Where I won’t be investing in 2018

Some companies and sectors could be worth avoiding this year.

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

While many investors may be feeling optimistic at the start of 2018, there could be significant risks ahead. Certainly, last year was a positive year for the stock market. The FTSE 100 delivered a total return of around 11%, which is well ahead of its expected annual returns.

However, there are significant risks facing the global economy. This could mean that 2018 is a more difficult year than many investors are anticipating. And a range of companies could deliver disappointing share price performance. Here’s how Foolish investors could avoid losing money this year.

Debt problems

While interest rates in the UK remain near historic lows, the general trend is set to be an upward one. Higher inflation could prompt the Bank of England to follow the Federal Reserve and deliver a steady stream of interest rates rises over the medium term. While this may not be a problem for most companies, some businesses continue to run high levels of leverage in the search for the maximisation of profit.

In a period of low interest rates, high leverage can lead to greater profitability. However, such stocks could see their bottom lines squeezed by higher interest costs in a period of monetary policy tightening. As such, avoiding highly-indebted companies could be a shrewd move in 2018.


Although the FTSE 100 may still have a dividend yield of 4% even after reaching a record high, some companies may now be overvalued. This is not particularly surprising, since the index has enjoyed a multi-year Bull Run, with investor confidence improving year-on-year. Today, many investors think less about risk and more about potential returns, which means that the challenges which many companies face may not be factored into their share prices.

Therefore, valuations could be an even more important aspect of investing this year. Although it may be more difficult than it has been for a number of years to find wide margins of safety, doing so could prove to be worthwhile in the long run.


In any bull market it is usually cyclical stocks that gain the most. They are most dependent upon the performance of the wider economy out of all stocks, and a Bull Run usually coincides with a period of improving economic performance. While it is tempting to buy such stocks at a time when they are delivering rising levels of profitability, the reality is that their financial performance can be highly volatile. As such, assuming that last year’s performance will be replicated each year could be a major mistake for investors to make.

Defensive shares could therefore be a better buy for the long term. At the present time, they seem to offer lower valuations than their cyclical peers, while also having the potential to outperform the market in a period of falling share prices. They may offer less excitement this year, but could be more profitable than riskier stocks in future years.

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

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »