The outlook for the world economy in 2020 is relatively positive, but also includes a number of significant risks. Although global GDP growth is expected to improve when compared to its 2019 level, potential challenges such as a trade war and political uncertainty could weigh on investor sentiment. The end result could be a volatile outlook for share prices.
However, the stock market continues to offer a superior risk/reward opportunity compared to other major asset classes. As such, it may be the best opportunity for investors to generate a growing passive income in 2020 and in the long term.
Growth prospects
As mentioned, there are a number of risks facing the world economy’s outlook. Among them are political challenges such as a US election, ongoing civil unrest in Hong Kong and political risks in the UK. Additionally, the growth prospects for the eurozone continue to be highly challenging, which could cause difficulties for many UK-focused businesses in the next 12 months.
Despite this, the growth forecasts for many internationally-focused FTSE 100 and FTSE 250 companies are highly attractive. They look set to benefit from a slight improvement in the world economy’s GDP growth rate. This could enable them to not only cover their dividend payments at the level delivered in 2019, but may also allow them to raise dividends at an inflation-beating pace in 2020.
Relative potential
With the FTSE 100 currently yielding over 4%, large-cap shares could offer greater income appeal for 2020 than other mainstream assets. For example, many investment-grade bonds may struggle to offer a positive real-terms return in the next year, while cash holdings could fail to provide an inflation-beating return due to the likelihood of interest rates continuing at low levels.
Therefore, buying a diverse range of shares in an ISA could be a sound means of obtaining a generous passive income in 2020. It may even be possible to build a portfolio that yields over 5%, since many FTSE 100 members currently trade significantly below their intrinsic values. And, in many cases, their dividend cover is adequate enough for them to maintain their current level of dividend payouts even if the world economy experiences a challenging year.
Risk management
Clearly, obtaining a resilient passive income in 2020 is likely to be important to most income investors. As such, managing risk through purchasing a number of companies that operate in different sectors and regions could be a sound move. It may limit company-specific risk, which could reduce overall risk to a large extent.
Furthermore, identifying companies that have solid balance sheets, strong cash flow and a business model that is less dependent on the performance of the economy could be a shrewd move. They may offer more robust dividend payments that enable you to enjoy a larger and more robust passive income in 2020 and in the coming years.
