Is Where To Invest Now The Wrong Question?
We are writing this article as a response to the many news items, videos, blogs and podcasts that come out at this time of year, telling people what the next hot investment is and where they should put their hard-earned funds.
Having a sense of direction of the markets and the economy is important, but as we have said on many occasions, it is more important that financial and investment decisions you make are aligned to your objectives and are consistent with your financial plan.
We are not necessarily interested in the next hot thing in the markets. By the time it has made the mainstream news, it is generally too late. This is illustrated by an article put out by a major new stream earlier this year, with the headline that stated, the stock market has hit a record high, does that mean now is a good time to start investing?
This screams investor momentum bias and a fast track to a poor decision. We won’t go into detail on investor psychology here, we will save that for another article. In summary though, in theory the ideal investor would buy low and sell high. Our psychology means we have a need for avoidance of risk and seek assurance of performance before acting. That can mean when prices are falling, when it might be a better time to buy, investors will often feel compelled to sell to get away from that loss. Similarly, and as reinforced in the article heading above, our psychology wants us to make decisions based on fact and therefore we wait until the markets are at a record high before deciding it is a good time to invest. Going against our ingrained patterns can be difficult and that is where professional financial planning and investment advice is so valuable.
Our overview of the global investment market and our projections for international professionals living in Europe, are within the context of the Black Swan theory. That is unexpected events happen, are not predicted in advance and have a material impact. Therefore, embedded in our philosophy, is how one prepares for, and reacts to, such events occurring.
This second half of this article therefore will not tell you where to invest, but will comment on the key impacting factors and how an expat living in the Europe can adapt.
What has happened 2026 so far
The first half of 2026 can be summarised into three points: unexpected events (geopolitical), resilience of markets (US and international), and inflation (hovering).
Unexpected events (Conflict) - We saw the stock markets fall and quickly recover on the US/Israel strike on Iran and commencement of this US- Iran war. This was an unexpected event for investment markets. The impact on global trade has been profound- it seems we all understand the significance of the blockage of the Strait of Hormuz. As this conflict risks regional expansion, and the Israel- Palestine conflict continues, as does the Russia-Ukraine war, beside the enormity of the humanitarian impact, they are changing trade patterns and putting upward inflationary pressure and downward economic growth pressure on most G20 economies. It is also creating heightened stock market volatility.
Market resilience - in response to the initial US attack on Iran, stock markets fell heavily, but much as they did on ‘Liberation day’ in 2025, the the US tariffs were implemented, markets recovered quickly. Despite the many pressures and the increase in volatility, stock markets have been resilient and continued to grow in the first half of 2026. We will talk more about risks within markets, and inevitably, AI, below. It is not just stock markets, the commodities markets have attracted much attention over the last year. Since the US Iran war commencement, we have seen wide swings in the Oil price from around $62 to over $100 per barrel. Gold has stabilised this year but on a rolling 12 months is considerably higher, a reflection of heightened risk.
Inflation - because of the above two factors, the risk of inflation is higher. We saw the European Central Bank (ECB) raise interest rates in June 2026 to 2.4%. That was their first increase since 2023, however it remains within a contained band as EU inflation sits within the 2-3% target (just). Because of this, and the uncertainties of the above issues, the ECB is not set on a clear path. Inflation is currently contained, is higher than many people are used to in recent years (excepting the post-Covid spike), but currently remains a potential rather than an actual threat. For an investor, how one prepares for the risk of inflation can be quite different from preparing for the impact of stock market falls.
What do we see for the rest of this year and into 2027?
For consistency and transparency, no one knows what the future actually holds and if someone tells you they do, they are either deceiving themselves, or you, or both.
The key factors we are considering include listed companies’ earnings reports as we enter the next US reporting season (and especially tech and AI firms), the new US Federal Reserve governor (setting US interest rates), the US mid-term elections in November, economic growth figures in Europe, Asia and rest of the world, the market reactions to the new UK Prime Minister, and how the conflicts we mentioned above progress towards peace (or do not).
One risk factor we have discussed with our clients for some time is the concentration risk on the US stock market. There is an outsized weighting to the largest companies on the US stock market and they are all in the same sectors- tech and AI. The S&P500 is an index containing the largest 500 companies on US stock markets by market capitalisation (the total value of all their shares). Currently the top 9 companies (1.8% of total listed companies on the index) make up around 36.5% of the index value! There has been much excitement about companies with a technology and specifically AI focus. All the top 9 companies operate in these sectors. We are taking a cautious approach to the hype that can carry stock prices high in the short term but that can lead them to crash later. Share prices must reflect actual earnings as well as future potential and a bias to the latter, which happens when prices become inflated can lead to corrections. We are not saying there will be a correction, we are saying that investors should consider how a correction may impact them should there be one.
Depending on specific client circumstances, we believe that global diversification is more important at this point in time, having a portfolio covering many global markets, and types of investments, not just stocks. Many clients will see that reflected in the advice we give them.
The certainty of investment markets is that if prices rise, they will eventually fall, and if they fall, they will recover and rise again.
Markets go up over time but not in a straight line and therefore all investors should be prepared for a market correction at some point. That does not mean selling everything and going to cash. Beyond the short term cash can be very risky as you are not growing your wealth in real terms. It means actively and appropriately managing your investments in line with your tolerance for market volatility and risk (your ability to sleep at night), your capacity for loss (or recovery), your time frame, your objectives, and the path set out in your financial plan.
What are 3 things you can do now that are better than guessing the next hot investment?
Take time to understand your why. Why are you investing? What is important to you, now and in the future? What are your goals? Write these down.
Speak with a professional like the team at Arisaig Wealth Management to align your goals with your actions and your portfolio. we can help you to invest with purpose.
Focus on your objectives and your time lines. What may be risky in a month could be low risk over 10 years. This is where we help clients: to stay aligned to what is most important and to know when to act and when to not. This gives you the luxury of being able to mute some of the daily noise and have peace of mind that you are in control.
