Welcome back! After a Christmas break we at Trustnet wish you a happy new year and hope to guide you as best we can through markets over the coming 12 months.
The start of a new year is a time when many will be thinking and planning out their investments for the year ahead – once their last-minute tax returns are sorted out (this may just be me).
As such, over the past few weeks our site has been full of predictions and outlooks for the coming year, as well as fund ideas for those that have grown tired of some of their current holdings.
Entering 2022 there is a lot to be concerned about. Last week Tom Aylott wrote about how inflation is expected to continue to be elevated for the next several months.
Meanwhile the Omicron variant continues to dampen any enthusiasm for an end to the pandemic. This is no easy backdrop, particularly for central banks who risk making the wrong policy decisions.
Already, technology companies have dived to start the year on fears of several rate hikes by the Federal Reserve.
This week Abraham Darwyne wrote how BlackRock expects lower returns as a result and now may be the time to start tempering expectations, while Eve Maddock-Jones asked fund managers where they would avoid investing this year, with US equities making an appearance alongside bonds and environmental, social and governance (ESG) funds.
However, picking what will go wrong is not easy. Last year, our experts suggested selling out of bonds, which would have been a good call, as many of the fixed income sectors landed at the bottom of the rankings for 2021.
But they also tipped avoiding the US, where the S&P 500 rose 29.3% on the year, as well as the UK, which had a strong 12 months, up 18.3%.
It is impossible to get every decision right, but there are things that investors can take comfort in when reviewing their portfolios for the coming year.
Firstly, it is important to remember that funds have good and bad years. Portfolios such as those run by Nick Train struggled in 2021 as markets turned away from their quality-growth style, but selling after one poor year could be a mistake.
In my own portfolio, I am holding onto Baillie Gifford American, despite it dipping into negative territory over 12 months, as it remains a core part of my long-term portfolio.
Sorting out which funds have had an understandable poor year and which have failed to meet expectations is a must, but knee-jerk selling is rarely the answer.
Nor, it should be added, is knee-jerk buying. Energy and commodity funds topped the charts, but outside of a small bet are these worth holding onto for the long term? If market conditions remain as they are now, then possibly, but if the picture improves – and I think you will agree that we all hope it does – then these funds could plummet back down the leaderboard.
But it is easy to let emotion get the better of us when investing, especially when missing out on something that is rocketing, while watching your own investments fall into the red.
Overall, when looking ahead for the year be clear on what you want your portfolio to achieve and what you are willing to lose if things go wrong. There is no point holding high-risk assets if you can’t stomach the potential losses, so accepting lower-risk, lower-reward options might be best.
However, if you are the type to suffer from the fear of missing out (FOMO) having small bets on potential winners could be the way to make your money.
Whichever you choose, we wish you the best of luck with your investments and will aim to guide you through what promises to be an interesting, if hopefully not too testing, year in markets.