Stock markets, in general, have continued their upward trajectory. Share prices, benefiting from the extraordinary monetary policy that Central Banks have implemented via Quantitative Easing, have now been on a bull run since March 2009, the second longest in history. There has been relatively little volatility in markets. Furthermore bond markets have been in a bull market for the last 3 decades, benefitting from falling interest rates, which are now effectively 0%. Cash is still yielding nothing. So where to from here? I think we are at the start of a new stage in the economic cycle, one in which there is more risk to the downside than of upside potential, and I would suggest that investment portfolios at this point in time should therefore be defensively tilted.

The past twelve months have been instructive in teaching investors about the volatility that should be expected when investing in equities (company shares). In early 2016, some investment markets had dropped by over 10% in a matter of days and the harbingers of doom were predicting a stock market meltdown. As we look back on actual stock market performance of 2016, we see that the FTSE World (Total Return) returned +11.9% in Euro terms and the S&P 500 returned 12.9% for the full calendar year. This would imply that those who sold their holdings as a result of the early falls, may well have ended up in a position where they crystallised a 10% loss and missed out on a 12.9% gain, a swing of 22.9%.