It’s that time of year when the so-called experts line up with their predictions of investment returns for the year ahead.  But this year it’s more hot air than ever.  The US sets the tempo and hardly anyone expected its economy and share market in 2024 to do as well as it did.  And right now, no one knows if President Trump will follow through with his audacious agenda of tariffs, tax cuts, deportations and isolationism.  They say politics don’t influence financial markets much but we all agree it’s a very uncertain time.

 

What we do know is that the US continues to be the profit growth engine of the world, its consumers are spending and its share market is priced for perfection. Dig deeper and we see that the profit and share market growth has been quite narrow, with much of it coming from the ‘Magnificent Seven’: Apple, Microsoft, Amazon, Alphabet (Google) Tesla, Nvidia and Meta (Facebook).  Outside the technology sector, growth is hard to come by, as is productivity and GDP per capita around the world.  This is certainly the case in Australia where profits have been flat or declining for a couple of years.

 

So where to invest?  With short and long term interest rates quite elevated and inflation still moderating, fixed income and bonds are looking quite attractive.  This environment’s pretty good for shares too, but starting valuations are important.  Over the next 10 years Vanguard are expecting only very modest returns from the broad US share market.  As a result, their latest forecasts are showing quite similar return expectations from the traditional mixes of “Conservative”, “Balanced” and “Growth”.  They expect “Growth” to outperform over the next 10 years, but not by much.  This prompts an important conversation about how much extra reward we can expect from the portfolio risks we take.  These views are reflected in our preferred portfolios, which straddle all the main asset classes and are designed for maximum diversification benefit.

 

Reach out to us if you’d like more detail.

 

General Advice Warning: Any advice included in this article and associated links is general in nature and would not consider your particular objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. Other than cash deposits falling under the Australian Government’s Financial Claims Scheme, any investment we recommend has the potential to deliver a loss to an investor. Nevertheless, we are of the view that for Australian investors it is reasonable to expect a skilfully managed diversified portfolio to deliver positive returns over the long term, over and above cash returns and the impact of inflation.