The past decade has been a roller-coaster ride, so Ian Cowie consults experts on the way ahead.
Ten years ago this month, the FTSE 100 index of Britain's biggest shares briefly hit an all-time peak of 6,930 – or 30pc higher than the 5,300 level it was trading around this week.
This was a shocking decade for the stock market and millions of investors whose pensions and endowments were buffeted by volatile share prices. It began with the bursting of the technology, media and telecoms (TMT) bubble in early 2000, followed by the attack on the World Trade Center in 2001 and the invasion of Iraq in 2003. But in March that year, the FTSE 100 also reached its low point for the decade of 3,287 before it began a fight back until the credit crisis wiped billions off shares and caused some of Britain's biggest banks to collapse into the arms of the taxpayer.
Savers and investors could be forgiven for feeling somewhat shell-shocked. Unfortunately, opting out of saving for retirement is not quite the same thing as staying young forever. Your Money asked a panel of experts five questions:-
..... Alan Steel of independent financial advisers Alan Steel Asset Management
Q. What is the most important lesson investors should learn from the last decade?
Turn your mind back 10 years. As the new millennium loomed, investors and most advisers and experts were embracing the new paradigm – any dotcom stock – convinced of the certain economic blue skies. Now, 10 years later, we have the reverse. The majority sees nothing but bad news in a mad rush to cash deposits and sovereign bonds.
The biggest lesson investors should learn is the herd is always wrong. Checking history, you'll find every time there's been such poor equity returns over the previous decade, the seeds are being sown for outstanding ones over the following decade. The real lesson is to have the courage to take the minority view.
Q. Which sector or asset class will be best for growth over the next decade?
There are two ways of looking at this. Investors can concentrate their search into the asset class or sector that's been the hardest hit over the past few years – the sector or asset class where the consensus view is that there is little or no hope for the future.
The other way of looking at it is to search for economic and demographic factors that suggest with high probability a secular upward trend or bull market in a sector or asset class.
Looking at it from the first point of view would suggest the US stock market is as unloved as any, and from the second viewpoint, the secular one, evidence points to continuing superior growth in Emerging Market stock markets.
Q. Which sector or asset class will be best for income over the next decade?
The recent mad scramble for deposits and bonds, especially sovereign bonds, such as gilts – a scramble by the majority – is a sure sign the best income-producing sector lies elsewhere.
Just as Neil Woodford had allegedly lost his marbles back in 1999, he is as heavily criticised now for underperformance. So his fund is more likely to be the type that investors should be buying today.
Invesco Perpetual has an excellent stable of high-yielding UK and European Income funds, and M & G Global Dividend fund looks interesting, too, for the next decade.
Q. What was your biggest financial mistake during the last decade?
Our biggest mistake? That was to underestimate the effect of the massive explosion in debt and derivatives which almost brought down the entire pack of cards last Autumn. Fortunately we managed to persuade clients to sit tight, and have more exposure to growth equities throughout the last ten months.
Q. What will be the biggest surprise for investors in the next decade?
The strength of the American consumer, and the ability of the dollar to bounce back, will be a huge surprise to the consensus who think the US is finished.
The ongoing outperformance by emerging market stocks, especially in China, India, Brazil and other Latin American and Asian Tiger economies, will short-change the majority of equity investors.
That's because they're overly cautious and will retain most of their equity exposure in Britain, which is quickly becoming a global nonentity.
But the biggest surprise will be the serious underperformance of cash deposits and sovereign bond investments, which will lose their way as interest rates rise and inflation comes back into the system. ....
Quote courtesy of The Daily Telegraph, 19 December 2009.
