Difficult challenges for the ordinary market investor
The past year has been a year for uncertainties for sure, writes
The future of the UK itself, its place in Europe, the possibility of a reversal of Brexit, or a hard Brexit, and even the reinstatement of Mick McCarthy as Irish soccer manager were examples of things we wouldn’t have thought could happen at the start of the year.
We were also until recently on the longest upward run in stockmarket history, ever.
The previous record lasted over nine years and ran to March 2000.
And as we approach the 10th anniversary of that historic market event, there are signs that the current economic and global stock- market upswing is getting somewhat long in the tooth.
It is said recoveries don’t die of old age but many people are nonetheless convinced that the end of the upward stockmarket cycle is rapidly approaching.
Although at a slower pace, the global economy is still growing.
However, what we have witnessed over the last few weeks hasn’t been seen for a long time, as stocks around the world have fallen sharply.
Some of the fears are totally overdone. We fixate on the negative headlines and don’t hear about how markets recover their previous losses in subsequent days.
However, there is no denying we are facing uncertainty and volatility. The evidence is there for many US stocks which reached new dizzying highs as recently as October and have dropped ever since. Those are difficult challenges for the ordinary investor to navigate.
And all the time, bank deposits have negligible returns which means leaving money in the bank is a frustrating investment option.
And for pension plans, including company pension schemes and those for the self-employed, stock-market growth cannot be relied on.
That is because the gains of the last 10 years are unlikely to be repeated anytime soon.
Meanwhile, October’s budget was a damp squib. It had little to none financial effect for most of us.
It was among the most easily forgotten budget I have experienced in my 21 years in Ireland.
The most topical area throughout the year was undoubtedly housing.
Homelessness or inadequate and expensive housing remain serious issues for a lot of people.
And meantime, many renters are caught in the rental trap, unable to save for a deposit to buy a house, even if they are earning quite well.
More than a third of current renters are earning more than €60,000 a year and many others are on salaries of more than €40,000.
There are over a quarter of tenants who pay €1,300 to €1,500 a month in rent, and 14% of renters pay €1,500 to €1,750 a month.
In previous times, such salary levels and rental costs would have secured a rung on the housing ladder reasonably comfortably.
The Government is allocating €2.3bn on various housing programmes next year but there will still be massive shortages of quality houses in the right areas.
The increase in interest deductibility for landlords in the budget was a welcome move but it was disappointing that there were few other changes.
Brexit looms large for everyone. Irish stockmarket companies have been deeply affected by the uncertainty.
I have some clients who have already been massively affected by Brexit.
The failure of Theresa May’s withdrawal agreement raises doubts over the UK’s exit on March 29.
On the face of it, a UK general election would likely be a bad outcome for some UK stocks and sterling because it is a vote that UK Labour Party leader Jeremy Corbyn may just win.
It has been a challenging year, and 2019 will likely be no different.
My advice is for people to get back to basics and only risk what you can afford to lose, while planning sensibly.
