So what’s in the pipeline for 2024? Will it be a good year or a bad year for stock markets – and should you invest or avoid stocks this coming year?

2023 defied all the odds – markets were expecting a recession. And it never came. Rate cuts never materialized – in fact most countries saw a further interest rate increase. And the JSE increased a slight 0.55% year to date – instead of crashing.

The answer for stocks might start with bonds

It might sound odd, but the fortune of the stock market in 2024 is closely tied with bond rates, and interest rates set by central banks…

You see, if interest rates fall (or bond rates fall) investors get a lower return on the cash they invested in these income generating assets.

And that means they’re more likely to invest in riskier investments in search of higher returns.

According to JP Morgan inflation will settle in 2024 – and that’ll mean lower bond yields and lower interest rates.

At this stage its difficult to say when, but rates will probably come down around mid-2024.

The US 10-year bond yield has already dropped from a high of 4.9% in October 2023, to 3.9% today.

At 5% US investors eagerly bought bonds for their yields… But below 4% stocks start looking a lot more attractive.

The JSE All-Share index for instance has an average dividend yield of 4.16%, and 98 stocks on the JSE currently have dividend yields exceeding 5%.

Every year is a good time to invest in stocks!

If this doesn’t sound like a reason to invest – here’s a fact: Every year is a good time to invest!

The JSE is up 43% in the past three years.

It has grown investors’ money 73% in the past 5 years. And returns including dividends over the past ten years is more than 135%.

These figures tell you one thing. Despite a tough local economy – shareholders still made money in 3, 5 and 10 year periods on the JSE…

If stock values fall in 2024, it’ll be a good time to scoop up shares of quality businesses at a discount. And if stock values remain high, that’s not a bad thing, either, because if you hold your investments for many years, there’s a good chance they’ll gain value over time.

That said, if you’re going to invest in 2024, or at any other point, for that matter, you’ll need to take the right approach. That means planning to hold onto your stocks for many years.

Over the past 50 years, the stock market’s average return has been 10%, as measured by the S&P 500. This doesn’t mean that every year over the past five decades has been a stellar one for the market. Rather, it means that over time, the market has delivered a fairly impressive return accounting for both strong years and weak ones.

The fact of the matter is that if you aren’t invested in the market you lose out ALL of the potential gains that it makes.

Diversify – but make sure to shift your portfolio in 2024

You should diversify. Not all your cash should be in any single investment class.

But while I preferred fixed income in 2023, I believe that stocks will offer better returns in 2024.

You should lower your exposure to cash, money markets and bonds in 2024, and invest more in high returning stocks, companies with low debt levels, and solid growth.

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