October Market Commentary

Posted by Simon Moore on October 14
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Economic Growth Continues

The global economy continues to grow with the International Monetary Fund (IMF) estimating the global economy to grow 3.6% in 2017. This is level of growth of between 3% and 4% is, broadly, the same rate that the global economy has grown at each year since 2012.

Developing economies such as China and India are growing a bit faster and developed economies like the UK and US are growing a bit slower, which is normal relative to recent history.

It's worth noting that the global economy is doing pretty well right now and there are very few weak spots. Normally you would see at least a few major countries having a bad year such as Russia or Brazil did in 2015 and 2016, but this year everything appears to be set for growth for all major countries and regions of the world. This is unusual, but generally good for investors. Of course, it's highly unlikely things will stay this way forever and things can change quickly.

 

UK is £490bn Poorer Than Previously Estimated

 

Markets Remain Calm

The lack of major crises in major regions of the world has also contributed to a relatively calm stock market. It's quite normal for the market to decline temporarily, perhaps 10% or so, during the course of a typical year only to bounce back a few months later if history is any guide. Typically, the market will worry about an event, such as growth stalling in China or conflict in Ukraine, and fall back in fear only to subsequently resume growth.

We haven't seen much of that so far this year. There was some weakness in April but it was a very small move down in the markets. This year markets have generally moved up smoothly without major ups and downs. If history is any guide this calmness probably won't continue.

However, if and when we do see major moves in the market it isn't necessarily a reason to worry. A diversified portfolio containing shares, bonds and commodities such as those we offer at Moola has historically delivered robust returns over the long-term.

 

How Taxes Can Help Your Money Grow

In conditions such as these we are often looking for a way to beat the markets. We certainly think a well-diversified global portfolio using techniques such as fractional investing and currency hedging can be helpful in smoothing returns.

One great and easy way to gain an edge in the markets, in our view, is to be thoughtful about taxes. We think that for a lot of people saving via an ISA (Individual Savings Account) can be a good idea.

ISAs can help your money grow tax free. Often you pay tax on your investments to the government when you make money. With investments inside an ISA there is generally no tax to be paid and it's something the British government supports because they want to encourage saving.

This can help your after-tax returns. It may not be as glamorous as beating the markets but the effect can be the same, because you get to keep more of the money you make. For this tax year (April 2017/18) you can invest up to £20,000 in ISAs (though saving less is fine too).

So, if you are planning to invest, setting up an ISA it may well help your overall returns by reducing the taxes you could pay. If you already have a invested in ISA this tax year give yourself a pat on the back for being a tax-efficient investor.

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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