Having enjoyed favourable tailwinds in the past year, it would be easy for investors to let 2017 roll into 2018 and shun New Year’s resolutions. And, anyway, if we can’t stick to a January diet will we be any more successful with a more disciplined approach to our wealth management?
As UBS points out, the big danger of this approach is complacency. It’s true that many commentators, including those at UBS, are positive about prospects in 2018, but this doesn’t mean investors will have it easy.
Mark Haefele, Global Chief Investment Officer at UBS Wealth Management, has identified three potential resolutions for investors to protect and grow their wealth in 2018.
He says that shifts in monetary policy, political change, and disruptive technology mean that investors need to adapt to a changing investment context.
This will require a combination of a more agile approach to investing, a diversified portfolio, and the discipline to focus on the long-term to avoid common investing pitfalls.
The first resolution is to be more agile. After years of outperformance (and market share growth) by passive funds, conditions are now more favourable for active management. It’s significant to note that hedge funds historically have outperformed during interest rate hiking cycles.
There’s also a widening dispersion in valuation between the cheapest and most expensive stocks.
With a more agile investment stance, there should be the chance to open up market opportunities that arise from shifts in monetary policy, political developments, and technological change.
The second recommendation from Haefele highlights the importance of striving for a balanced portfolio. During the global financial crisis in 2008–2009, US stocks tumbled 51% from their peak, while a diversified portfolio declined just 29%.
He said: “Any outperforming investment, whether it’s a single asset, a favoured sector, or an exciting country, can tempt us to increase our portfolio concentration.
“This classic investor mistake looks particularly risky in 2018.”
This leads to the third resolution: stay calm. Maintaining a long-term focus is critical but this also requires investors to resist ill-considered investments based on the fear of missing out.
Haefele points to bitcoin’s headline mania, which he says is fuelling the biggest speculative bubble in history. He said: “Predicting the peak is difficult, but all bubbles tend to end the same way – with a transfer of wealth from the many to the very fortunate few.
“Calm means following a trusted investment framework, reducing excessive portfolio examination, and matching your investment strategy with your financial goals.”