There’s no denying the sense of doom and gloom right now but, being positive people, we thought we’d look for threads of a silver lining and report on opportunities to take control through tough times.
Negative 7.55%
In the last week UK inflation has tipped up to 10.1%. Right now, the best rate on a bank savings account is somewhere in the region of 2.55%, so putting your money in savings just now means real return of negative 7.55%.
Maybe that doesn’t sound appealing – so what about investing?
Investor notes
There are several principles to follow to stay ahead in investments. You can swat-up on some of those in our book (pre-order now) or on this helpful piece on our website. But key among those principles is investing consistently for the long-haul.
Remember – we’re here to help. You don’t have to go this alone.
Uncertainty worse than recession
We’re hearing the word recession – but that alone won’t necessarily drag investments down. For the market there are worse things than recession and high on that list is uncertainty.
Once markets know what they’re dealing with they can — and do — adapt. Hence why stocks often fall before recession (during the uncertainty) but recover relatively quickly.
Bulls outrun bears
A good piece of research from Vanguard tells us that ‘Bear’ markets (downturns) don’t last as long as ‘Bull’ (growth) markets and their impact isn’t as heavy on performance of long-term investments.
Vanguard also notes that recessions don’t impact all markets equally: in the global financial collapse of 2007/8 many western economies shrunk but several developed and developing markets did not.
A diversified portfolio (investing across different shares and bonds) can be less vulnerable to significant swings. How much risk you’re prepared to take can make the difference.
Your appetite for risk
Analysis of investment patterns at the start of the pandemic underlined the fact that investors tend to avoid risk during uncertain times (yet take greater risks when times are good).
It’s human nature that we mourn losses harder than we celebrate gains so the self-protectionism makes sense. However, uncertain markets can and do provide opportunities and risk-taking (if you can afford it and don’t have an immediate need for that money) may well be rewarded.
Time in the market (not timing the market)
This article from Schroders (yes, we pinched the title) breaks down how a £1,000 investment in 1986 would look if it were kept in, versus being strategically put in then pulled out; put in then pulled out …
“If [you’d] left the investment alone for the next 35 years, it might have been worth £43,595 by January 2021. If you missed the FTSE250 index’s 30 best days the same investment might now be worth £10,627, or £32,968 less.”
In a recent piece of intelligence, JP Morgan details that annual investor returns have been positive in 32 out of the last 42 years (1980-2021).