What should investors expect going into 2018? It's a fun question that we ask every year to some of the best names in the industry. It's always interesting to hear what their responses are - even if you're a long term buy and hold investor.
This year, there were definitely some big trends that we had to ask about.
To get an idea, we reached out to five different financial experts.
Their responses provided insight into five different areas:
With our experts lined up, let’s dig into the details.
Tax Reform And Investing
The “Tax Cuts and Jobs Act,” also known as tax reform, was signed into law on Dec. 22, 2017. As it relates to investors, there are a couple of changes.
Investment expenses, which were claimed on Schedule A, have been repealed. Tax rates have been lowered.
What should investors’ strategy be for 2018? Roger Young, a senior financial planner at T. Rowe Price, says, “The U.S. tax reform measure could have wide-reaching effects on financial planning decisions for millions of Americans in 2018.
We believe that a strategy based on fundamental planning principles offers the best path to success for investors as they respond to these changes. Investors could take the opportunity to increase savings rates (including college savings), reevaluate whether Roth or pretax savings are preferable, and rebalance portfolios.
Even in times of uncertainty, a disciplined saving and investing approach along with investment and tax diversification can help investors achieve their financial goals.”
As for the general direction of the stock market in 2018, we reached out to Jurrien Timmer of Fidelity, who had this to say on the 2018 investing story, “Will the stock market’s bull run end anytime soon? I don’t think so.
Usually it’s the Fed that kills the economic expansion and, therefore, the bull market. They have historically done this by tightening so much that the yield curve inverts and the availability of credit becomes scarce. We are still a ways away from that.”
Jurrien continued, “Having said that, I expect the Fed to tighten more and faster than the market is currently pricing in, which could send real rates higher and tighten financial conditions. That suggests that stock prices will rise at a slower and more volatile pace than in 2017.”
Real Estate Investing In 2018
Technology shifts are transforming commercial real estate, a market where about $460 billion change hands annually, into one of 2018’s most attractive asset classes for investors.
There’s a lot to consider with the new tax reform when it comes to investing in real estate.
Ed Forst, CEO of RealtyShares, had this to say about tax reform’s impact on real estate investing, “The new tax code revisions approved in December hold several positive implications for commercial real estate investing, the most significant of which is a 20 percent deduction on income received through pass-through entities.
These vehicles are commonly used within real estate marketplace platforms and the industry broadly. The law also adds myriad other advantages, including an increased ability to offset income through a shorter depreciation schedule and lower REIT taxes.”
It isn’t just tax reform that is impacting real estate. Technology continues to involve. Investors who leverage will likely gain an edge.
Forst says, “Technology is also increasing access to and efficiency within middle market investing, a sector that is heavily transacted but rife with inefficiency.
This segment, characterized by gross asset values of $50 million or less, has proven to be fragmented and opaque; yet 80 percent of all commercial transactions occur in this middle market sector and there is little capital competition.
Real estate technology firms are streamlining the capital formation process between real estate operators and their investors by developing a comprehensive suite of tools that include dashboards, machine learning and predictive modeling to augment the human element of real estate sourcing, underwriting and investing.
By leveraging proprietary data and engineering efforts, these firms can provide accessibility, transparency and potentially investment alpha through high-quality deal flow to their clients.
The coalescence of shifting regulation, data science and the general maturation of these real estate investment platforms makes commercial real estate investments through these platforms an attractive option for investors looking to take profits from their public equity portfolios and diversify into private real estate in 2018."
Debt And Peer To Peer Lending
Many millennials are still struggling to move ahead in the current economy. Smart strategies with debt can help keep them from following behind.
Alia Dudum of Lending Club sheds some light on current economic conditions with a couple of solutions for managing debt and investments, "Our generation has a completely different relationship with money than our parents or grandparents did.
The struggle is real: a tough job market, stagnant incomes, and skyrocketing costs of housing, healthcare and education. And traditional savings vehicles don't pay what they used to. If you're one of the millions of Americans using credit cards as high interest revolving loans, change it to a personal loan with a fixed rate and an end date, and then pay off that debt!
On the other hand, if you have at least $1,000 to invest, consider investing in other people’s debt...which isn't going away anytime soon... While the historic rate of return of 4 to 6% may not compete with recent bitcoin peaks, it's a lot less volatile and you're helping your peers dig out of debt at the same time. Win-win."
What To Expect From Cryptocurrencies
Cryptocurrencies seem to constantly still the headlines. From wild thousand dollar a day swings in Bitcoin to the latest Cryptocurrency purchasing method by a venture capital funded company.
To get an idea of what to expect from the most popular cryptocurrency - Bitcoin, and get an idea of what to expect from the cryptocurrency space, we reached out to Brett Romero, a financial advisor at SAS Capital Investment Advisory Group, who had this to say, “Will Bitcoin be good a investment?
Bitcoin is at best a speculative trade. The volatility seen in 2017 will likely continue in 2018. Bitcoin mainly for those how have the wherewithal to ride out the large daily swings and won’t be financially harmed by any losses.
As larger investors step in and Bitcoin finds more uses, volatility should decrease.”
In regards to the general cryptocurrency space, Romero continued, “As of January 12, 2018, there are 903 cryptocurrencies and 503 tokens.
Growth in both categories should continue unabated in 2018 as more companies continue trying to ride the ICO craze.
Leaders in both spaces will eventually develop and could cause followers to begin disappearing rapidly and market share consolidates.”
As each year brings it own set of unknown challenges and opportunities for investors, 2018 has one known - tax reform. Its impact on investors is well known at this point.
Away from tax reform, we should expect more rate hikes from the FED, potentially resulting in a slowing economy.
For the cryptocurrency space, expect more of the same in 2018.
Which investing strategies do you favor?