It was great to speak at the recent client event we hosted in conjunction with Hotchkiss Associates and Corlett Bolton & Co.
It only felt like yesterday when we held this seminar last year. I remember saying back then that the investment markets were pretty ugly.
Medium-risk portfolios had just had their worst 18 months in over 100 years. This was because of the market’s reaction to the high levels of inflation that hadn’t been seen for decades. As we all know, life has become very expensive.
Things are looking brighter
However, events have taken a positive turn over recent months.
Inflation is down from its peak of 10%+ to just over 3% in the UK and the US currently and appears to be trending towards the central bank’s 2% target.
Stock markets have been looking to a future of interest rate cuts and reacting positively, even if those cuts have been pushed back. The FTSE 100 and S&P 500 in the US have reached record highs on the expectation of cuts happening in the coming months.
Most people hold a mix of stocks and bonds within their pensions and investment portfolios, ideally with the weighting leaning towards stocks.
Stocks are the growth engine; think of this as owning the great companies of the world that are all around us that we use and come into contact with every day.
On the other hand, bonds have had a hard time over the last couple of years and have somewhat held portfolios back. However, they look well placed now, providing yield in the region of 4-6% p.a. and the possibility to make capital gains as interest rates fall as they are predicted to.
The message hasn’t changed
My main message is the same this year when things are better as they were last year when things seemed bad.
Being a good investor is about not getting too high or too low. This is easier said than done but investment success depends largely on controlling emotions during difficult periods and staying the course.
Also, it remains important to be well diversified across stocks and bonds with hundreds of eggs in hundreds of baskets. Diversification is most definitely your friend.
However, the media is not necessarily your friend – the NEWS now appears to stand for Negative Events World Service!
We will hear lots of news this year, with big elections worldwide. We may need to put our phones down now and again and go easy on the doom-scrolling!
History shows that the markets react (positively or negatively) to political events in the short term but tend to shrug this off in the long term and march on.
You still need to hold cash
When stock markets rise and cash rates fall, people tend to want to invest. Fear of missing out (FOMO) can set in.
But you still want to have enough in the bank for liquidity and to help you sleep at night when markets are wobbling around and the world seems on fire. None of us know what is coming down the track.
It’s important not to have too much in your current accounts for which you have debit cards to minimise the risk of being scammed. Moving some money to an instant access savings account which doesn’t have a card linked to it may keep you safer.
Or consider using Premium Bonds. They can do a job here, being backed by the UK Government.
They have a tax-free prize fund of 3.3% and instant access if you need it.
And as Del Boy famously said, this time next year, Rodney, we could be millionaires!
