So farewell 2016, year of shocks, surprises and ceaseless celebrity deaths. We lost David Bowie, Prince, George Michael, Carrie Fisher, Debbie Reynolds and countless others, and were given President-elect Donald Trump and a fat dollop of Brexit uncertainty in return. Dont assume everyone hated 2016, those who voted for Trump orBrexit will haveenjoyed it very much. Investors alsohad fun.
Lest we forget, the year began with total meltdown. The market crashed the momentit opened as panic in China infected the world, and inmid-February the FTSE 100 hit this years low of 5,557. The indexended yesterdayat 7,120, its all-time closing high, a trough-to-peak increase of an astonishing 28%, and a reminder of the rewards of buying shares wheneverybody else is selling. Over the calendar year, the FTSE 100 is up around 17%. Throw in the current 3.83% dividend yield and you have a total return of more than 20%. A muchunderrated investment year, 2016.
Thats one reason why Icant wait to sink my teeth into 2017. The FTSE 100, S&P and Dow Jones are all now trading aroundall-time highs, and investment success whets the appetite for more. Yet I havent lost my head, I reckonthisis going to be a tough year.
First, we face the reality of President Trump, not the fantasy version markets have kiddedthemselves theyre going to get. Bullish investors have focused on the potential positives, primarily Trumps much-vaunted$1trn tax cut and spendingblitz, which is supposed tomark an end to the age of austerity.
Theyve ignored the potential negatives, such as a disastrous return to protectionism, which might seea trade war with China and across-the-board tariffs on imports. If that happens, todaysmarket froth could blow off in a moment.
Thenwe have the prospect of Theresa May triggeringarticle 50 by the end of March, to begin the two-year process of divorce from the EU. That will pile uncertainty on uncertainty, and perhaps the biggest investment clich of all is that markets hate uncertainty.
Europe will be a source of trouble in other ways as markets wait to see whether the populist surgewill continuein critical elections in the Netherlands, France and Germany. The Greek debt crisis will grind remorselesslyon. Italian banking worries could flare up. Anything could happen.
From a political point of view, all of this is worrying, potentially harrowing. From an investment point of view, not so much. I wrote recently that Ive shunned the Santa rally, because I dont like investing in markets when theyre touching all-time highs. I prefer the type of buying opportunity we saw last January and February, when top companies and benchmark indices areon sale at massive discounts.
When the inevitable volatility strikes, Iwill go shopping for more shares to top up my portfolio. I dont plan to touch the money for 15 to 20 years, so can withstand short-term market swings, andeven turn them to my advantage. I hope you can too. Happy New Year, whatever it brings.
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