Decisive Action in the New Decade: How to Invest Wisely in the 2020’s

Sadly, we’re still having to cope with jittery markets and widespread instability due to a range of political, environmental and technological factors, but that’s not to say there won’t be some great investment opportunities which we can capitalize on in the coming years.

The previous decade gave us a taste of the almighty potential that disruptive technology possesses, and cryptocurrencies, in particular, taught us that the sky’s the limit if investors are shrewd, wise and, in many cases, lucky enough.

Of course, cryptocurrencies are way too volatile to consider as anything other than a gamble, but there are plenty of opportunities out there that hold potential for the coming decade. Though it’s important to note that there are lots of unforeseeable circumstances that could undermine the value of just about any investment in the future – so it’s advisable to keep on guard if you decide to buy specific assets.

Looking to the clouds

(Cloud robotics industry forecasts show that industry growth is expected in the 2020s. Image: EVA)

Hamish Douglass is the billionaire chairman of Magellan and is an expert when it comes to investing in tech companies in particular. Speaking to the Financial Review, Douglass is confident that cloud computing will be the star player of the 2020s. “Mobility, internet of things, edge computing, enables the whole cloud to come together and do things we can’t even imagine today and businesses we haven’t even thought of will be $100 billion businesses in ten years,” he explained.

The beauty of cloud computing is that it’s demonstrably effective already. As opposed to the industries of AI and Virtual Reality, which still rely on some degree of speculation, the cloud is already largely used for the storage of images, home entertainment, collaboration tools, and within a range of smart devices. Many speculate that it’s soon to infiltrate the world of gaming, too.

As technology becomes smarter, the necessity of communicating with other smart devices increases. Add to this the fact that wires are fast becoming redundant in a world that’s dependent on convenience and it leaves the Internet of Things and cloud computing as an essential development in everyday life. The massive processing power of the cloud will also be key for industries depending on the interpretation of big data and powerful calculations.

In a jittery financial landscape, it’s fair to say that shares in the cloud technology companies could be one of the safest investments of the coming decade. This isn’t to say it’s completely immune from extraneous circumstances, but it’s one of the best shots to build a healthy portfolio.

Safety in real estate

Writing for Market Watch, Mark Hulbert believes that real estate is set to offer value investments over the next 10 years.

Hulbert highlights a Bankrate survey that asked investors which type of investment they would pick if they were using money that wouldn’t be needed for 10 years. The choices were stocks, bonds, real estate, cash, gold or metals, or cryptocurrencies.

The winner by some margin was real estate, which goes some way in showing that the best investments can come from more traditional places. Nearly one-third of respondents chose the housing market, and given that the stock markets as a whole face an uncertain short-term future, it could be one of the wisest decisions.

Hulbert believes that the performance of real estate during bear markets – with the notable exception of the 2008 market crash – shows that homes are safer than equities should an economic downturn occur. “In every other stock market bear market since the 1950s, the Case-Shiller Home Price Index rose in all but one. And in that lone bear market prior to 2007 in which the index did fall, it did so by just 0.4%.”

There’s also the added perk of the housing market being much less prone to the level of volatility shown by the world stock markets, meaning that over a 10-year period, your investments are likely to fluctuate less.

Geographic diversity

(Image: Visual Capitalist)

Interconnectivity has been making the world a smaller place for some time, and when looking for future investments it’s vital to look beyond the western world.

Tobias van Gils, of Countach Research believes that the fastest GDP growth of the 2020s will come from Asia. Furthermore, Van Gils highlights neglected economies surrounding both China and India as possessing great potential for growth.

The driving force behind Asian growth in the 2020s will be China’s multi-trillion dollar Silk Road Economic Belt, as well as the 21st Century Maritime Silk Road – two infrastructure investments that are designed to bring unprecedented levels of trade across the eastern hemisphere and beyond.

(Old and new: The new Silk Road infrastructure. Image: Benzinga)

Of course, such an ambitious project comes with more caveats. Firstly, much of the GDP forecast for Asia will be influenced by the successful arrival of the Silk Road. Secondly, with so many nations working together, it’s reasonable to expect some hitches in the development of such a large project.

Relationships with the US and China have been frosty to say the least, and the decade has arrived with fresh tensions in the Middle East. While China’s emerging economy still seems like a wise investment, its level of progress will depend on a more optimistic political climate.

Capitalising on disruption

Another safe set of investment options stem from the growing range of disruptive technologies set to become available in the coming decade.

There are five key areas where disruptive technologies are ripe for the future, and they include:

Green-tech and energy

Helping to propose solutions to the growing climate emergency comes renewable energy sources like wind power and fuel cells, as well as green buildings and carbon capture and storage solutions.

Advanced materials

Including nanomaterials, graphene and solid-state batteries.

Digital technology

Relating to both 5G and 6G, AI, quantum computing, blockchain and both augmented and virtual reality.

Smart machines

Involving exoskeletons, service robots, medical robots, 3D printing, driverless vehicles and industrial robots.

Biotechnology

Potentially disrupting healthcare could come technology like personalised medicine, gene therapy, nanobiosensors, cell therapy and 3D bioprinting.

Given the important role each piece of technology can play, it’s fair to assume that the future will see widespread implementation of many disruptive solutions. However, in the next 10 years, it could come down to which governments are more willing to spend money on developing the tech.

Once again, China could play a significant role in developing disruptive technology, and may focus on sectors that carry the most economic importance.

While investments in these sectors would appear generally safe, the issue is that most disruptive technology requires significant levels of funding, and in an economically unstable environment, it can be tricky to find a government or organisation willing to invest heavily in the implementation of such tech.

However, in a world that’s beginning to wake up to climate change, it’s worth taking a look at disruptive technologies in the field of sustainability and renewable energy as an area that could develop comfortably as the new decade rumbles on.

Beating The Crunch: Can We Invest Wisely in an Economic Downturn?

The very mention of a downturn can strike fear into the hearts of investors. Economics tends to be cyclical in nature and while steady periods of growth are revered with widespread speculation, they’re usually followed by a profound decline.

We currently live in challenging times for world economies. Uncertainty surrounding the United Kingdom’s Brexit alongside ongoing trade wars between the United States and China have sent some clear warning signs that investors may be facing some challenging times in the near future.

(The future of finance in the UK is conditioned primarily by Brexit, and could prompt an economic slowdown. Image: Institute for Fiscal Studies)

The UK isn’t alone in its uncertainty. With four possible outcomes of Brexit in the coming months leading to wildly different GDP forecasts, the United Kingdom is just one of many nations operating in a fragile economic climate.

But is it possible to successful invest within the volatile markets of a recession? Here are a few points on how to wisely develop your portfolio while navigating the potentially choppy waters of an economic downturn.

Coming to terms with a recession

It could be useful to clarify what is meant by the use of the term ‘recession’, as well as ‘economic downturn’.

(Chart illustrating the impact of the financial crash and the slowdowns within the global economy that followed. Image: The Economist)

Essentially, a recession is the name given to a sustained period of economic decline. Economists typically agree that two consecutive quarters of negative Gross Domestic Product (GDP) growth can be defined as a recession, but this isn’t always the case. It’s also worth noting that GDP acts as a measure of all the goods and services produced by a country over a pre-designated period.

There are plenty of factors that can contribute to a recession, which is why many economists avoid predicting their arrival with much certainty. In 2008 the collapse of the US housing market sparked a worldwide downturn, while other factors like governmental change, natural disasters, and new legislation can all be big contributors.

Recessions take shape as a result of a widespread loss of confidence from consumers and businesses when it comes to spending money. This, in turn, leads to stagnant incomes, loss of sales and ultimately production. Unemployment generally rises due to cutbacks in industries and national leaders face the challenge of kickstarting a weak economy to remedy the effects.

Right now you may be wondering how it’s even possible for anyone to build a successful portfolio from these circumstances, let alone those looking to make intelligent investments.

As they’re intrinsically linked to the financial markets, recessions tend to point towards more instances of risk aversion from investors as they plot methods of keeping their money safe from damaging losses of value. However, the cyclical nature of finance means that recessions must give way to recovery sooner or later. Let’s take a deeper look into some of the opportunities presented to investors during a time of severe financial difficulty:

Can opportunities be identified?

Recessions are terrible things that can severely impact the lives of millions, possibly billions of individuals worldwide.

But many negative events can come with some opportunities attached. And while recessions represent a considerable burden on the world financial markets, they can also offer some extremely high-value prospects for new investors.

When a recession takes hold, asset prices typically fall hard. This means that investors who were previously priced out of making meaningful revenue from stocks, bonds, mutual funds, real estate, private businesses to name but a few, can suddenly find themselves presented with considerably lower costs than a year or two prior. As other investors are forced to part with their assets, you could swoop in and grab yourself a bargain.

(The Financial Times highlights the inverted yield curves within US Treasury bonds as a sign of a coming recession – as evidenced by historical trends within this chart. Source: FT)

The Financial Times recognises that the US Treasury yield curve has inverted due, largely, to ongoing trade wars. Further to the chart above, the newspaper also reported that UK yield curves on two and ten-year gilts inverted over the past summer – indicating that there are challenging times ahead for investors.

Naturally, when market predictions appear ominous, bearish investor sentiments become more prominent. The Financial Times reports that in the current climate, the price of gold is “soaring.” With “the price of the yellow metal rising above $1,500 per troy ounce for the first time in six years” back in August.

Prolific investors will always be on the lookout for opportunities to buy low and sell high, and even though the markets will no doubt show volatility, there’s a good chance that as a recession subsides, the assets you’ve bought into will begin to regain their true value.

With this in mind, it’s worth exploring the prices associated with specific stocks and bonds. If their respective values appear to be outstandingly low compared to their value outside of the economic downturn, you could be looking at a good opportunity to gain money as the market recovers.

Searching for value in capital markets

When it comes to equity markets, the perceptions that investors hold of heightened risk typically leads to the urge for seeing higher potential rates of return for holding equities. For their expected returns to rise higher, current prices would need to drop. This happens when investors sell off riskier holdings and transition into safer securities like government debt.

This is what makes equity markets fall prior to recessions. As investors grow fearful of seeing the collective values of their assets decline, they take a series of steps in order to retain as much value as they can.

Safety in investing by asset class

History tells us that equity markets have a pretty useful habit of acting as reliable predictors of upcoming economic downturns, so it’s important to pay close attention to the optimism or pessimism of traders within this particular field.

However, even if the equity markets are in the midst of a deep decline, there’s still cause for optimism among investors. Assets still have the ability to undergo a period of outperformance, so it can often pay to keep your ear to the ground and hunt for small pockets of clear blue skies amidst the cloud-covered horizon.

Can efficiency be found within stock investing?

Stock markets can be volatile places even at the best of times. But history shows that there’s still plenty of security that can be found by investing during a recession.

One of the safest places to invest across a range of markets can be found within the stocks of high-quality companies that have been in existence for a long period of time. While this may not guarantee security, these types of businesses have shown that they can survive prolonged periods of financial difficulty in the past.

Indeed, the NASDAQ-100 index has experienced notably less profound volatility as it recovered from 2008’s crash than stock indexes comprised of less affluent companies.

Naturally, companies with credible balance sheets and little debt regularly outperform businesses with significant operating leverage and weaker cashflows. So it’s worth looking to established organisations for a little solidity when times get tight.

Will diversification remain a safe bet?

Even in the gloomiest of financial forecasts, always diversify your bonds. Even if you come across a company that appears to be thriving amidst an economic downturn, it’s vital that you diversify your assets.

Markets are extremely jittery when the world’s news is littered with closures and the falling GDP of nations and currencies. The landscape can change with little warning, and while diversification may not be a flawless way of thriving amidst the inevitable rainy days, it stands a much better chance than taking up the option of piling your faith into one company that looks stable today with no guarantee for tomorrow or the day after.

The world of finance hasn’t been brimming with confidence for some time now, and while investments should be made at the holder’s risk, there are certainly plenty of opportunities out there to build a respectable level of profits even in the midst of an economic downturn. Above all, stay patient, look out for emerging trends and make sure you diversify your investments.