely for the rest of the year to ensure we remain on top of developments.

Geopolitics

Forty elections are due to take place in 2024, representing 42 percent of the global economy. The most significant of these will be that of the US, for three reasons:

• The US is the largest economy in the world

• Current Democrat president Joe Biden and Republican nominee Donald Trump have very different policies

• The outcome is very uncertain.

If Biden wins we can expect the political climate to stay largely unchanged. If Trump wins, he could introduce more radical foreign and domestic policies.

We currently expect the two US political chambers, the Senate and House of Representatives, to be held by different parties. Such divided governments generally lead to more moderate policies and markets have historically performed well in these situations.

Regarding the UK election, if there was a Labour majority, then we could expect more public spending. But the party hasn’t as yet outlined what its policies will be.

Investments

Japanese equities are back to highs not seen in 30 years. And gold has hit all-time highs.

Against a backdrop of strong stock market performance, all of our portfolios have performed positively in the past 12 months. Our lower risk portfolios have returned around 7 percent and our higher risk portfolios have returned around 12 percent.

When it comes to equities (shares), we look for good companies with good share prices. And we look for sensible prices on bonds too. Some stock markets have recently hit record highs, but nothing currently suggests to us that equities and bonds are generally overpriced.

Global election uncertainty creates political risks. But with change come opportunities for those of us who take an active approach to investment management.

Advice

Inheritance tax thresholds have been unchanged for 15 years and increasing numbers of estates are becoming liable for it. The sooner you start planning for your inheritance, the better placed you’ll be to limit this liability.

Turning now to the high cost of living, many of us will welcome any forthcoming expected reductions in interest rates, as these could help support families with mortgages. Even so, current high interest rates have led to reasonably attractive returns on cash. But cash has tended to perform relatively poorly in the long term and so you may want to avoid holding more than is necessary for your shorter term goals. An adviser can help you decide how much cash you need to keep for a rainy day.

The pandemic and the tragic situation in Ukraine led to turbulent stock markets in recent years, but they have performed strongly in the past 12 months. We believe in taking a long-term investment view, meaning a time horizon of at least five years. And we believe in having a financial plan in place to help reduce the ‘rollercoaster of emotions’ we can all be affected by due to market movements.

We also believe in the importance of diversification, as we can’t say in advance which types of investment will perform the strongest in any given year.

We’re into a new tax year, which can be a good time to meet with your adviser and take advantage of available tax allowances. Annual reviews can help ensure you stay close to your financial plan.