Happy New Year! 2017 is in the books and its been a great year for investors all over. The US equity markets are flying high as all major indices continue to ring in all-time highs month after month; the multi-decade bond peak seems to be in, as interest rates are now on the upswing — not just in US, but in other countries as well. The commodities markets are starting their bull run as inflation is starting to rear its head after years of potential deflation, disinflation, and stagflation. New tech like blockchains and the cryptocurrency mania is capturing the imagination of the masses and making plenty of investors obscenely rich in a short period of time. But at the same time, every single sector/market has some dark clouds on horizon too — as investors get carried away and assume that risk has been mitigated which may not necessarily be the case.
But before we dive into how I intend to approach 2018, here’s an overview of how markets performed in 2017, courtesy of Novel Investor.
Outlook for 2018
2017 has been a great year, and with S&P 500 returning ~19%, who can complain?! Will 2018 bring the same? Who knows. 2018 is shaping up to be an interesting year no doubt.
As I wrote in the Outlook for 2017 post a year ago, I had hinted that the US$ had probably peaked and looking at it now retroactively, we can say that it did peak in Dec 2016 with the US Dollar Index (DXY) at a 14-year high at the time. The following chart suggests that DXY has begun weakening (down ~10% in 2017) which will impact various markets in different ways.
This explains the returns in almost every asset class in 2017. The following tweet from Josh Crumb of GoldMoney Inc summarizes this point well.
Amazing, every asset goes up year after year!
..or maybe the ruler we measure by ($USD) is increasingly total garbage. Which isn’t bad if you’re in levered finance..
..but kinda sucks for majority of population using faulty ruler in wage contract & (negative real) bank savings pic.twitter.com/dklqMAKSlF
— Josh Crumb 🔸 (@JoshCrumb) January 1, 2018
The big story in 2018 to watch, due to the falling US$ is the return of inflation. Its a curse citizens of the world have to live with, as the Fed, ECB, BOJ, PBOC central bankers do anything and everything in their power to stoke inflation. Inflation is regarded as a gift and cheered on by bankers and the media, but let’s not forget what it really is: erosion of wealth and loss of purchasing power. This is why I continue to focus on real/hard assets that can withstand the fiat currency manipulation. Since 2016, I have deployed a lot of my capital in the commodities & real estate market (via REITs). A run from fiat has also fueled a new asset class worldwide – the cryptoasset market, which is seeing a mania as investors flock to protect their assets. I have started deploying some capital into the cryptoasset market since mid-2017 and the results have been phenomenal.
My focus for 2018
From an overall portfolio diversification, this is how our investment portfolio is structured.
The game plan for 2018 will be re-balancing and diversification.
Here are few action items that I will try to achieve, focus & adapt my portfolio for coming years.
- Navigate more towards a passive investing model and reduce number of holdings – I have too many active picks in my portfolio and do not want to focus on them day-to-day. Passive investing allows me to focus on other important things in my life — work, family, hobbies, life etc. Besides, most research has proved that it is unlikely or impossible to consistently beat the index year after year. Part of our portfolio is already using the passive investing model and I am considering moving more of my funds into ETFs instead of individual securities, across various asset classes.
- Active investing will still play a part of my portfolio. There are some stock and sectors that are too volatile and ripe for profiting, so I intend to focus on these when I can. Commodities, marijuana, cryptos are some sectors that are hot right now to invest and passive investing do not provide the returns that are possible by active picking. Of course, active investing comes with risk, but without risk there is no reward, and I need to look for the right opportunities and find those wealth multipliers.
- Continued focus on diversification — I want to reduce some of the high concentration in equities and intend to continue deploying more cash into other asset classes.
- Speaking of balancing acts, I have overexposed myself to the basic materials/commodities sector — more than I originally intended (thanks to some spectacular returns in 2017). Even though I am very bullish on the space, I am looking to trim some positions and bring that exposure down slightly.
- More on diversification — I intend to increase my exposure to international markets. Most of my equity exposure belongs to stocks in US and Canadian markets (although a lot of the companies have global revenue). I intend to target companies which have more increased revenue from international markets, where we can see more lucrative returns over the next few years/decades.
I will incorporate some of these points in my annual goals for the year 2018. In summary, the name of the game is to stay vigilant & diversified, take calculated risks and grow my portfolio as I work towards achieving financial independence.
Looking for investment ideas? Check out this Top Investment Picks for 2018, where 35+ bloggers present their top pick and a reason to invest in those securities.
What are your thoughts on the points mentioned above? Do you have any specific thoughts on the markets for the year 2018? Share with a comment below.
Full Disclosure: Our full list of holdings is available here.