The world’s economy is growing. The World Bank suggests that in 1960, the global Gross Domestic Product or GDP – which represents the total value of all goods and services produced in that period – a great indicator of global growth – was at US$1.367 trillion. In 2015, that figure had risen to US$74.292 trillion. That’s a cumulative rise of more than 5000% in 55 years.
What does this tell us about global growth?
Well, in a nutshell, countries, and the businesses within them, have become more productive. Coupled with that, rising populations that are wealthier too – meaning that businesses and consumers can afford to buy more products and services than ever before. Supply and demand if you will.
Of course, this stellar rise in GDP over the last half century or so doesn’t take into consideration a vital component – inflation.
Now, inflation is described on Wikepedia as “a sustained increase in the general price level of goods and services in an economy over a period of time” – which basically means everything we purchase now costs a lot more than it did back in the 1960’s. To give you a benchmark, US inflation was up by more than 700% between 1960 and 2015, meaning that $100 in 1960 would be worth $807.25 in 2015.
So, now we know that inflation has historically been a contributing factor towards the increase in global growth. We also know it isn’t the most important one, either. And this takes me back nicely to my original point. Supply and demand drives GDP.
How has this affected the World’s major stock markets?
Interestingly, over each decade since the 1930’s, the Standard & Poor’s 500, which has historically been the home of the largest US businesses, has returned an average growth rate of more than 7% despite individual years of under-performance, as you’ll see from the chart below which covers the 1950-2015 period.
Source: www.macrotrends.net
Despite the political turbulence over the last two years, the major stock markets are currently sitting at record levels.
Now, many experts are predicting that these levels are unsustainable for much longer and that equities are, generally, overvalued. This may well be the case – although it’s worth noting that no analyst on earth can accurately predict when a stock market crash will happen, despite what they may say.
There are strategies you can choose to prepare for this eventuality – but that’s beyond the scope of this article. We’ll return to that theme another day.
What I’d like you take away from reading this is the fact that after each downturn comes an upturn. Patience and a long term view are key for successful investors.
I’ll leave you with this quote from investment guru, Warren Buffett, who suggests “The economy, as measured by Gross Domestic Product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent.”
What does this mean for investors?
A diversified, globally adjusted portfolio will ensure that investors wealth is linked to this growth in global GDP. Savings accounts, Cash or assets such as Bonds and Commodities have their place in any Investors arsenal, but it’s stocks and shares that will provide real growth in a bull market.
Five simple Investment ideas
If you’re looking for some simple investment ideas on how you can benefit from global growth, here’s five suggestions for you to consider:
#1 Fundsmith Equity
This Fund is managed by experienced fund manager Terry Smith. The Fundsmith Equity is focused on good-quality businesses which he believes will deliver strong cash flows into the future, regardless of the economic background. This approach has tended to result in a bias towards companies with a strong brand or franchise, and those which own significant intellectual property, such as patents, trademarks and copyrights.
Discrete calendar year performance
| 07/06/12 – 07/06/13 | 07/06/13 – 07/06/14 | 07/06/14 – 07/06/15 | 07/06/15 – 07/06/16 | 07/06/16 – 07/06/17 |
| 27.25% | 10.17% | 23.41% | 20.07% | 36.56% |
Cumulative performance
| 3 months | 6 months | 1 year | 3 years | 5 years |
| 6.69% | 22.68% | 36.56% | 102.35% | 183.67% |
You can find out more about the Fundsmith Equity fund through our partner, Hargreaves Lansdown.
#2 Royal London Sustainable Fund
The Royal London Sustainable Fund invests in companies that operate in a responsible way and provide services that tackle global issues like climate change, world health and population growth. These issues are providing new and exciting investment opportunities. Fund Manager Michael Fox believes companies who address these issues are better placed to generate good long term performance.
Discrete calendar year performance
| 07/06/12 – 07/06/13 | 07/06/13 – 07/06/14 | 07/06/14 – 07/06/15 | 07/06/15 – 07/06/16 | 07/06/16 – 07/06/17 |
| 24.29% | 11.91% | 14.22% | 4.38% | 28.51% |
Cumulative performance
| 3 months | 6 months | 1 year | 3 years | 5 years |
| 4.84% | 17.05% | 28.51% | 53.22% | 113.11% |
You can find out more about the Royal London Sustainable Fund through our partner, Hargreaves Lansdown.
#3 Scottish Mortgage Investment Trust
The Scottish Mortgage Investment Trust is a FTSE100 listed company. The Investment Trust’s takes positions in global firms that Fund Manager, James Anderson believes are at the cutting edge of new technologies and business ideas.
Cumulative performance
| 3 months | 6 months | 1 year | 3 years | 5 years |
| 14.53% | 30.09% | 55.21% | 99.75% | 208.3% |
You can find out more about the Scottish Mortgage Investment Trust through our partner, Hargreaves Lansdown.
#4 Legal & General International Index Trust
This is an index tracking fund, or passive fund, that replicates the performance of the FTSE World excluding UK index. The fund invests in several thousand companies from developed countries around the world, excluding the UK where predefined rules dictate the investments included and their proportion within the fund.
Discrete calendar year performance
| 07/06/12 – 07/06/13 | 07/06/13 – 07/06/14 | 07/06/14 – 07/06/15 | 07/06/15 – 07/06/16 | 07/06/16 – 07/06/17 |
| n/a | n/a | 14.03% | 2.96% | 32.2% |
You can find out more about the Legal and General International Index Trust through our partner, Hargreaves Lansdown.
#5 CopyFunds AllStocks
The social trading platform from eToro provides an AllStocks Copyfund which enables investors to gain exposure to a global-wide index through the world’s leading Indices using Contracts for Difference. The AllStocks fund includes the Dow Jones, Standard & Poors 500, Nasdaq 100, Nikkei 225, FTSE100, CAC 40, DAX 30, ASX 200, IBEX 35 and the EUROSTOXX 50,
Discrete calendar year performance
| 2017 | 2016 | 2015 | 2014 |
| 7.7% | 11.66% | 0.47% | 4.45% |
You can find out more about the AllStocks CopyFund through our partner, eToro.
