Yes, equities are disconnected but don’t forget the real reason for investing.
You can stay up all night theorising about what’s driving equity markets, but the main thing to consider is how your investments support your lifestyle choices and aspirations – that’s the conclusion that CEO John Tuohy and investment adviser Chris Johns came to in our recent webinar ‘Are equity markets disconnected from reality?’.
Chris was strongly of the opinion that equity markets are disconnected from economic reality – how couldn’t they be when we are in the midst of a global pandemic and yet US markets, which dominate global equities, representing more than half of the world total, are hovering near all-time highs? However, there is a lot more detail to examine behind the headlines.
First, there are some significant winners from what is going on. Technology companies in particular have been roaring ahead, with Amazon up more than 70% this year; just recently we have seen Apple’s capitalisation top the $2 trillion mark. Covid has taken existing tailwinds in technology and accentuated these.
Second, central banks – the Fed in particular – have intervened dramatically, building on what they learnt from the global financial crisis more than a decade ago. Stock markets, as forward-looking instruments, seem to be saying once the Covid medical issues are fixed, the economic outlook might not be all that bad given the money that has been pumped into the economy.
And finally, we should consider that equities, while more volatile than economic growth, tend to reflect long-term trends. A glance at a multi-decade chart pitching GDP against equities shows the same general direction, albeit with equities wandering around a lot more. Trying to time those ups and downs in the short term is a tough game and should not be attempted.
Investing in equities isn’t an end in itself – it’s about growing your money over the long term to meet your needs. Your most important consideration is what you want your money to do for you: whether you have enough of it for what you want and when and most importantly that you live the life you want.
In conclusion, equities are good long-term investments – key to consider for this asset class going forward are the dual influences of ESG (environmental, social and governance) considerations and the expanding role of technology. The Covid crisis has given us pause to consider many aspects of our lives – we should use this time wisely as investors to think our way through this period.
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Acuvest is a privately owned independent Irish investment advisory business serving both institutional and private clients with €3.5bn of assets and impacting the lives of over 40,000 households. For more market analysis and expertise follow Acuvest’s updates on Twitter @AcuvestIreland and LinkedIn.