Another financial year has passed, and it’s been a fascinating year for investors. In many ways, it’s been a tale of two halves with significant weakness in share markets in the final quarter of 2018 significantly impacting investor returns. This was largely driven by expectations of rising interest rates in the US and concerns around slowing global growth. During this time many diversified portfolios saw the greatest losses that they had seen in the past 7 years!
However, looking into the second part of the financial year it’s really been extraordinary. Share markets in many instances have recorded double-digit returns and bonds have also performed very well. The main driver is the change in the outlook for central bank interest rate policy, not just in the US but also in Australia where the RBA has started to cut rates.
After such a strong start to 2019, it’s hard not to question the valuations that are currently presented in markets right now, particularly the high prices being paid for perceived growth in the future and bond proxies. The bond markets are pricing in difficult, if not dire, times ahead, which is also being reflected in the rising price of gold. There are big monetary shifts going on behind the scenes around the world right now, one obvious cause is the effect on trade flows due to the current standoff between the US and China.
In a final note for the closing of the financial year, it’s understandable for investors to look at the past five or six months of strong share market returns and project them forward. However, this is not a reasonable and sustainable expectation for the future. While I am not trying to predict an imminent crash, the risk of loss or a period of sub-optimal returns due to volatility in markets in my view is elevated.
Trying to beat the market should not be the main objective. Staying focused on long term goals such as generating a consistent and stable income, while preserving capital has never been more important.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.