Investment year 2020

Broad diversification for success 2020

NOTE –> Due to the current development of the world economy there is a completely new factual situation. Last but not least COVID-19 brought fire to an impending economic crisis, which has already been discussed in detail in previous blogs. The blog below, was written in January 2020, which is why certain positions and statements are no longer accurate. Nevertheless, the article is published in this way to give the opportunity to make comparisons and to be able to take an adjusted position in a later blog with a view to the markets and looking back on the time before the epidemic.

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Only a few weeks ago the new stock market year has started again and many investors are now asking themselves how they should position their portfolio in the new year. Headlines about an imminent economic slowdown or geopolitical tensions that have not yet been fully resolved are likely to continue to preoccupy investors. Various macroeconomists expect growth to recover by mid-year at the latest, following a rapprochement in the trade dispute between China and the US and the reduced risk of disorderly brexite. Opportunities for returns should therefore continue to arise in the new year – especially if investments are carefully diversified and selected. On the other hand, many experts are of the opinion that a collapse is imminent, as a result of which the flight into gold could be observed again. In the following scenario, we first examine the variant of an economic stabilisation.

Positive mood in the market
In principle, the latest economic data are providing positive impulses across the board. It can be assumed that the global downturn is gradually turning into a positive countermovement. On the risk side, many of the geopolitical issues remain, despite optimistic sentiment. A more expansive monetary policy on the part of central banks will continue to favour equity investments in 2020. As the major central banks will keep their money-locks wide open in the coming months, short-term interest rates will remain exceptionally low in 2020, thus stimulating economic growth. As a result, the major industrialized countries should continue to grow next year with inflation rates still moderate. In so far as inflation will increase in the second half of the year from the US perspective, the Federal Reserve (FED) will again pursue a more restrictive monetary policy. However, a repeated interest rate cut as in 2019 is rather unlikely. The monetary policy and framework conditions of the central banks are reaching their limits, which is why fiscal policy must be stimulated more strongly.

In search of profit
Almost all asset classes are now highly valued, often even at record highs. This makes asset allocation particularly challenging. According to analysts, no significant performance contribution can be expected from bonds in 2020. At best, a balanced portfolio will yield mid-single-digit returns. With a few exceptions, bonds serve purely as a buffer against equity price declines. Earnings expectations for equities are currently quite high and the upside potential is limited accordingly. The higher market volatility will have a particular impact on the equity markets, which is why diversified investments such as real estate and gold are particularly important, as mentioned above. With a distribution yield of up to 3%, real estate funds in Switzerland continue to be an interesting admixture. Gold alone from the principle of negative correlation with classic asset classes, not least as previously indicated when confidence in the markets seems uncertain.

In conclusion, it can be concluded that even in the current market environment it can be recommended to diversify the overall allocation broadly. As before, it is up to each individual to build up his or her cash reserves on fear of an impending crash. The only option here is to inform oneself and form one’s own opinion. If you follow greats such as Ray Dalio, star investor and founder of Bridgewater Associates, for example in his last interview at the World Economic Forum (WEF) in Davos, you hear statements such as: “Cash is trash! An exaggerated metaphor for his opinion that every investor who currently bets on cash is losing money and no longer participates in the market. In view of the extension of the negative interest rate to savings, this statement certainly contains his justifiable anecdotes, without wanting to start the discussion about further functions of money.