Buy and hold strategy to disappoint over coming decade – RMG
RMG Wealth Management chief investment officer Stewart Richardson has said that he believes investors will see poor returns if they follow a buy and hold strategy over the next 7-10 years.
Global equities will do better than bonds over the period, but will still leave investors disappointed, given the starting point of zero interest rates that are currently in place in a number of markets.
In the short term there is another danger, Richardson said. While equity markets have trended upward since June this year, this is not because investors no longer fear the end of quantitative easing, or because they believe the economy in the US in particular is strong enough to support growth in line with expectations. Instead it is simply because of speculation based on central bank policies.
The danger is that the idea that there is no alternative to equities currently proves less sustainable in the coming quarter. This is especially the case when looking at developed market indices, such as the S&P 500.
Emerging markets have been performing badly compared to developed markets recently, but Richardson does not feel that the macro environment supports any improvement for emerging markets in the short term.
“So, the technical message for the US (and European markets) is that the big picture trend is up, although the market is certainly overbought on a couple of simple measures,” Richardson said.
“The shorter term view also shows the market being overbought, and although not shown here, there are a number of divergences in place and bullish sentiment is showing too much complacency just as always happens near intermediate highs. It is too difficult to stand in the way of this runaway bull even though it looks overbought, over-bullish and over-owned and we cannot rule out August being another positive month now that the Fed is out of the way. At the same time, being fully committed to a market like this has in the past often proven to be disappointing in the short-term, and we fully believe that a great deal of caution needs to be exercised.”
Richardson also cautioned that any market developments over the next couple of months take place in context of a key meeting of the US Federal Reserve in mid-September, just before the German elections.