The value of investments and the income they produce can fall as well as rise.
Many of us are thinking about financial investment advice as we approach the end of 2015 so I thought that now would be a good time to reflect on this year and to begin to think about the year ahead.
Our market outlook is currently cautious and throughout 2015 we have been managing client money in a conservative fashion.
2015 was a turbulent year for the financial markets and it is looking likely that market volatility is back and here to stay, for the foreseeable future.
The bottom line is that it is getting harder to extract consistent returns from the markets as we now look to be in a cycle of protracted deflation resulting from a global slowdown in demand.
This slowdown is driven primarily by slowing growth in China and Emerging Markets.
Over the last few years since the onset of the financial crisis, developed market returns have been derived from Quantitative Easing and Emerging Market Growth, where neither of these are doing what they were.
The risk-reward relationship has moved again. What I mean by this is that, we need to now take more risk in order to see the returns that were considered ‘normal’ not so long ago.
We also now need to consider the geopolitical conflicts that are becoming increasingly hard to ignore, where there are simply too many to mention.
So, what does this all mean for the market outlook in 2016?
In my opinion investors need to exercise caution, whether you are investing in the financial markets or in property, there is an increasing probability of a market correction.
This does not mean investors need to sit on cash 100% or stop planning for the future, only that investors should consider the risk reward relationship more carefully if investing in any asset and to seek proper advice when doing so.
If you are investing in the markets or property things to consider might be; What is the investment horizon? What is the investment goal, i.e. income or capital gain? Is the risk reward relationship justified in terms of the end game? How liquid is the asset?
It is worthwhile pointing out here that property is not a liquid asset, contrary to what many people now believe.
In summary, we may now be entering a protracted deflationary environment where returns are harder to come by and where the risk reward relationship has changed.