It is difficult to listen to news headlines these days without feeling some anxiety about the effect on your financial investments. Unfortunately, the news rarely adopts a positive tone when reporting anything let alone finance.
The past few years have undoubtedly witnessed some major events, including Brexit, Donald Trump, Covid 19, Ukraine, soaring energy prices and the current cost of living “crisis”. Even in the last couple of weeks the new Government’s mini budget has had an impact on sterling and the prospects of a “technical” recession.
Although recent news feels different from past events there is rarely anything new from an investment perspective. Financial markets have seen similar events in the past, whether it’s rampant inflation, high interest rates, wars, global health scares, political changes etc. Markets often initially react in a negative way but once the effect of any event is analysed in more detail there is often a rebound. How long this may take is unknown but our investment philosophy is founded on the expectation of long term growth in value.
Our investment portfolios are allocated to two main asset classes – equities and bonds. Equities provide the engine for long term growth while bonds are in place to reduce volatility. The higher your tolerance to volatility the higher the proportion we will recommend you invest in equities.
Since the start of the year all of our portfolios, like global markets, have experienced falls in value. The greater falls in value are in the portfolios with the higher proportion invested in bonds. This is because bond prices tend to react negatively to the expectation of higher interest rates.
Central banks around the world have signalled their intention of raising interest rates to combat rising inflation. Over time we believe this will reduce volatility in financial markets and we expect investments to grow again in value. Indeed the growth rate expectations are higher now than they were at the start of the year as a result of the falls seen.
If you reman worried about your investments you may wish to reflect on the following questions.
- Is your income enough to meet your regular spending?
- Do you have funds in bank savings to cover emergencies?
- What has happened to my investments following previous volatile periods?
We would encourage you to remain invested through this anxious period in the expectation that investment returns will improve. For some people you may be interested in increasing the equity content to benefit from greater expected growth in future.
Please do get in touch with us if you have further questions.
Please remember that past performance may not be indicative of future results.