Political challenges seem to be emerging every day, here and in the rest of the world. And after almost a decade of economic growth and generally rising stock prices, you may have more concerns about the investment outlook as well. But don’t let headlines about political or economic uncertainty reduce your confidence in the future. Hidden behind today’s challenges are solid signs of improving long-term trends. And while they generally receive less attention than the challenges, they’re likely to be the forces that shape the future and thus matter more over time.
Despite the 2008 global financial crisis, when world wealth fell, there’s been an impressive increase in both wealth and living standards around the world that shows no signs of stopping. Total world wealth increased more than 2.5 times to $317 trillion between 2000 and 2018. As you probably expect, the rich became richer – the number of millionaires grew from 14 million to 42 million. But this ongoing improvement in global wealth wasn’t just at the top: The average wealth per adult worldwide more than doubled to $63,000 from $30,000 in 2000. And the percentage of adults globally with wealth below $10,000 dropped to 64% from 80%.*
Rising wealth means better lives and more financial security for billions of people worldwide as they become less vulnerable to financial shocks. As wealth grows, more can help pay for their children’s education and fund their income in retirement. Rising global prosperity means more consumers around the world and more choices for all of us as foreign companies innovate and prosper. Investors can benefit from this long-term trend with international equity investments in developed and emerging markets, taking advantage of the faster growth in those regions.
*Source for statistics: Credit Suisse Global Wealth Report 2018.
At the end of last year, investors worried about escalating trade and tariff conflicts with China, dimming prospects for the global economy and the possibility that Federal Reserve rate hikes could push a weakening U.S. economy into recession. As a result, stocks sold off sharply. Since then, stocks have rebounded equally sharply as many of those concerns have faded, although none have been entirely resolved.
Prospects are brighter due to diminishing trade tensions with China and other countries, additional stimulus measures that can help stabilize economic growth, and the Fed’s shift back to more supportive policies. In our view, the long-running U.S. economic expansion is on solid footing, helped by ongoing job growth and still-low interest rates. Corporate earnings should keep rising as sales grow and costs remain controlled, and stock valuations are near average, supporting our expectation for attractive long-term returns.
Around the world, voters have been communicating their dissatisfaction. As a result, there’s a wide array of visions for the future and seemingly less consensus than at times in the past. Although politicians are experts at making promises to voters, those with the most extreme views don’t always win the day. And those who are elected may find their ability to fulfill those promises limited by the process and competing demands.
It’s important to avoid letting your hopes or fears drive your investment decisions. In the past, when the resulting policies have seemed to be detrimental to the long-run health of the economy, financial markets have sent clear, negative messages to prompt changes. The process isn’t always smooth or quick, but we think investors should remain optimistic and remember that the U.S. and other democracies have a long track record of increasing prosperity.
Were you disappointed about the recent performance of some of your investments? If so, keep in mind that if every investment you own performs well at the same time, your portfolio probably isn’t well-diversified. Signs of slower growth in the rest of the world and the stronger U.S. dollar meant international equities lagged U.S. stocks last year, as they have in seven of the past 10 years. That’s partly because the U.S. economy and markets have been a key driver of global growth since the Great Recession.
With pessimism about international equities reaching lows last seen during the financial crisis, we think they’re attractive today. Easing trade tensions and pro-growth policies should help emerging and developed markets improve. Broad-based international investments have out performed following past periods when they lagged U.S. stocks, another reason for optimism.
Although you may be tempted to shift out of equities when investment and political challenges appear to be ahead, that hasn’t been a very successful strategy in the past. Many predictions don’t become reality, and markets move quickly. For example, the S&P 500’s rebound in January and February more than reversed its sharp drop in December as the outlook improved. Historically, a better strategy has been to stay invested in a well-diversified portfolio, making timely adjustments as needed to maintain the appropriate mix of equity and fixed income based on your comfort with risk and your long-term goals.
Investors should understand the risks involved of owning invest-ments, including interest rate risk, credit risk and market risk. The value of investments fluctuates, and investors can lose some or all of their principal.
Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.
Diversification does not guarantee a profit or protect against loss in declining markets.
Past performance does not guarantee future results.
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