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Investment Trends of 2018

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Top investment trends of 2018 – and what you should be buying

Investment trends of 2018The new year promises to be full of surprises for investors, as the market responds to events like the election of Trump, global political changes, and the promise of disruptive technology. Regardless of uncertainty, the outlook for the global economy this year is positive. 2016 was a good year for investors, and 2018 doesn’t look to be slowing down anytime soon. To better understand market trends in the new year, let’s recap 2016.

Despite Brexit confusion, the slowing of the Chinese economy, and oil production freezes, the stock market in 2016 finished strong. The Dow finished with 13.4% gains, and the S&P with 9.6% – both above-average yearly returns. Overall, the global economy grew 3.1%, and is expected to be surpassed in 2017 by 3.4% growth (according to the IMF).

 

How the Fed’s interest rate hikes will influence the markets

In December, the US Federal Reserve increased interest rates to 0.75%, the second increase in a decade since the 2008 global financial meltdown. The Fed’s interest rate is essentially the “mother of all interest rates” for central banks, meaning higher rates for everyone – for savings accounts, mortgages, and loans.

Traditionally higher rates on loans cut into business profits, cramping gains on Wall St. However, in our case the increase means normalization, as the Fed has grown more confident in the economy since 2008. This means stock prices will start to reflect fundamentals, as opposed to reacting to changes in monetary policy.

However, the Fed has three more interest rate hikes planned for 2018 – so be on the lookout for appropriate feedback in the markets.

 

The Trump effect

Trump Effect to Finance

While he’s a complete wildcard – there are a few things we can confidently expect from the Trump administration. Donald Trump is sympathetic toward investors and business, promising widespread deregulation and lower corporate taxes – meaning more profits for everyone. The markets have only rallied since his inauguration, even hitting record highs (the Dow finally breaking 20,000).

Beside loosening restrictions on industry, Trump has also made four important suggestions for investors to be aware of 2018:

More infrastructure spending. Expanding infrastructure (like highways, rail lines, power stations, etc.) boosts economic growth and creates jobs.

Related stocks:

  • Caterpillar Inc. (CAT) Heavy machinery manufacturer. Up +51.1% since last year.
  • Aecom (ACM). Major design and engineering firm. Up +44.9% since last year.
  • United Rentals Inc. (URI) Equipment rental company. Up +160.4% since last year.

 

More energy independence. In other words, lower-cost oil from sources that were blocked by environmental regulations, like offshore drilling.

Related stocks:

  • McDermott International (MDR). Offshore drilling for oil and gas. Up +228.8% since last year.
  • Williams Partners (WPZ). Natural gas. Up +122.0% since last year.
  • W&T Offshore (WTI). Offshore drilling. Up +78.2% since last year.

 

 

More defense spending. Trump is currently trying to boost defense spending to the tune of billions of dollars. This means more orders for aerospace and defense systems companies.

Related stocks:

  • Boeing (BA). Aerospace, including military aircraft and defense systems. Up +50.0% since last year.
    • General Dynamics Corporation (GD). Aerospace and defense. Up +40.0% since last year.
    • Northrup Grumman Corporation (NOC). Global security. Up +27.7% since last year.

 

Privatization. Trump is a notorious advocate of privatization – taking institutions out of government control and putting them under for-profit management. This could mean privately-managed schools, prisons, healthcare programs, veterans benefits, infrastructure projects, and more.

Since Trump’s campaign, shares of private corrections company CoreCivic (formerly Corrections Corporation of America) have climbed sharply.  Rumors of putting lenders Fannie Mae and Freddie Mac back in private hands sent share prices 45% higher.

Related stocks:

  • Federal National Mortgage Association (FNMA). Government-sponsored enterprise, supports the securitization of mortgages. Up +196.4% since last year.
  • Federal Home Loan Mortgage Corporation (FMCC). Government-sponsored enterprise, supporting the securitization of mortgages. Up +191.2% since last year.
  • CoreCivic (CXW). Private corrections company. Up +13.6% since last year.

 

What to watch for in tech

Investing In Tech

Who doesn’t love tech stocks? Tech stocks are massive growers in investment trades of 2018 too, with established revenue streams in products, services, and advertising – allowing them to experiment with advanced, up-and-coming technologies.

Companies like Apple, Alphabet, Amazon, Facebook, and Microsoft continue to develop technology like AR/VR (augmented reality/virtual reality), assisted and self-driving cars, AI, robotics, and stuff we probably have no clue about.

 

Here are some of the trends critics predict for tech in 2018:

IoT (Internet of things) will blur the line between appliances, handheld devices, and home systems. Smart home tech like Amazon Echo will become more popular and will integrate with more of your other products.

AR/VR tech will become more mainstream. In 2016 we saw the release of Pokemon GO (with over 100 million downloads), allowing anyone with a smartphone to test the AR waters.

Currently companies Alphabet, Facebook, Microsoft, Samsung, HTC, and Sony are all experimenting with VR headsets. Expect to see applications of AR/VR expand to gaming, shopping, job training, and social media.

 

Self-/assisted-driving cars will continue to advance, despite technological and legal hurdles.

Related stocks:

  • Apple Inc. (AAPL). Mobile and media devices, and related software. Up +41.3 since last year.
  • Amazon Inc. (AMZN). Retail and web services. Up +58.0% since last year.
  • Alphabet Inc. (GOOGL). Internet products, hardware, and advertising. Up +17.2% since last year.
  • Facebook Inc. (FB). Social media and advertising. Up +27.0% since last year.
  • Microsoft Corporation (MSFT). Hardware and software services. Up +24.7% since last year.

 

Automation of jobs in 2018

Let’s see, what are the investment trends of 2018 in automation. It currently powers 10% of manufacturing – and is expected to grow, displacing factory, agriculture, and low-skilled service jobs. It’s crucial to keep in mind in investment trends of 2018.

While repetitive manual and cognitive tasks are the first to be replaced, now increasingly complex roles are being tackled by robots. Automation may soon expand to more nuanced roles, like administrative jobs and diagnosing tumors.

Related stocks:

  • Yaskawa Electric Corporation (YASKY). Industrial automation. Up 64.8% since last year.
    • Cognex Corporation (CGNX). Machine vision products. Up +108.1% since last year.
    • Rockwell Automation. (ROK) Industrial automation. Up +49.5% since last year.

 

Investment trends of 2018: Mobile trading apps gain momentum

Mobile Trading Apps Gain popularity

In 2016 mobile usage has overtook computers for email, social media, and shopping. As phones become more secure and usable, mobile trading has taken off. Broker TDAmeritrade now reports over 20% of its trades happen on mobile devices.

Trading no longer requires a large deposit, expensive commissions, education, or risky active management. Mobile trading apps not only allow you to check up on your portfolio from anywhere, but are also automating portfolios, cutting commissions, and making investing more frictionless. Trading apps are more popular for younger traders (the average user’s age is 26).

Each new trading app has its own unique angle, check these out for low-stress portfolio management, on-the-go trading, or set-and-forget investing.

  • Robinhood (free trades)
  • Openfolio (share and compare your performance to friends)
  • Acorns (rounds up purchases and automatically invests the change)
  • Wealthsimple (automatic balancing, no minimum)

But what do I suggest?

My suggestions are those two. You can read my full review about those here.

  • Wealthfront (free up to $10,000, personalized diversification)
  • Betterment (minimum of $1, automated portfolio, claims to outperform 88% of advisor-managed portfolios)

 

Foreign markets in 2018

Thanks to the Fed’s interest rate hike, the US dollar (USD) is strong. However, trade with emerging markets may stagnate as Trump has suggested a higher import tariff on goods produced overseas. This could also mean less returns and investors balking from emerging markets.

After Brexit, the British Pound (GBP) fell sharply and is still weak. Because London is Europe’s largest stock exchange, Brexit may take a toll on trading. The future is uncertain as institutions navigate the new situation.

In 2016 China devalued the renminbi (RMB), in order to keep its country competitive amidst fears of a slowing economy. The Chinese economy is only second to the US in GDP (although its been expected to overtake the US for years), and as the world’s largest manufacturer, it has a huge impact on the global economy.

Because the Chinese market may be in a slowdown or deflation in 2018, it would be best to keep an eye on any holdings, or be prepared to buy more as prices drop.

 

Real estate trends in 2018

Real Estate Investment trends of 2017

In 2017-2018, US home sales are expected to increase, prices rising by an average 5.3% (according to Redfin). The Fed’s interest rate hike means mortgage rates will increase, getting indecisive buyers off the fence. In addition, Millennials are starting to enter the housing market, causing prices in large cities to increase (as well as spilling over into mid-size cities and inland states – where homes are cheaper). It plays an important role on investment trends of 2018.

In Europe, yields are down, real estate markets going into a slump following Brexit. This means investors may have to take on more risk for more yield.

Real estate in Asian markets continues to develop, especially in markets like Vietnam and the Philippines. Slowdown in China and strengthening of USD may impact investor’s returns, however.

 

Related REITs:

Vanguard REIT Index Fund (VNQ). Up +11.1% since last year.

Dow Jones Asia/Pacific Select Index REIT (DWAPRT). Up +4.8% since last year.

Dow Jones Europe Select Index REIT (DWEURT). Down -11.5% since last year.

My investment suggestions

As someone who practices buy-and-hold philosophy of investing, I am long all the trends mentioned in this article. My favorite way to trade new trends is using ETFs, which offer the benefits of stock with more diversification and lower risk. ETFs usually beat the market, or what the average investor can do actively managing a portfolio.

The ETF market is growing, with a market cap of over $2.6 trillion. Currently there are over 1,900 funds on the market, 200 being added in the last year alone. To stay competitive, many ETFs in 2016 cut fees, and are expected to do the same in 2018.

My favorite way to play new trends is “thematic ETFs”, however I also hold large growth ETFs.

 

Thematic ETFs:

  • First Trust Cloud Computing ETF (SKYY). Cloud computing stocks. Up +40.2% since last year.
  • Robotics and Automation Index ETF (ROBO). Robotics and automation stocks. Up +42.0% since last year.
  • S&P Semiconductors ETF (XSD). Semiconductor stocks. Up +52.7% since last year.

 

Growth ETFs:

  • PowerShares QQQ Trust ETF (QQQ). Growth stocks. Up +27.7% since last year.
  • Vanguard Growth ETF (VUG). Large US growth stocks. Up +21.8% since last year.
  • Vanguard Total Stock Market ETF (VTI). Represents 99.5% of US market cap common stock. Up +24.7% since last year.

 

Conclusion

2018 shows potential to be an interesting (yet profitable) year for investors. Of course, any time the outlook is too good calls for a healthy dose of skepticism. While the market has rallied and even set all-time records in 2018, it will pay to keep a pulse on current events as the year unfolds.

If you’re ready to start investing, then sign up for Betterment here.

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How Rising Interest Rates Could Impact Your Finances in 2018

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How Rising Interest Rates Could Impact Your Finances in 2018

As expected, the Federal Reserve hiked the short-term interest rate by one quarter of point at its March 2017 meeting. It marked the second time the rate was increased since December 2015 and it was only the third increase in a decade. Because the economy appears to be picking up some steam, the Fed is anticipating at least two more rate increases in 2018.

Small incremental increases in the short-term rate don’t necessarily have a direct impact on consumers. However, long-term rates have also been increasing due to a stronger economy and the prospect of higher inflation. Those are the rates tied to mortgages, loans and savings accounts that do affect your pocketbook.

 

What’s Behind Rising Interest Rates?

Near the end of 2016, the economy finally exhibited some long-awaited signs of strength. Before the election, long-term bond yields began to rise for the first time in awhile. Because mortgage rates are directly linked to long-term bond rates, they also jumped. Since the election the stock market has soared to record highs, which has driven bond yields even higher. The stock and bond markets are reacting to the optimism for a growing economy and the prospect of higher inflation that tends to accompany it. If the current trend continues, consumers can expect higher interest rates to impact their personal finances in the coming years.

 

Mortgage Rates Going Higher

In late 2016, mortgage rates, which had been hovering near historic lows, saw their first significant increase in several years. The average 30-year rate jumped from 3.4% just before the November elections, to a tick above 4%. Mortgage rates are linked to the Treasury bond rate, which began to rise at the first signs of a strengthening economy. A better than expected jobs report for February 2017 pushed the long-term rate up higher.

Mortgage rate trends
Last 1 year

Morgage rate trends – last yearIf you already hold a fixed-rate mortgage, you won’t be affected by rising rates unless you have plans to refinance your loan. Now would be the time to refinance as there is no telling how much higher rates will increase. If you hold an adjustable-rate mortgage, you can expect your interest costs to increase, so now would be a good time to lock in a lower rate. For new homebuyers, mortgage rates are rising, but they are still attractive compared to a decade ago when they were near 7%.

 

Consumer Debt Will Be More Costly

If you hold any type of debt with a variable rate, you can expect your interest costs to creep up from now on. Most consumer loans with variable rates adjust once a year, while credit cards with variable APRs can adjust at any time.

Now would be the time to pay down your higher interest credit card debt or look for opportunities to transfer your balance to a 0% interest credit card for twelve months or longer and pay down the debt more quickly. Personal loans from a bank or credit union are typically issued with fixed rates for the term of the loan, so an increase in interest rates will not impact them. If you are uncertain how your consumer loan or credit card will be impacted by rising rates, you should contact your creditor to find out.

 

Savings Deposits Will Gain Traction

The good news is that savers will finally see an increase in their savings rate. The bad news is savings rates aren’t expected to rise very quickly or very far, at least for a while. Generally, rates on savings deposits tend to lag behind the increases on long-term rates.

Right now, banks are sitting on huge piles of cash, so they don’t feel the need to raise deposit rates to attract new money. The rates on money market accounts and CDs with longer maturities may rise a little faster than savings accounts.

 

Long-Term Investments Should Be Diversified

Rising interest rates have a direct impact on bonds. When the yields on bonds increase, their value decreases. However, bonds held to maturity are still redeemed for full value. If you plan on selling a bond in this environment, you are likely to receive less than its value today.

Long term finance decisions should be diversified

If you own a bond mutual fund, you are likely to see a decrease in share value, but, as the fund adds newer, higher yielding bonds, you should also see an increase in the fund’s yield. Risk adverse bond investors should consider rolling a portion of their portfolio into short-term bonds or short-term bond funds, which aren’t as sensitive to interest rate changes.

 

Equity investments, such as stocks, stock exchange-traded funds and stock mutual funds, can be a little trickier. Generally, higher interest rates and inflation can have an adverse effect on some stocks. Higher interest rates increase the cost of borrowing for companies which can limit their growth. Higher inflation can also increase costs for companies, which can eat into profits.

However, during a period of economic expansion, which is driven by higher corporate earnings, stocks should perform well. It is when the economy starts to overheat that higher interest rates and inflation can spike, causing stock prices to fall.

Regardless of the interest rate environment, the key to sound, long-term investing is to make sure your portfolio is well-diversified with a range of different assets. Stocks tend to perform well when bonds aren’t and vice versa, so it is recommended that your portfolio be balanced with a mix of both.

 

Time to Recalibrate Your Personal Finances

Increasing interest rates are a normal part of the economic cycle. Borrowers have benefited greatly, but people who rely upon yields for their savings or income have struggled. As it does with some regularity, the economic cycle is shifting to where it will begin to favor savers over borrowers. Although you are not likely to see the kind of spike in rates experienced in the 1970s and 1980s, it would be important for you to assess your current financial situation to determine how it will be affected by rising interest rates.

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How to Choose the Best Type of Bank Account for Your Money?

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There are different types of bank accounts with each serving different purpose. Different type of accounts offer different facilities such as quick withdrawal of money, daily limit of withdrawal, higher interest rate compared to other accounts and so on. Selecting a bank account may appear easy, but it is not. A wrong account could mean more expenses and wastage of time.

Few guidelines can help you take the right decision in selecting the bank account that serves the purpose best.

  1. Account that suits your needs

Choose Your Bank account types
Bank Account Types

Usually, two most common types of bank accounts are Current account and Savings account.

  • Saving Bank Account – A perfect account for short-term saving, this account offers flexible deposit and withdrawal conditions. For such accounts, banks keep a limit on the number of withdrawals that can be made in a specified period. The rate of interest offered on a saving account is nominal, and an individual can keep the track of all the transactions in Passbook.

 

If you are looking for the flexibility of payment and withdrawal and do not care much about the interest rate, then saving account is perfect for you.

  • Current Account – All sorts of businesses, who need liquid fund more frequently, go for the current account. There is only minimum restriction on the withdrawal limit. An individual should only opt for this account if the need to withdraw and deposit the money occurs more than once a day. The holder is allowed to deposit all types of cheques and drafts.
  • Packaged Accounts –It is a current account that offers extra services, and charge fees for the same. Extra features offered may include insurance cover, preferential rates on overdrafts and so on.

There are also other types of accounts such as student account. Though not all banks offer every type of account, Saving and Current account are the most commonly used. An individual should decide how frequently he/she needs to withdraw or deposit the funds. Usually salaried professionals go for saving bank account and the businessman prefer current account. Since the packaged accounts come at a cost, therefore, it becomes necessary to identify the monthly payment needs and cash withdrawn every month.

An individual usually has the following monthly transactions:

  • Debit Card purchases
  • Transferring money
  • Cash withdrawals
  • Pre-authorized transfers done in the saving accounts

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If an individual makes only a few transactions monthly, then paying for the packaged account is not a good idea.

 

  1. Comparison of Features and Fees

 

Always look for terms when choosing bank account
Always look for terms
  • Fee and Overdraft Costs – Fees charged for different accounts vary from bank to bank. Usually, the fee is higher, if an individual regularly withdraws more than the balance in his/her account. Overdraft facility and the fee charged is another important criterion. A bank that charges a lower fee for the overdraft should be selected.
  • Interest Rates – There are banks that pay interest rate on the credit balance. If you have a precise budget every month, and do not spend more than a set limit, then go for the accounts on which banks pay on credit balance. Such account is suitable for someone whose pay is high, but expenses in relation to the pay are low.

However, those with low salary or pay per month should not be concerned about the interest on the credit balance. Instead, they should focus on getting overdraft facility with low interest and fees.

  • Incentives – Banks usually offer incentives to the prospective customers for opening an account. Make sure that these incentives are not subjected to multiple terms and conditions. Clarify it with the banks if there are terms and conditions attached with the account opening incentives.

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If you are paying an extra fee for the services that are hardly used, then it is time to reconsider the services offered by the banks.

  1. Advance Technology – Often, offers such as cash incentives and payback points catch our attention, and we forget to assess how advance is a bank in terms of technology. In the long run, banks that adapt the technological transformation and give their customers ease of banking should be chosen. Almost, all the banks have mobile apps that offer various services such as fund transfer facility, bill payment and so on. However, the user interface of all the banks is not equally advance, and therefore, the one with more up to date technology should be chosen to open the account.
  2. Take help of comparing sites- There are a number of sites, where different banks and their services can be compared. Before opening a bank account with a particular bank, it is wise to compare the facilities offered by them on different accounts. This should be done in line with the first point (discussed above) where an individual should first decide the type of account that he/she is seeking. Features such as withdrawal limit, interest rate, incentive and ease of mobile banking should be compared.

 

Do not compare different services offered by the banks on just one website. There are a number of websites for comparison, and each has different criteria (though broadly same) for comparison. While some will thrust more on the fees offered by different banks, others will give more importance to the ease of transaction. Therefore, after setting your criteria, compare the services offered by different banks. A bank with more number of branches and ATM booths should be preferred.

Switching bank account
When Switching bank account look for bonuses
  1. Switching Bank– In case, you are not happy with the services offered by the bank, you may consider another bank, or other account. A yearly review should be done to make sure, if your bank is offering all the latest facilities as offered by other banks. For instance, if you have shifted to a new home and address has been changed, some banks can do it online for you. They will ask you few details to verify the identity, and in turn, update the new address.

 However, there are banks who want the customer to go through a lengthy process of filling a written application. Similarly, if you want to change the type of account within the same bank, different banks follow different procedure. If there are a lot of conditions and string of procedures for every small change, then it is high time to change the bank.

  1. Go through the ‘Fine Print’ – Before opening any type of account, go through the instructions, terms and conditions that come along with it. For instance, certain types of account restrict the number of debit card payments that can be done, or the number of cheques that one can write. Additionally, there might be certain policies regarding the fund availability and so on.

Those who are in frequent need of funds should not opt for the accounts with certain restrictions on withdrawal facility. However, if you have already opened one, say a saving account, and now, want to convert it into the current account then most of the banks provide this facility. Thereafter, the account will be subjected to new terms and conditions.

 

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  1. Free Services – Usually, banks offer various free services to the customers who comply with certain conditions. For instance, if a customer is depositing the pay check directly in the account, then banks offer certain free services. Similarly, customers who go for direct deposits are taken as loyal customers of the bank and hence, showered with freebies. Few banks ask customers to maintain a minimum balance in the account, which earns them certain credits. While opening an account, individual should know the different type of free services offered by the bank, and then open an account accordingly.
  2. Check Bounce – Usually, the penalty charged is very high when the cheque is bounced. Being alert and making sure that there is enough cash balance in the account is the right thing to do (to err is human). If you are writing a large number of cheques, then get to know your bank policy for setting up an overdraft line of credit that can cover in case the money falls short.

 

Bottom line

By now, you should have decided the type of account and the bank. But, you are not finished yet. Before opening an account, do clarify these points:

  • Make sure, the amount of monthly fee is fixed
  • How much the bank will charge you for services that you are using
  • Is your bank charging you certain amount of fee only for some specific type of transactions such as the one made at a teller
  • What is the monthly transaction limit and how much the bank is charging if transaction is done above that limit
  • Fees for overdraft facility charged by the bank.
  • Is your bank offering any type of discount

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