4 Reasons To Invest In Equities in 2016

Why should you invest in equities in 2016? Here are 4 very good reasons to help your investment planning.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m looking at why investors should be investing in equities in 2016 and beyond. 

Dividend yields are high

There are some huge dividend yields out there for income investors to get their hands on. The current FTSE 100 yield is close to 4% and many companies yield over 6%. Income portfolios are incredibly popular at the moment and I believe that income stocks should be in everyone’s portfolio. The beauty of a good dividend yield is compound returns. If you re-invest the dividends then you stand to make a very nice return over time in high-yielding stocks. 

Many sectors offer value and growth potential

There are many sectors that are wholly undervalued compared to others. Momentum plays like construction and housebuilders look like they will continue strong earnings growth well into the future. Britain faces a housing shortage that many commentators can’t see being met any time soon. This means that the housebuilder stocks that are currently in a bull trend should continue to rise. The commodities sector also offers remarkable entry points and value for contrarian investors. These companies have seen share prices drop by over 50% due to the negative outlook on commodity prices and some now trade below cash value. Low commodity prices have forced companies to conserve cash and reduce capital expenditure. This in turn leads to supply shortages in a few years, which sends commodity prices up again. Brave investors are now accumulating positions in healthy mining and oil companies and waiting for the inevitable upturn. 

Interest rates are low

Holding savings and large sums of cash in the bank is generating next to no return. Blue-chip companies paying good dividends should generate a nice return over the next few years. Defensive plays such as tobacco companies will continue to outperform as investors want lower risk ways of growing their capital. This week may see the first interest rate rise in America but it’s likely to be very minor and one of many rises we’ll see in the next couple of years. A meaningful interest rate rise in the UK also looks unlikely too, which means that defensive plays will continue to be in demand in 2016. 

Emerging markets have serious growth potential

After a few years of troubled growth there seems to be some potential coming through. Indian growth rates took many by surprise and added fuel that we may be on the edge of another bull run in emerging markets. Low commodity prices also fuel growth, which is another reason why I believe emerging markets may be about to turn. In the past when the Fed raised rates, the US dollar has stopped appreciating. In response to this fund managers flow money into emerging markets. This could create a real demand for equities and tracker products in emerging markets. 

Any investor must plan for the year ahead and research what might drive the market next year. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A once-in-a-decade chance to get rich buying growth stocks?

We haven't seen a good spell for growth stocks for quite a few years now. But I reckon the signs…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

The FTSE 100 is full of bargains! Here’s 1 stock I’m eyeing up

A weak economic outlook has hurt the FTSE 100. This Fool explains why she likes the look of this consumer…

Read more »

Investing Articles

2 no-brainer beginner FTSE 100 stocks to buy for my portfolio

Getting started with investing can be daunting. Here are two stocks for beginners to consider buying to build their first…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 recession-resistant UK shares investors should consider buying

Our writer details two UK shares she feels could withstand some of the ill-effects of the current malaise to provide…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Glencore share price drops on results. Time to buy?

The Glencore share price wobbled a bit after a weak set of 2023 results. Here's why I have the stock…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Big trouble in China sinks HSBC shares. Should I invest after record FY results?

HSBC shares have slumped following a disappointing end to 2023 for the FTSE stock. Royston Wild explains why this may…

Read more »

View of Tower Bridge in Autumn
Investing Articles

3 dirt cheap FTSE 100 shares to snap up today?

The FTSE 100 is rallying, but many shares still look super cheap on fundamentals. Is our writer buying these three…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

The Rolls-Royce share price tripled in 2023. Roland Head wonders whether this FTSE 100 stock could continue that impressive trajectory…

Read more »