Moola Market Commentary - April 2018

Posted by Simon Moore on April 25
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Global Growth Improves

The International Monetary Fund (IMF) recently updated their global forecasts for 2018. Generally, the picture of economic growth around the world appears to be improving slightly, and there don't appear to be any major regions or countries in serious economic trouble, which is unusual. So generally, the picture for the global economy seems good as we write this.

The global economy is expected to grow around 4% this year and next. This is a reasonable result, relative to recent years when growth was a little slower.

Unfortunately, the U.K. is expected to be one of the weaker economies. U.K. growth is expected to come in at around half the global level on the IMF's estimates. This is because business investment, such as spending on machinery and equipment, is expected to be relatively weak due to Brexit uncertainty.

 

U.K. Growth Softer

Nonetheless, the U.K. continues to enjoy low unemployment and positive growth. As a result, the picture for the U.K. isn't bad, but it is softer than for most other advanced economies. The Bank of England expects to continue to raise interest rates in the U.K. over time from their current low levels assuming things continue on an even keel, but to do so gradually.

 

International Diversification Continues To Be Important

Against this backdrop, the U.K. has seen its stock market put in one of the weaker performances relative to other countries over the past 12 months. This why international diversification can be helpful.

Although, the U.K.'s stock market has grown slower than others, growth in the U.S. and parts of Asia, which feature in Moola portfolio have been notably strong. In the U.S. continuing strong economic growth and tax cuts have helped markets, whereas in Asia the strong growth of China, which is growing above 6% a year, continues to be a positive for the broader region.

It can be tempting to invest only in what you're most familiar with. For you, that may mean U.K. companies although in recent years that approach has been less successful than investing globally. Global diversification is something we believe in at Moola.

Global investing can help smooth your returns, because different countries grow at different times, and so, holding a basket of them can bring exposure to potential market growth where ever in the world that growth should occur.

If you'd like to know more about what's in a Moola portfolio and why, we recently wrote about it here. If you're curious what an Exchange Traded Fund is, we wrote about that here. Finally, if your curious about our ethical investing service, we recently answered a number of questions about how that service works here.

 

Volatility Continues

In the start to 2018, we have seen more up and down moves in the market than we generally saw in 2017. This is fairly normal. If anything, the relatively calm markets of 2017 were unusual.

We have no crystal ball, but historical data suggests that well-diversified portfolios do tend to rise in value over the longer term. As such, it can be helpful to not too worry too much about shorter term swings and instead remember that the longer term returns for those who invest in stocks and bonds have historically been good.

Written by Simon Moore

He was previously CIO of FutureAdvisor, a US digital advisor. His most recent book Digital Wealth, explains automated investing. He studied economics at Oxford, and completed his MBA at the Kellogg School of Management.

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