Howard Goodship, Chartered Financial Planner Ringwood - Reflections on 2021
Thursday 2 December, 2021
It has been twenty months since the COVID-19 pandemic caused world stock markets to crash. Due to the incredible ingenuity and adaptability of humanity, life has returned to a semblance of normality. Sadly, many people have lost loved ones and other’s lives have changed forever. Our deepest sympathies are extended to them.
Stock markets still volatile because of Omicron variant
In the world of investments, although stock markets are currently volatile because of the uncertainty of the Omicron variant, most equity markets have recovered, and many are now ahead of their pre-crash levels. Clients who have ignored commentator’s predictions and speculation, and simply remained focused on their own objectives and priorities, have typically received strong investment returns and their financial planning has remained on track. In our experience, making financial planning decisions in this way is far more effective than trying to predict what will happen in both the investment and wider world. This is because speculator’s reporting via the press is very often wrong. Here are two examples to illustrate:
- When the pandemic first hit, widespread views were that it would create unprecedented unemployment and financial hardship. Governments responded and now twenty months later the reported issues are the opposite; a shortage of workers and wage inflation.
- Many commentators talked of a deep recession (like the Great Depression of the 1930s). Whilst there was a technical recession (two quarters of economic decline), the concerns now are around the economy over-heating and the need for interest rates to rise to combat higher inflation.
How to manage your financial planning in a pandemic
Whilst we have opinions on where we see value and risk in the investment world, and we are able to navigate our client’s investments accordingly, the following common sense principles should always prevail. Namely:
- Keep sufficient cash for short-term needs and emergencies. Short-term is up to 5 years.
- Invest long-term money (5 years minimum) with the aim to keep pace or exceed inflation. The level of volatility and risk can be adjusted based on your own personal preference.
- Ensure your investments are diversified across different asset classes (which react differently to changing economic scenarios). Accept you give up some upside to protect the downside.
- Ideally, have your investments managed on an ongoing basis to help control risk and maximise opportunities. A lot can change which may require ongoing adjustments.
- Use tax-advantaged wrappers such as Pensions and ISAs and utilise tax breaks such as annual capital gains tax exemptions.
- Check the charges you are paying your investment managers and advisers, to ensure they are fair and reasonable.
Howard Gooship, Chartered Financial Planner, Ringwood, Hampshire said:
'There will continue to be significant noise around inflation, supply chains, employment, unemployment, valuations, over-valuations and interest rates. The important thing to remember is no-one has a crystal ball or any additional powers other than opinion and speculation. Stay focused on what you need your money to do for you and then act if you are comfortable with your own counsel or seek professional advice.'
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The contents of this article are for information purposes only and do not constitute individual advice
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