2016 was something of a stressful year, and this has included the area of investment. For those either with investments or looking to invest in 2017, unfortunately the coming year looks like it may too be volatile. Returns on cash in the bank are still low, equities look highly valued, and analysts can’t decide whether ‘Trumponomics’ is going to lead to a boom or a bust in the US. So for those of you who are looking to invest, where should you be investing this year?
Focus on interest rates
With interest rates headed upwards paying down debt could be a smart decision, and for those with debt you might want to consider prioritising this over making other investments. Start with the most expensive – almost always a credit card – and move on progressively to paying down the lower rate borrowings. Overpaying on your mortgage monthly might also be a good idea.
Invest in equities for the long term
Bonds look stretched right now, with low interest rates making prices vulnerable if rates move up more sharply or more quickly than expected. For the more serious investor, invest in equities and while you’re still running some risks you’ll have a stake in companies that should grow over time, hopefully making your investment a sound out.
Look to diversify overseas
Diversification is key to any investment portfolio – even for beginners, or those taking it less seriously. The US is looking coveted, but other global markets will offer more value. Emerging markets, particularly in Asia, are cheaper and offer access to higher growth – for instance India should grow at 6-7% or more. Europe is slower growing but offers good value, with many global companies headquartered in European markets. If you’re willing to take a larger risk, Latin America could be interesting – Brazil in particular is emerging from a period of economic and political problems and its market is attractively valued. Invest through mutual funds, or use an exchange traded fund (ETF) using a trading site such as CMC Markets to get ensure good prices.
Look for value
As bank interest rates are so low, people have been looking for alternative sources of investment income, driving up the prices of higher yielding stocks. The search for ‘safety’, too, has driven up the prices of major consumer staples companies and bond proxy investments like utilities. 2017 could be the year that value investment strategies come into their own – lowly rated companies and small caps could outperform. If you don’t want to trawl the markets for the best stocks, get a good mutual fund that has a strong bias to value.
Technology and biotechnology lost some of their lustre in 2016. That could pave the way for them to shine in 2017 – but it might be the smaller, nimbler, new entrants that do best, rather than the giants Facebook, Amazon, Netflix and Google. Do your homework – or, again, find a fund or ETF that will give you broader market exposure.
Go against the crowd
If you like to swim against the tide then consider the natural resources sector, including oil and gas. The sector has had a horrible few years with low prices forcing companies to cut their production and their dividends. Prices have crawled up out of the trough in the last six months or so, though, and while no one’s forecasting stratospheric returns, things should start getting better. Meanwhile, many of the companies are valued at next to nothing, giving you a chance to get in cheaply.
Continue to invest in your 401k
401k are one the most common types of investment, often utilised by those with no other investments or no prior investment experience. If you’re one of the many that has a 401k, make sure you keep it well fed. It’s a great way to shelter your wealth from tax and that can vastly improve your returns over the long term. If you haven’t got a 401k, then consider why not. 2017 is definitely time to think about opening one.
And lastly – invest in yourself
Take a look at your career or business and think what could give it a boost. Take a weekend course, a MOOC (Massive Online Open Course – see Mooc.org for more details), or sign up for evening classes. Or, you might decide that mindfulness or fitness are your top priorities. Whichever route you pick, investing in yourself is always a good idea.
These are undoubtedly uncertain times, for everyone – not just those looking to invest. You may need to change your investment strategies throughout the year as things come to light (for instance, how effective Trump’s approach will be for the financial markets). But if you pick the right areas to invest, and invest for the long term, you’ll do better for your money than simply sticking it under the mattress.