How and where to invest your money this year

Amid political revolutions 2017 will be the year of both safe and opportunistic investments.

Jason Cook January 18, 2017

It’s been fifty years since the death of Che Guevara, the face of revolution. It’s been one hundred years since the socialist revolution in Russia and it’s been 500 years since Martin Luther published his 95 Theses, which led to the Protestant reformation. Wherever you look this year, it will not be hard to find parallels of upheaval from the past, and feel the rebellious mood in the air.

The political events and economic uncertainty of the year ahead has the potential to make or break your investments, so keep one eye on the central banks and the other on geopolitics; be prepared to take control and make decisions.

No one can say for sure if there has been a better time to invest your money, however experience shows us that emotion far too often clouds judgement. Volatility brings opportunity as well as risk. Remember, there is never a bad time to start investing in your future, because nobody knows the future. 

Currency

Safe haven currency like the Swiss Franc or Japanese Yen perform well in times of uncertainty. These currencies will be a welcome addition to your portfolio if you don't already own them, just don't expect interest, both the central banks have negative rates.

The US dollar should be your currency of choice for the bulk of your assets. If you own British Pounds and are holding them don’t wait for a rebound against the Dollar. Be opportunistic and buy on a rebound, a sustained appreciation is not coming. If anything GBP will weaken against the USD as the UK battles through Brexit negotiations. Bad news will hurt the pound, good news will steady the ship. The UK needs a positive story from elsewhere to help strengthen it’s currency. 

Equity

In 2017 US equity has to be the market of choice. With low unemployment and low interest rates, consumers have a little more in their wallet to spend. Donald Trump’s message of ‘making America great again’ will focus on improving the domestic economy and building infrastructure.

Small and mid-cap businesses should perform very well, with pledges from the president elect to commit $500 billion to bring America’s infrastructure up to international standards. 

Oil related stocks should perform well as oil prices have been going up. The US energy sector in the equity market should be well supported by Trump’s efforts to make the US energy sector independent.

Don’t miss out on technology companies that deal with new tech such as cloud computing, big data, artificial intelligence, cyber security and network related companies. This year will see a big push in ‘the internet of things’ (IOT) which is predicted to grow to a $1.4 trillion market by 2020. 

Credit

Ratings agencies are telling us that the default rates should come down in 2017. So is credit an attractive asset class to own or add to? Clients like yield and to supplement the growth from equity investments. US high yield and emerging market fixed income in hard currency debt can be considered.

10-year USD yields have gone up quite sharply since Trump’s victory, all because the market believes his policies will be inflationary and lead to higher growth. The problem is all of the issues that kept yields low are still in place. So if yields go too high, above 2.50, then your manager could be taking advantage of the sell off.

Commodities

Gold should be added to your portfolio whenever possible. While 2016 was up and down for gold 2017 may be the year to be bullish, even with a strengthening dollar. Gold is the ultimate hedge against uncertainty, just know that you are buying for the long term and you cannot lose. 

Alternatives

Investments such as hedge funds or structured notes, derivative based investments will perform well this year because they are able to generate a return without betting either way on the market. If volatility is to be this year’s flavour then an absolute return strategy may return a good yield.

Organise your money

If giving money to other people isn’t your thing, what should you do with your money? You can put it under your mattress, but this is folly and a bit risky. Be smart and have more than one account in different banks in different territories, like Switzerland, The Isle of Man or Jersey.

HSBC for example, can open you an offshore account with their eyes closed. Have the majority of your money in USD offshore, in a safe, mature legal jurisdiction that protects your money by statute. 

Buy a property in Europe. With interest rates so low in the UK and Europe at the moment, and your earning power in the UAE so high, you must take advantage of the situation, especially if you haven't already done so. Writing a will is also the final way to organise your money. If you have assets in the UAE ensure you have a will to protect your family.

2017 is going to be a revolutionary year where volatility will be high given the obstacles that we have around the world. But volatility provides opportunity as well as challenges, we are already seeing big market moves and indeed that creates opportunities. 

Jason Cook is an independent financial advisor, financial-advice.ae.


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