Investors were spoiled in the past year. Just like in 2013. It was impossible: shares, bonds and real estate rose in value. Russia and Brazil were a proverbial exception, but on other stock exchanges the champagne flowed lavishly on 31 December. Will 2015 be a new top year for your portfolio? That is quite possible. But making money as easily as in 2014 is impossible.
Interest? Interest? What is that again?
A good year for investors, but 2014 was not a good year for the saver who anxiously kept his money in a savings account. He hardly received any interest . 2015 does not present itself as an improvement in that regard. On the contrary! The interest rate in euros, already historically low, will fall somewhat. Banks and companies with a lot of cash even pay to be allowed to park their money in a safe place. They are confronted with a negative interest rate. Although we still receive some interest on the savings account, the revenue is and remains negligible.
Those who want interest will have to buy savings certificates, government bonds and corporate bonds. But pay attention. The long-term interest rate is now also historically low. Do we really want a state voucher that yields barely 1 percent per year for ten years? No, right? Admittedly, the long-term interest rate may be somewhat lower, especially since the Tulips Bank may still be buying hundreds of billions of euros in bonds. But after that, interest rates will rise again. Whoever has a portfolio full of bonds will suffer a loss. Mathematically it is almost impossible that bond prices will rise just as fast in 2015 as they did in 2014. The German ten-year interest rate fell from 1.90 percent to 0.70 percent. An equally sharp rise in bond prices would mean that the interest rate on ten-year German government bonds would fall from 0.70 percent to -0.50 percent. We don’t see that happening.
Scroll with bonds
An investment in bonds is part of it, for every portfolio. But don’t forget to take a profit on your bonds in the coming months. Sell long-term bonds in euros and buy short-term bonds with it. Although they do not yield much, they will prove more stable if interest rates rise again. They will do what you expect, namely to form a buffer in your portfolio. Also buy short-term dollar bonds . In 2014, the dollar gained around 10 percent in value against the euro. A similar performance is expected from the US currency in 2015. You may already receive little interest, but you can earn some money from the dollar’s price climb. Part of the bond portfolio can be reinvested in undervalued (dollar) bonds from emerging countries, part could be invested in convertible bonds. These are bonds that can be converted into shares by the investor. It is an investment in ‘the best of both worlds’: on the one hand you opt for the relative security of a bond, but at the same time benefit from the possible increase in the underlying share.
Stock markets: is a crash near?
Have the stock markets not anticipated too much a rise in economic activity? Should we fear a crash, such as in 2008 (banking crisis) or 2000 (technology bubble)? No. The American stock markets are indeed on a new historical record, but the profits of American companies have risen nicely. In the third quarter, the American economy again grew strongly. The US should also be able to deliver a strong economic performance in 2015. Unemployment has almost fallen to an acceptable level and an average of 200,000 new jobs are created in the US every month. This creates confidence among consumers, entrepreneurs and therefore also investors.
Europe out of the crisis
It is not that far with us yet. The economic growth in our regions remains limited. That was true in 2014 and it will not be much better in 2015. The leading institutions have even recently adjusted their forecasts negatively: the growth would be a little lower next year than we already thought. Savings and strikes everywhere, a poor job market, problems in Greece and Russia, … It all looks bad. And yet I dare to see light here with a lot of realism and a dose of optimism at the end of the tunnel. The low oil price provides many of our companies with unexpected savings. This is in addition to the advantageous financing cost due to the extremely low interest rate. The rise in the dollar is also a windfall for exporters and European companies with branches in the US. These factors, in combination with a number of structural measures that European governments have implemented, should help our economy on top. That seems to be a good reason to increase the weight of European stocks in the portfolio . Also bear in mind that the stock market always tends to anticipate the revival of economic activity.