Global equities soar to highest levels since 2009

Jan 8, 2018 | Tony Byrne's View

The FTSE All-World Index advanced 22% in 2017, its biggest increase since 2009, the year after the global financial crisis, and its fourth-best annual return since the benchmark started in 1993. A remarkable year by any standards.

Global share prices have risen significantly since 2008 which means that the current bull run is a long one by historic standards. This has led to a number of commentators forecasting a global stock market crash. Because stock markets naturally fluctuate in value each year it is inevitable that there will be a stock market correction at some stage. It is as inevitable as the change in seasons, the change in tides and the change in the weather. Something to be expected and not feared.

As regular readers of this blog will recall I wrote a blog a few months ago explaining that it’s not the timing of the market that counts but the time in the market. Nobody can predict future stock market returns. Period.

Unfortunately at this time of year many financial experts make their usual annual stock market predictions the vast majority of which are proven wrong, often wildly wrong, 12 months later. The ones who make correct predictions rarely repeat the feat over the following 12 months. So I take these predictions with a large pinch of salt.

The S&P 500 Index has risen for 9 consecutive years on a total return basis including dividends re-invested. The index has risen nearly 200% over that time period. As a consequence US equities do look expensive by historic standards. However the UK stock market is fairly valued currently by historic standards.

The good news is that the US stock market has achieved compound annual returns of 6.7% including dividends re-invested over the last 100 years. Cash on the other hand has returned less than 1% a year over the same time period.

Furthermore Warren Buffet, the world’s most successful investor, predicted a short while ago that the Dow Jones Index would rise from 22,000 to 1 million by 2117. So in spite of the fact that few readers of this blog today are likely to be still alive by 2117 the prediction gives convincing belief in the ongoing strength of US shares.

So my message to readers is keep the faith. Remain invested in shares for the long run because investment in global equities is in effect investment in global economies whose growth shows no sign of abating for the foreseeable future.

For advice on your investment strategy why not contact us for a financial review? You know it makes sense.

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