Iona Bain

Muggles looking at the world of economics right now and thinking “huh?” are not alone. Even seasoned investing pros are struggling to figure out the current dynamics of markets, and what is propelling them to all-time highs.

The stock market here in Blighty has enjoyed its best start to a year since 1987, while bonds are becoming a clear no-go zone.

Puzzling stuff. But should you ignore the Stranger Things vibe going on in markets and jump in while the going is good?

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We keep hearing the savings will continue to be in the doldrums, and unless you want to go to the other extreme and join the crypto-currency thrill ride, it seems that equities (the fancy name for stocks ‘n’ shares) is the way to get more bang for your buck, but without the daily fright fest that Bitcoin brings.

The US market (an important bellwether for us all) has been on steroids so far in 2018, gaining 4.3% in the first two weeks of the year and bumping up the UK market to new record levels too.

But how long can it last?

We sampled the views of five bigwigs for their take on things. But the conclusions you draw are yours, and yours alone. I am NOT an investment adviser, and although I do think diversifying your finances and considering the merits of investments for long-term gains are both important. But you must remember that the value of your portfolio can go up and down, you might not get what you put back in and there are no guarantees when it comes to investments. Things don’t always (even often!) shake out as predicted, and you’ve got to sit tight for the long term to raise the chances of getting a return on your money. With all that in mind, let’s go get clued up.

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Alistair Strang, chart software inventor and founder of Trends and Target, said last week that if the US continues on its current “lunatic” track, London’s blue-chip FTSE 100 index could in due course reach an all-time high of 8,711.

Although it would be unlikely to stay at that level for long, Mr Strang said the index would have to fall some way before causing concern for investors.

“For the FTSE to justify concern, the index needs to slip below 7,580 – just to indicate the surge since the start of December is easing,” he said.

“This would theoretically open the doors for weakness to 7,450.

“As the markets continue to prove, there is no rule which says something going down must go up or, something going up must come down.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “After ten years of ultra-low interest rates, perhaps some cash investors have finally given up the ghost and traded up the risk spectrum in search of a higher income.”

There has been a flurry of warnings from respected investors that bonds, which have been in a long bull market, are about to head into a bear one.

UK investors have been piling into bond funds, according to Investment Association figures. In November bond funds attracted over £2 billion of investment compared with £713 million into equity funds.

However, Mr Khalaf warned: “Today, monetary policy looks like it is going to tighten very slowly, which suggests the bond bubble may deflate rather than burst. However that’s still going to make turning a profit on bond investment more challenging.”

Jason Hollands, managing director at Bestinvest, said another factor in the rush to bonds is investor nervousness over the stock market continually breaking new records.

He added: “Calling the top of a market is a mug’s game and while high valuations and low equity market volatility are a reason to temper outright bullishness, a case can be made for the stock market rally to roll for some time yet.

“The global economy is in reasonable shape, monetary policy is expected to remain accommodative in a historical context and President Trump’s tax cuts will likely spark increased share buybacks by US companies.

“The final phase of equity bull markets often sees exuberant buying by retail investors….we are not there yet, but it makes sense to be risk aware.”

In such a scenario investors could hedge their bets. Mixed or multi-asset funds are the second most popular UK investor choice, pulling in £1.2bn in November.

These are typically in-house funds offered by the new breed of platforms offering so-called robo advice – off-the-shelf investments picked for investors according to the results of a risk-profile questionnaire.

There are now over 20 robo options on the market, with Santander and HSBC poised to launch offerings later this year.

Holly Mackay at consumer website Boring Money said: “The market share of ready-made portfolios and funds is increasing as more robos launch and more platforms promote their in-house multi-asset funds or portfolios.

“This year I expect to see a far greater proportion of multi-asset sales, as platforms create in-house products and a turf war emerges to try and woo the armies of suspicious savers – newcomers to investments who have traditionally stuck to cash but are looking for alternatives as rates remain low.”

Maike Currie at fund house Fidelity International said accessing physical assets such as gold, agriculture and property via pooled funds could also help protect against “the wealth-eroding effects of inflation”.

“You can invest in gold via a fund which invests in the shares of gold mining companies, such as the Investec Global Gold Fund,” she said.  “Alternatively, for those looking to make their savings work harder one option is equity income funds which invest in company shares that pay investors regular dividends that can be reinvested or paid out.”

IONA’S CONCLUSION: It seems today that there are as many differing views on how markets will play out in 2018 as there are ways to invest in those markets today. For a young wannabe investor, it can all seem very confusing. But the main thing to remember is that there is no shame in admitting you don’t fully understand it all. Those who aren’t prepared or motivated to find out more off their own bat will genuinely be best served by off-the-shelf solutions like so-called “robo advisers” (which we’ve previously explained are actually online investment services). Tracker funds also offer a compelling solution for those who feel active managers don’t always justify their cost, and tend to be the default option for convenient “spare change” investing apps like Moneybox. But beware complacency in times of rising markets, whether you’re actively or passively investing in them. No investment service will guarantee a capital gain in uncertain times like these, and it’s important to manage your expectations, diversify your money and only invest cash you can afford to lose.