The last nine months have been frantic but global stocks are recovering. UK markets have been slower to climb, but with vaccines and a Brexit deal on the horizon how high can stocks rise?
For investors around the world it’s be a challenging year. That’s an understatement. Even the most experienced operators have needed reassurance and nerves of steel to hang in there.
The advice is always to look long term. Stay invested and focus on historic returns over five, ten and more years.
You cannot base investments and planned retirement income on a one-year snapshot of growth or decline.
Looking ahead, with numerous positive factors now encouraging investors to return, the question being asked by many observers is how high can stocks rise?
Positive factors for investors
The UK situation and the FTSE100 is fascinating. Despite recent global market rises, the UK index is still around 15% below its January 2020 level. There is much scope for further growth.
Compare this to the S&P500 index in the United States. By late November it was around 10% higher than the start of the year’s trading.
Also, on days where nearby European stocks have soared, the FTSE has enjoyed modest gains.
Ultimately, this suggests that there is much room for increases in UK stocks when the market conditions are right.
Hot on the heels of two US-led Covid vaccines being confirmed as viable, the key UK team based in Oxford announced its trials had also produced very positive results.
Say it quietly, but life and business can begin to plan for a return to normality.
And with Brexit talks progressing favourably and due to be concluded, there are real hopes that stability and certainty will encourage investment decisions to be taken off hold.
Is the UK underinvested?
While many global markets have surged back to previous highs and beyond, UK markets have been cautious.
Many will see this as sensible, rounded and a wholly better way to grow organically. The FTSE seems far removed from variations driven by hopes and rumours.
Another angle is that the UK remains underinvested. Many listed stocks now offer real value compared to the inflated prices elsewhere around the world.
Brexit negotiations have put a damper on UK investment for several years. Businesses and funds have avoided risky moves while so much is uncertain.
A conclusion to the transition period will at least allow decisions to be made. The value stored up in UK companies could be quickly released. That would suggest a speedy recovery in 2021.
What could stall the recovery?
While everyone looks for positives and a reason to invest, there are always potential pitfalls that should be factored into any decision making.
First, the roll out of the vaccine(s) needs to be timely and smooth.
The logistics involved getting millions of doses to the UK population will be a challenge. Then there is the grim threat of another wave of Covid, in whatever shape or form that might take.
And let’s not forget core economic factors. While a vaccine is great news, the knock-on effect of business closures, unemployment and inevitable tax rises could delay investor confidence.
Tread carefully when investing
If something looks too good to be true it probably is. That’s a practical way to look at most things in life.
With the UK market seemingly undervalued there could be “value traps” on offer – that is, shares in companies that look cheap but there is a reason for them being valued so low.
Don’t rush in!
Avoiding such pitfalls is best done with the help of an independent financial adviser.
Advisers should target funds where the underlying holdings will benefit from the expected economic recovery around the corner.
However, the overall portfolio should be such that it can ride out future unknowns while still enjoying the “highs” that many expect in 2021 and beyond.
Such results are usually delivered by people with experience and a full understanding of a client’s objectives.
Please call us on 0808 1234 321 or email firstname.lastname@example.org if you’d like help achieving a well-balanced portfolio.
Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions as you put important things in place for you and your family.
* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.