Best investments for 2020: what are your options?
Good investments for 2020 aren’t necessarily as hard to come by as you may think. Let’s take a look at some of the top performers so far this year
What are the best investments for 2020? That’s a very good question – and one with no clear answer.
A lot of this depends on your appetite for risk, and where you are in your investing career. Whereas it’s a smart move for someone in their 20s to have a higher exposure to stocks, this isn’t going to be the best approach for a person who is nearing retirement.
The classic rule of thumb when determining what your exposure to stocks should be is to subtract your age from the number 100. James is 27, meaning that 73 per cent of his assets should be in equities. However, his 62-year-old father Gregory should only have 38 per cent stocks in his portfolio – relying on bonds and low-risk assets for the rest.
Bearing all of this in mind, let’s take a look at some good investments for 2020 that have managed to shine despite all of the uncertainty surrounding the coronavirus.
Best investments in 2020 so far
Surprisingly, one of the best-performing assets so far this year has been Bitcoin. Since the year began, Bitcoin has risen by 27 per cent – and it’s bounced back 120 per cent from its low point of $4,106 back in March. The world’s biggest cryptocurrency has managed to outpace precious metals such as gold, government bonds, and the stock market.
The question now is whether or not Bitcoin will be able to keep this momentum going. Getting a balanced view of where the crypto markets are heading can be notoriously difficult. Some cynics warn that BTC is going to plummet imminently – and may even return to zero – while others insist that it could hit six figures in a few short months.
Despite the healthy gains clocked so far this year, BTC is facing an uphill struggle as it tries to break into five figures. Repeated attempts to exceed $10,500 have failed. Analysts at Bloomberg have compared Bitcoin to a “caged bull” that’s ready to surge to $13,000 in a heartbeat, but crypto traders such as Tone Vays have predicted that BTC may remain between the $6,000 and $10,000 range for the rest of this year.
The challenge that Bitcoin is facing right now lies in how it has a concerningly close correlation with the S&P 500. Any further falls in this index will likely hit Bitcoin hard. Bloomberg analysts have previously stated that they believe BTC has the potential to return to all-time highs of $20,000 by the end of the year – but as things stand now, we might face some further turbulence before a parabolic bull run commences.
If cryptocurrencies aren’t your thing, don’t worry. Some of the best investments in 2020 can be found in the stock market – especially for value investors who make their decisions based on whether or not a share price is a fair reflection of the company’s potential. Mass sell-offs recently have meant that many firms have been disproportionately affected by the panic, and once things start to recover, there can be compelling opportunities for outsized gains.
Morningstar executive Dan Kemp recently told the FT that he believes value investors have the best chance in 20 years to handpick some attractively priced stocks. He told them:
“Traditional value investing is putting your money where something looks immediately underpriced. When you look at the UK market, it is priced very attractively compared to other equity markets.”
Good investments for 2020
If cryptocurrencies aren’t your thing, don’t worry. Some of the best investments in 2020 can be found in the stock market – especially for value investors who make their decisions based on whether or not a share price is a fair reflection of the company’s potential. Mass sell-offs recently have meant that many firms have been disproportionately affected by the panic, and once things start to recover, there can be compelling opportunities for outsized gains.
Morningstar executive Dan Kemp recently told the FT that he believes value investors have the best chance in 20 years to handpick some attractively priced stocks. He told them: “Traditional value investing is putting your money where something looks immediately underpriced. When you look at the UK market, it is priced very attractively compared to other equity markets.”
What is your sentiment on PYPL?
If you’re uncertain about how to find the best investments in the stock market, exchange-traded funds are showing a lot of promise right now. ETFs allow you to gain exposure to a diverse range of equities without owning them directly – and these funds also make it easy to dip in and out at your own will.
One big trend that we’re seeing right now is an uptick in demand for ETFs that focus on some of the sectors hardest hit by the Covid-19 pandemic. Airlines are experiencing a surge in interest after share prices fell by two thirds in some cases. It seems investors are increasingly confident that the worst is over for aviation and things are going to bounce back. Alas, this can be comparable to catching a falling knife, and there might be further pain before we see a meaningful recovery.
For the ultra-cautious, some of the best investments in the stock market lie in the companies that we continue to rely on through thick and thin – pandemic or no pandemic. We’re still going on Facebook, ordering items off Amazon, shopping at Walmart and Tesco, and paying our electricity bills. Companies that have a strong track record of continuing to deliver demand are less likely to suffer a long-lasting, meaningful impact on their valuations.
Hedge fund favourites
Although it doesn’t always make sense to follow the crowd, it is worth keeping a close eye on what hedge funds and mutual funds are up to. Collectively, these organisations have assets under management worth trillions of dollars – and the stocks they favour can offer a valuable insight into the best companies to watch.
Goldman Sachs research recently found that there are 13 companies that are so-called “shared favourites” of these funds, meaning they frequently appear in portfolios. They include Adobe (impressive year-to-date returns of 25.4 per cent) and PayPal (up a remarkable 51.8 per cent since January). A word of caution: not every top pick ends up delivering a blockbuster performance. Citigroup is a prime example of this, and its stock has fallen by 37.7 per cent over the past six months or so.
Analysts at Goldman also favour the Sharpe ratio for uncovering the stocks with the most promise. This weighs up the returns delivered by shares against their risk – and it appears to be a metric that works. Over the past 20 years or so, the 50 stocks with the highest Sharpe ratio in the S&P 500 outperformed the wider index 66 per cent of the time. Not bad.
Some of the better-known names with a high Sharpe ratio include Citigroup (funnily enough), the health insurance company Cigna, and the telecoms company Verizon.
Diversify, diversify, diversify
In times like these, spreading your wealth across a range of asset classes that move independently of one another can be a smart move. Many investment analysts also recommend devoting a small proportion of a portfolio to Bitcoin, as exposure of just 1 to 2 per cent could result in healthy gains should the cryptocurrency embark on a parabolic bull run as frequently predicted.
Ultimately though, it’s important to have the stomach for some serious volatility in the months ahead. The US is still grappling with new coronavirus cases, and other countries could see a second wave of infections. This could spark another bout of panic on Wall Street and in the City of London, just like we saw in March.
FURTHER READING: Stock market forecast for the next five years
FURTHER READING: Best ETFs for 2020: the top performers
