Despite anxieties early in 2017 regarding Trump’s election, “excessive” government debt, anticipated higher interest rates, extended valuations of key assets etc., markets performed strongly over the year.
The below document from Dimensional Fund Advisers provides a succinct summary for your review.
We make no predictions regarding markets and expected performances for the coming year, but do note the following:
- The IMF has upgraded its estimate for global growth for 2018 from 3.7% to 3.9%;
- There are some signs that recent improvements in unemployment and underemployment globally may result in a level of wage pressure developing;
- Increased wages would be an indicator of the potential for increased inflation going forward;
- Quantitative Easing programs appear to be in the process of being pared back;
- Interest rate increases may be more frequent / higher than those anticipated toward the end of 2017 (and we have already seen movement in this regard during January 2018);
- Recent volatility has been very low;
- Asset valuations appear elevated against historical norms.
Vanguard has noted in its 2018 Investment Outlook that:
- “Elevated valuations, low volatility and secularly low bond yields (interest rates) are unlikely allies for robust financial market returns over the next 5 years” – but that –
- “…the solution to this challenge is not shiny new objects or aggressive tactical shifts. Rather (this) underscores the need for investors to remain disciplined and globally diversified, armed with realistic return expectations”.
In summary it’s important for you to remain diversified across different assets and different countries, while staying disciplined with the plan designed for you.