Things to look out when investing in 2015

investing plans

An investment can often be effected by unforeseen circumstances. No matter whether it is a financial crash like in 2008 or a natural disaster like the earthquake in Japan – the market is never entirely save from unexpected disturbances. Therefore, expecting the unexpected will also be a credo for 2015. There is more to be considered. The global market seems surprisingly stable and might be able to excel further in 2015. But there are still a few things to keep in mind when putting your money in the market.

The oil price has fallen significantly within the last three months and even went to $53 US dollar on the last trading day of 2014. Although the supply has been reduced in order to stop the landslide, it doesn’t necessarily mean a halt for now. The oil price will most likely continue to affect the markets for a substantial part of the year. Sudden unforeseen events, like a military conflict or further overproduction, could trigger the oil price to go either way. This could therefore heavily disrupt an oil-dependent economy, such as Russia that is already unstable. When investing in 2015, one should consider to what extent the invested industry is subject to the oil price. If an investment is co-dependent on the rise and fall of the black gold, a seemingly stable share can fall rapidly just like the oil price and the Ruble did. Therefore, it is advisable to check the loose ends of your investments in order to see where they might get caught up in 2015.

The Federal Reserve in the US is said to raise the interest rate again later this year. Why is this interesting for anyone outside the US? At first glance it isn’t. But it is nonetheless a factor that one should keep in mind when investing internationally. Firstly, the raising of the FED interest rate can have a significant impact on the other markets in Asia and Europe. The markets are especially unstable in the days before the Federal Reserve is going to announce the raise. There is a good chance that shares will start to wager heavily for a short while. This might be a good chance to jump on some low prices before they will regulate themselves after the excitement around the interest rate has quietened down.

It might seem very obvious, but IT sector should not be left out of sight. Several shares are continuing to grow beyond everyone’s expectations. Certain stocks have been growing for more than five years straight and there isn’t an end in sight. That means not only that an investment in the IT and tech sector is potentially very lucrative and brings favourable returns, but is also a possible long-term investment that is crisis-safe. Tech shares have gained up to 20% and more in 2014. Charlie Morris from the HSBC Global Asset Management said that the tech sector will literally go ‘nuts’ this year. Stocks like Facebook, Google and Apple seem a very obvious choice – this is for a very good reason though. Investors have made profitable returns in the last years and will do so in 2015 as well. There are however more tech stocks to watch out for. Furthermore, paradoxically some tech indices have fallen throughout the year. They are predicted to take up speed this year again, as the tech stocks are gaining too. Therefore, the low prices of the tech indices offer an interesting opportunity to get involved and make reasonable profits. Even though the indices aren’t bringing as much return as perhaps Facebook and Apple, they still can be very beneficial for investors.

There are, however, certain investments one should be careful with, but definitely watch out for. One of those is gold. The price for the shiny metal has fallen to $1131,24 US dollar an ounce in November, which was the lowest in four years. Part of the reason for the drop is the US dollar, as gold is priced in the American currency. As the US dollar has become very strong throughout 2014 and risen to a seven-year high, the gold price went down. Furthermore, the price had suffered due to the low inflation. The latter is used as a hedge to prevent rising prices. This however makes gold more expensive in other currencies. However, there are analysts that predict the gold price could rise up to $1500 US dollar an ounce in the next years. Depending on the inflation rate, some even expect a raise to $3000 US dollar in the next ten years. This could mean a high potential benefit for investors in the long-term. Even though the very near future of the gold price might be rather slow, it seems very unlikely to fall substantially further. The demand for gold in China, India and other Asian markets is already growing and will continue in 2015. Jeffrey Nichols from Rosland Capital predicts a move of investments away from stocks and bonds back to gold. It seems that the signs are all set golden.

When investing within Europe, one should keep certain dangers in mind. The most prominent for numerous analysts is the political situation. If the UK was to vote on exiting the EU, the financial sector could be shaken up significantly. The European market has been suffering from a lack of trust for several years now. The rebuilding of faith in the industry has started, but remains slow. One should take the political instability in consideration when investing within the EU.

Although there isn’t much trust from the public and the politicians, the global financial market has recovered. Indicators such as the S&P 500 have gained over 12% throughout the year. Many analysts even claim the market is doing too well. Hence, there could be an instant eruption. Therefore, depending on your financial goal, it might be wise to only take the risks that are really necessary. The risk one takes with its investment should be matched by the financial aim of the investor. If risks are being taken then it is advisable to invest within one’s comfort zone. Don’t invest in what you don’t know.

 

 

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What effect does the New Year have on the stock exchange?

Wall Street

The Christmas holidays and the New Year are over and 2015 has finally arrived. But what does that really mean to an investor? Is there any effect at all? Public holidays always create a little turbulence in the market – no matter where and what the holiday is about. This effect can be positive or might have negative influences on the stocks. However, it is important to understand these disturbances and use them to one’s advantage. Reading the market correctly can bring an investor advantages – however, not only for a few trading days, but for the entire year. The movements of the stock exchange before and after the New Year can give indications for the months to come.

The swinging of the stock market around the New Year is also referred to as the January effect. One can generally say that the market and many stocks are going up during the month of January. This is due to the sudden increase of the amount of investors buying stocks. One might naturally question this tendency as pure chance. However, it is statistically recorded that stocks are being bought in January and especially during the first five trading days of the New Year. The question is – why is that the case? It has to do with tax-loss selling. Investors tend to sell those shares that are not bringing any money in the very end of December in order to counterbalance capital gains that have been made during the year. Therefore, the stocks that have been sold in the old year will be at a discount price of their actual value during the first trading days of the coming year (2015). This will trigger a bargain hunt within the first week of trading in 2015. The effect is increased buying pressure in the market. This tendency holds for most markets – no matter whether New York, London or Tokyo. However, the extent of the January effect can vary from market to market.

One should be aware of the fact that the January effect is a mere indication and not a rule. The effect is purely created by the desire to create tax losses in the end of the year. However, investors are starting to use different schemes, such as tax-sheltered retirement plans, to balance their accounts and enjoy tax reductions. For that reason the sell-off can occur in a reduced measure. It however does happen. Bargain hunters should therefore pay attention to whatever was sold off during the last trading days in 2014. If one wants to attempt a profit, one has to look for risky shares and securities. These are mostly sold off in December and are therefore available at a low price. The opposite happens during December. The demand for lower risk securities, such as government bonds, is driven up. Investing early enough into these lower risk securities can potentially generate a substantial increase in value. The art of benefiting from the New Year swing at the stock exchange is connected to front-running the effect. Although the extent is impossible to be predicted precisely, the shift and the tendency are undeniably occurring.

How can the swing predict the tendency of the year and how to read it? As every market has of course their indicators, one cannot make a general prediction for the entire world economy, but has to watch each market individually. For example, the indicator for the US market is the S&P 500, which is the American stock market index. Statistics have shown that if the S&P 500 has a positive gain within the first five trading days of the year, the chance that the American stock market will increase for the rest of the year are extremely high. Similar tendencies and statistics hold for other markets too. Wanting an indication or prediction for the rest of the year, one has to monitor the stock market index. The benchmark index for the Singapore stock market is for example the Straits Times Index. Other important global indices include the S&P 50 for Asia, the DAX for Germany and the Nikkei 225 for Japan.

There are few things to be kept in mind. The January effect tends to be weakened when there is an ongoing recession. As various markets suffer differently from poor economic situations, each market stands for itself. If the American economy is in a recession, it doesn’t mean that the Singaporean economy is instantly affected. The same holds for predictions. These however are important for the January effect. It generally holds that if there is a recession, the January return will be reduced. Furthermore, the extent of the January effect also depends on the institutional investors, such as portfolio managers. As they are responsible for a large extent of the trade, the decisions of the portfolio managers can sway stocks one way or another. Usually if the prediction for the coming year is positive, they tend to invest large amounts in risk security within the first few trading days of the year. The same is true the other way around. Negative economic predictions will keep institutional investors from buying. Therefore, the opinions of these investors can heavily affect the January return.

First of all, the New Year does have an effect on the stock exchange like other holidays as well. However, the effect and the potential benefits are larger than with other holidays. Although the New Year will most likely not be the coup of the country, there are profits to be made. If the January returns are positive, they are usually strong. However, they are not guaranteed. When investing within the first month of the year, one should consider various points. The most important factors are the general prediction for the economy for the coming year and whether there is a recession ongoing. In case both are positive, one should pay attention to the stocks being sold off heavily in the end of the year. These stocks will most likely be available below their real market value when trading resumes in the first week of the New Year.

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