4 key lessons about investment markets
The number of ‘DIY investors’ is increasing. But for all the apps promising to make it easier, going it alone in the stock market without professional advice can be a real challenge.
A survey of retail investors by EQ last year found that a growing number of shareholders felt they were making uninformed decisions – a dangerous position to be in when it comes to your money. Furthermore, nearly half of jittery investors felt the need to sell off some of their shares due to the cost-of-living crisis.[1]
Here are four lessons we believe it’s important to remember when it comes to investing:
1. Sometimes stock markets are totally detached from reality
The UK is set to enter recession this year; inflation is at its highest in around 40 years; and the country is being hit by waves of public sector strikes.
With all this bad news, it’s perhaps surprising to see UK markets on the up. The FTSE 100, consisting of the top UK-listed companies, is at its highest since 2018.
That’s a tricky thing to get your head around. Surely investors should be stampeding away from the UK market, not piling in?
But markets are forward looking. They don’t necessarily reflect what’s happening right now, but what investors think is going to happen in the future.
In theory, this means everything – recessions, inflation, interest rate hikes –are all ‘priced in.’ The only time markets should see a dramatic drop is when something happens that investors didn’t expect.
Understanding this means having to think several moves ahead and many have lost money gambling on what markets will do next. The best long-term strategy is to pursue a long-term financial plan that will naturally factor in the stock market’s approach.
2. For every right prediction, there’s a wrong one
At this time of year, a lot of the bigger investment houses like to come out with their forecasts for the year ahead. We get bold claims on what will or won’t happen, or stocks that will soar or fail.
We just need to look at the pundits who failed to predict a Trump win in 2016 to know it’s easy to guess wrong.
As this article from CNN discusses, analysts trying to guess how 2022 would pan out were well off. Goldman Sachs predicted the S&P 500 (a commonly followed index of large US companies) would end the year at 5,100 points. Morgan Stanley was more conservative at 4,400. The reality? The index suffered its worst fall since 2008, and ended up down at 3,829.
What’s the lesson here? There’s a lot of noise out there. We say it’s best to ignore it and instead have a long-term plan that adapts to what’s ahead, rather than following bold predictions that fail to come off.
3. Diversify, diversify, diversify
Markets have recovered since the start of the year (the S&P 500 has climbed back up since December). But it’s interesting to see what the story is behind those headline figures.
Earlier this year, Nate Geraci, president of US-financial planner ETF Store tweeted that just five well-known stocks – Apple, Amazon, Tesla, Microsoft and Facebook’s owner Meta – were responsible for half of the S&P 500’s losses over the previous year 12 months.
At the same time, around three quarters of stocks in that index were up 20% from their 52-week lows. For us, this supports our belief in a key investment strategy – diversification.
You’re spoiled for choice as an investor – across the world there are in theory more than 58,000 listed companies to choose from. But often it’s only a small handful we end up talking about.
It’s very easy for investors, particularly inexperienced ones, to follow the herd. That can be a potentially big error.
4. Things are not always as bad as they seem
Fear is a big driver in investing. It might be a company’s poor results, or some negative headlines, but when investors get nervous, it can sometimes lead them to extreme measures and forgetting important factors such as company fundamentals.
Unfortunately, bad news sells. There are far fewer column inches devoted to the FTSE’s current positive state than there would be if there’d been a market crash.
But as we said in a recent post, the headlines aren’t always as bad as they first seem. Fluctuations in the market are likely to only be short term. A negative story about a company might not have a lasting impact on its performance. While it’s sometimes tempting to drastically change strategy, that’s not necessarily the best course of action for the long term.
The golden rule
With these lessons in mind, we can all benefit from taking advice rather than going it alone. Our team can help you remain objective as well as support you in visualising your financial future.
AAB Wealth expands further in Central Scotland with key appointment
AAB Wealth is expanding its operations further across the Central Belt of Scotland with the appointment of a Senior Financial Planner based in Glasgow.
As part of the AAB Group, AAB Wealth offers tailored financial planning and covers all aspects of personal finance, retirement and tax planning, with a focus on ensuring that our clients have confidence in their financial future and achieve the best from life.
Alan Turner has more than 12 years experience in financial planning and has previously held positions at Bank of Scotland, Grant Thornton Wealth Advisory and abrdn Financial Planning. Alan is the tenth Financial Planner to join the fast growing AAB Wealth team.
Ian Campbell, Head of Financial Planning at AAB Wealth said: “We are delighted to welcome Alan to the team. AAB Wealth are well-established in Aberdeen and Edinburgh and this expansion will allow us to develop our client base further across the Central Belt of Scotland, but as the business grows, the service we provide to clients will always remain our top objective.”
Angus McCuaig, Managing Partner of AAB in Glasgow added: “Alan is a people person and as the saying goes, people make Glasgow. At AAB Group, everyone works cohesively towards the same goal, to provide a first-class service to our clients, and I’m thrilled to be strengthening our team even further.”
Alan Turner, Senior Financial Planner at AAB Wealth said: “I’m pleased to be part of the team and I’m looking forward to introducing AAB Wealth to our clients, some need advice on their pensions and life savings, others who have sold or are in the process of selling their business. I enjoy listening to clients, finding out what their top objectives are and helping them to protect and enjoy the wealth they have worked hard to achieve. I ultimately treat them as I would my own family.”
AAB Wealth now have experienced Financial Planners based in offices in Aberdeen, Edinburgh, Glasgow, Leeds and Belfast.
Featured image left to right: Angus McCuaig Alan Turner, Ian Campbell
Update your financial checklist for 2023
Summary: Here are some simple things you can do to help maximise your wealth.
Welcome to the new year! How are you approaching 2023 so far? It’s of course traditional around this time of year to try and become healthier. But it’s not just dry January that’s at the top of the to do list.
With so much focus on the cost of living, many of us are taking a closer look at our finances too, particularly our monthly outgoings – what direct debits can be cancelled, what dormant accounts can be closed etc.
This is great for the short term, but what about long term? What sort of shape are your finances in for the year ahead and beyond? Maybe you have investments you’ve not checked on in a while that could benefit from consolidation? Or perhaps your financial plans just need a bit of a refresh?
In our last post, we looked at the positive impact on your wellbeing that comes from knowing your finances are sorted. Continuing this theme – and with this being a traditional time of year for taking stock and looking ahead – we’re focusing on some of the simple things you can do to help maximise your wealth.
Consolidate your accounts
The first thing you can do is make sure you know where all your investments and savings are. Across the UK there are almost three million pensions pots classified as ‘lost,’ worth a combined £26.6 billion.[1]
Lost doesn’t mean lost forever. Retracing previous pension providers is straightforward, especially with the help of organisations like the Pensions Tracing Service.
But ‘out of sight out of mind’ as they say. The time these accounts stay lost can really impact your final pension pot, that’s why it can be a good idea to consolidate your accounts. The benefits include significantly reducing the charges you pay, cutting back on paperwork, and making it much easier to measure how your investments are performing.
Check in on your investments
Next, let’s look at how those investments are doing. As we’ve been reminded by the market jitters experienced last year, investing is uncertain – but markets don’t stay down forever. Putting money aside for your future means thinking long term and not micromanaging your portfolio by constantly chopping and changing.
But it is a good idea to check in every so often and see how those investments have measured up. For example, do you have the right balance of stocks, bonds and other securities to match the levels of risk and what you want to achieve financially? Does your investment portfolio match up with its stated aims? Have the goals you set at the beginning of your investment journey changed, meaning a modification of your financial plan is required?
At AAB Wealth we have an evidence-based approach to building you the right financial plan. In a year of volatility and change, we can help you look at your investments, explain how they’ve fared in the face of fluctuating markets, and help make sure you maintain the right path.
Revitalise your ISA and give your finances an early spring clean
One of the simplest, most tax-efficient ways to invest or save is with an ISA. But while more than 12 million adults subscribed to ISAs for 2020/21[2], the overall number has fallen over the last decade. Also, many people won’t be getting full value out of these as they are not putting in their full ISA allowance (£20,000 for the current tax year).
The deadline to use this allowance isn’t until 5 April, but now is actually the best time to pay in a top up, or increase you direct debit, to avoid a mad rush at the end of the financial year.
Ahead of the new tax year, it’s a good idea to use this time to make sure you and your beneficiaries will get maximum value from your savings – minimising capital gains tax and managing the potential inheritance tax owed on your estate. For example:
- Tax-free gifts to children or grandchildren (you can give an annual gift of £3,000)
- Using your capital gains tax allowance (for example, transferring assets to spouses or partners)
- Topping up your pension (you get an annual allowance of tax relief on pension contributions – 100% of your earnings or £40,000, whichever is lower)
- Max out your ISA allowance (the level of tax-free savings is currently set at £20,000)
Get the most out of your state pension
Finally, it’s important not to forget about your state pension.
To qualify for a full state pension, you will typically need 35 full years of National Insurance (NI) contributions – and there’s been much publicity recently about making voluntary contributions to make sure your NI levels are up-to-date.
But a change in rules after 5 April alters the extent you can do this. Up until then it’s possible to fill any gaps in your NI record between 2006 and 2016. After this date, you’ll only be able to go back a maximum of six years.
Even if you’ve worked for 35 years or more, with many rule changes over the years, it’s important not to assume you’ll be entitled to the full pension. It’s possible you have been ‘contracted out’ at some point, suspending your accrual of NI credits.
So, if you’ve not done so already since 2016, we recommend you request a State Pension forecast.
To get help doing this, or for any more advice on maximising your wealth this year please contact us or book an initial consultation for free.
[1] Pensions Policy Institute. Lost Pensions 2022: What’s the scale and impact?
[2] UK Government Commentary for Annual savings statistics: June 2022
Important changes to your National Insurance contributions
AAB Wealth would like to make you aware of an upcoming change to the rules concerning the purchasing of voluntary National Insurance contributions.
A person typically requires 35 full years of National Insurance contributions to be entitled to a full State Pension. In addition to accumulating credits through employment, you may build your entitlement to the new State Pension if you are a parent or a guardian registered for Child Benefit (even if you do not receive it), if you are a carer, or in a number of other scenarios. Presently, with full entitlement, the new State Pension pays £185.15 per week of secure income that is fully inflation proofed, under current legislation, and will continue for the duration of your lifetime.
Until 31 July 2023 [extended from 5 April 2023], it is possible to fill any gaps in your National Insurance record between 2006 and 2016. After 31 July 2023, you will only be able to go back 6 years which, for some people, will not be sufficient to qualify for a full State Pension.
While every person’s situation is different, there are limited scenarios in which receiving a full State Pension would not be preferable. In addition to the secure, inflation-proofed income that it provides, the State Pension is not tested against your Lifetime Allowance, and it reduces your reliance on any other assets that you may have. Purchasing a full year of voluntary contributions costs around £800, and once your pension is in payment, you will recoup the money that you spend in approximately three years.
We recommend that, if you have not done so already since 2016, you can request a State Pension forecast.
It is important not to assume that you will be entitled to the full State Pension, even if you have worked for 35 years or more. There have been many changes to the rules over the years, and it is possible that you have been “contracted out” at some point, suspending your accrual of National Insurance credits.
We suggest that you contact HMRC using the phone number on your State Pension forecast if you do not have 35 qualifying years of National Insurance credits, your record has gaps between 2006 and 2016, and you are no longer working. HMRC will be able to assess whether purchasing voluntary National Insurance credits is appropriate, or whether there is any other way to fill the gaps. As the rules around National Insurance credits are complex, we would recommend seeking advice before proceeding and purchasing voluntary contributions.
For anyone who is a few years short of full entitlement and has the same number of years or more until they become entitled to their State Pension, it is worth noting that it is possible to purchase additional contributions up until State Pension age.
If you have any queries, please get in touch with Claire Marston or your usual AAB Wealth contact.
AAB Wealth growth continues in Northern Ireland with appointment of Debbie Connolly as Wealth Director
FPM, an AAB Group Company, has appointed Debbie Connolly as Wealth Director in Northern Ireland.
This senior appointment, which follows the recent appointment of Chartered Financial Planner Tom La Dell as Wealth Director in the North of England, further enhances AAB’s business-critical client services at a time of growing demand for personal finance, retirement and tax planning advice.
Debbie, who has more than 16 years’ experience in tailored financial services, is the seventh Chartered Financial Planner to join AAB’s wealth management team since the firm’s foundation in 2011. She is a member of the Irish Ladies Fly Fishing Team, plays darts in her local league and has represented Northern Ireland in ladies pool events.
Welcoming the appointment, FPM Managing Partner Feargal McCormack said: “Debbie’s extensive financial services experience will add significant value to our market leading wealth management team. As a Fellow and Chair of the Personal Finance Society, and a Chartered Financial Planner, Debbie is a real asset to have on board. We look forward to working together to realise our vision of helping clients achieve the best from life through personal finance, pension savings and retirement planning.”
Andrew Dines, Head of AAB Wealth, said: “Welcoming Debbie to the team is another key milestone for AAB Wealth. In the past year, we have doubled the number of Financial Planners in the team, extending the breadth of service we offer across all our locations. We now have Chartered Financial Planners in our offices across Northern Ireland, Aberdeen, Edinburgh and Leeds and our team’s diverse range of talent and depth of expertise allows us to deliver awesome outcomes for our clients.”
Debbie Connolly said: “It’s fantastic to be part of the firm’s growth and I’m really looking forward to delivering for our clients and helping them to protect and take advantage of the wealth they have worked so hard to achieve.”
Find out more about AAB Wealth view a full list of services
Featured image left to right: Alastair Moore Chartered Financial Planner at AAB Wealth Belfast, Feargal McCormack Managing Partner of FPM Accountants, Debbie Connolly Northern Ireland Wealth Director and Andrew Dines Head of AAB Wealth:
AAB Wealth expands client base in Aberdeen with Kilkee acquisition
One of Scotland’s leading independent chartered financial planning firms, AAB Wealth, has today announced the acquisition of Kilkee Financial Services Ltd (Kilkee), based in Aberdeen.
AAB Wealth has experienced year-on-year growth since the firm was established in 2011, and the enlarged business will have revenue of c£4.5m and assets under advice (AUA) of c£550m. The combined team of 25 are dedicated to helping families and individuals plan for the future with confidence across Scotland, England and Northern Ireland.
Kilkee Financial Services Ltd was established in 2002 by Geoffrey Purcell. The well-established firm has over 100 clients in Aberdeen and offers professional advice to families and individuals regarding their financial future. The transaction will facilitate Geoffrey’s retirement planning but he shall remain with the business to deliver a suitable handover period for all of Kilkee’s clients.
Andrew Dines, Head of AAB Wealth commented: “We are delighted to welcome the Kilkee team to AAB Wealth. The transition for Kilkee clients will be seamless as both of our firms offer an exceptional level of service from trusted advisers. Our diverse rules-based approach to investing is the platform to provide a tailored financial plan to support their personal aims and ambitions, supporting our clients navigate the challenges we are all facing in these uncertain times.”
Geoffrey Purcell, Director at Kilkee Financial Services added: “We have really enjoyed getting to know the AAB Wealth team over the last year and think we have found a great home for our team and clients. I feel very proud to have sold my business to an Aberdeen based company with the calibre and reputation of AAB Wealth. The continuing wellbeing of both my clients and staff has been paramount as I considered my retirement plans. Knowing that my clients Financial Planning, and their investments will be responsibly looked after into the future gives me great reassurance and peace of mind”.
The full team from Kilkee will join the AAB Wealth team and will be based at the AAB Group office at Prime Four Business Park Kingswells.
Financial planning is a process that helps individuals make sensible decisions about money to achieve the best from life. It covers all aspects of personal finance, everything from pension planning and savings, to retirement planning and investments. The team at AAB Wealth have developed skill, insight and understanding to deliver successful personal financial plans tailored to our clients’ individual aims and ambitions.
Featured image left to right: Ian Campbell, Geoffrey Purcell, Andrew Dines, Vikki Venerus.
The link between finance and wellbeing
The current economic climate and cost of living crisis in the UK makes for bleak reading to say the least.
With families facing the biggest fall in living standards in 60 years, economic activity shrinking for the fourth month in a row, and GDP predicted to fall 0.4% in 2023, it’s understandable that people across the country are worried about their financial situation.
The overall feeling is a lack of control – we can all identify with that. But what’s not so obvious is how much of a positive impact financial advice can have on that feeling. So we thought it would be worth digging into the close relationship between financial planning and wellbeing – it might even put your mind at ease.
Money makes the world go round
Whether we like it or not, money is absolutely central in our lives. It should therefore come as no surprise that money is one of the main things we worry about throughout our lives.
Indeed, LCP found that financial health is second only to physical health in terms of what people worry about the most. Yet it can be misleading to treat these two as separate categories as money worries can often lead to detrimental impacts on our health. For example, research from Aviva found that 38% of those between 45 and 54 lose sleep over their finances. Meanwhile, a staggering 86% of people say their financial situation exacerbates their mental health problems.
These links clearly demonstrate that our finances are inherently tied to our sense of wellbeing. The root of the issue is that, as mentioned, money is the key enabler in our lives, so it follows that when money becomes an issue, we feel a profound lack of control over what we can and cannot do.
The cost of living crisis has thrown this issue into stark relief. With household incomes predicted to fall by 4.3% over 2022-2023, people are being forced to cut back on things like spending on non-essentials, using gas and electricity, and making non-essential journeys. Of course, one could emphasise the ‘non-essential’ element here, however it is precisely the non-essential things that make life interesting, comfortable, and enjoyable, contributing to our overall sense of wellbeing.
So, in such choppy financial seas, what can we do to keep our finances, and wellbeing, on an even keel?
Taking control is the key factor, and there a number of different ways that this can be done.
Investing
Leaving money in savings accounts, especially when inflation rates are soaring as they are now, offers relatively marginal returns, and can even leave you staring at real term losses over time.
In contrast, actively making the decision to invest your money not only increases your potential returns but also leaves you with the satisfying feeling that you are taking action to improve your financial position.
And the stats back this up, with Blackrock finding that 43% of people say they feel better about their financial future after investing.
Of course, making investment decisions is a crucial and difficult task, as there is always risk involved, which makes it all the more sensible for you to be…
Working with a financial adviser
By far the best way to establish control of your finances is by working with a financial adviser. The same research from Blackrock found that 76% of those who invest using a financial adviser have a positive sense of wellbeing.
Given the close relationship between finances and wellbeing, this is hardly surprising. But what is it exactly about working with an adviser that leads to such positive outcomes?
At AAB Wealth, we build close, personal relationships with each of our clients. Giving financial advice isn’t just about numbers, spreadsheets, and complicated investment formulas. It’s about getting to know people deeply, understanding what makes them happy, what they value, what their life goals are, and using this information to tailor our advice in a way that suits their particular needs.
In exactly the same way as a counsellor needs to understand you to be able to give you life advice that works, we take the time to understand what makes our clients tick in order to give bespoke, effective financial advice.
Once we understand you as a person, only then will we start putting together a package of tailored financial advice covering investment strategies, tax, retirement and inheritance planning, cash flow modelling and more to build a financial strategy that gives you vital peace of mind.
Ultimately, the links between our finances and wellbeing are too tightly wound for us to ignore. However, by taking control, making positive, outcome-oriented decisions, and working closely with a financial adviser, you can steady the ship through stormy seas and look forward to the calm open waters of financial, and personal, wellbeing.
If you want to find out more about how AAB Wealth can help you, get in touch today.
AAB Wealth expands into North of England with key appointment
AAB Wealth is expanding its operations in the North of England with the appointment of a Chartered Financial Planner based in Leeds.
As part of AAB Group, AAB Wealth covers all aspects of personal finance, pension savings and retirement planning. Tom La Dell has more than 16 years experience in financial planning and has previously held positions at BHP and Hentons. Tom is the sixth Chartered Financial Planner to join the AAB Wealth team since the firm was established in 2011.
In November 2021 Leeds based accountancy firm Sagars merged with AAB to further enhance the depth and breadth of services provided to businesses and individuals across the UK. Tom La Dell will be based in the heart of Leeds in the Sagars office on St Paul’s Street.
Andrew Dines, Director and Chartered Financial Planner at AAB Wealth said: “Welcoming Tom to our team is another key milestone for AAB Wealth. We are well-established in Scotland and we’re delighted to be able introduce our services to the North of England.”
Tom La Dell, Chartered Financial Planner at AAB Wealth said: “It’s fantastic to be part of the firm’s expansion into Yorkshire and I’m really excited to introduce AAB Wealth to our clients. Having been a big believer in a client centric, evidence-based approach to financial planning, I am looking forward to helping individuals and families with their financial planning and specialist tax advice.”
AAB Wealth now have Chartered Financial Planners based in offices in Aberdeen, Edinburgh, Leeds and Belfast.
Featured image left to right: Ian Campbell, Tom La Dell, Andrew Dines, Vikki Venerus.
Why the headlines aren’t always as bad as they seem
There are plenty of scary headlines doing the rounds about pensions and markets at the moment. And it’s led to a lot of nervous questions from worried investors.
The mini budget at the end of September didn’t help. It sent markets – and the pound – into a tailspin.
And even though there’s been a partial recovery since then (and a new Prime Minister to boot), there’s still a general air of depression about the state of the economy and people’s finances.
So, what should be done?
It may be tempting to keep checking your portfolio, even though the day-to-day movements don’t reflect how it will fare in the long term.
It might also be tempting to drastically change strategy – or even switch your investments to cash – even though history tells us that those who are willing to go the distance through tough times will generally do better in the long run.
It’s really at times like these that the value of good financial advice comes into its own. We’re here to explain what really lies behind the headlines – and to make sure you don’t make any costly mistakes because of them.
Putting one fear to rest
There’s one recent question that has come up a lot from clients, reacting to the recent headlines, where we’ve been able to give instant reassurance:
“Is my pension safe?”
The answer, even though there are some tricky times ahead, is yes.
We’ve seen a lot of news stories focusing on a potential ‘crisis’ in pension funds. That’s because a dramatic rise in the yields of UK government bonds (known as gilts) put pressure on final-salary schemes due to concerns over liquidity.
But it’s important to note that’s only one part of the pensions market. Although there’s still around £2 trillion invested in defined benefit (DB) schemes (ones that pay a fixed amount based on your final salary as an employee), they are a declining part of the pensions landscape. For those paying into defined contribution (DC) schemes, the rise in gilt yields has been less of an issue.
And even if you’re in a DB scheme, it’s still unlikely your individual pension fund is at risk. And the Pensions Regulator has also sought to reassure scheme members that DB funds are “not at risk of collapse”.
Focus on goals – not markets
Another common worry clients ask us about is the state of the financial markets, which have been volatile throughout the year. Many clients have asked us:
When will things recover?
Should I make changes to my portfolio?
There are two important things to remember here:
The first is that uncertainty and even sizeable falls in the market are already ‘baked in’ to your portfolio from the very beginning.
Imagine a skyscraper that’s built in an area prone to natural earthquakes or hurricanes.
The foundations are designed with that environment in mind – invisible to all but the architects that designed them.
And even if the ‘big one’ never comes, the building’s tenants can have peace of mind that their four walls are resilient to whatever comes along.
In the same way, we know that when the markets fall, our portfolios are ready. We can say that the current falls in share prices are within expected parameters. The situation may be uncomfortable for a time, but it’s not unusual.
The second thing to remember is, our focus is on goals.
With a robust strategy in place, you can focus on your end goal – whether that’s relaxing in retirement, moving abroad, or leaving a legacy for family members – not on which way the market is going.
During times of market turbulence, our advisers can talk you through updated cashflow models to show that even when investment values are down significantly, we keep you on track to meet your end objectives.
The value of good financial advice
So, our main message to clients is … talk to us.
If nerves start to set in, or you feel anxious about whether your investments are performing as they should, pick up the phone, or send us an email.
We’ll be there – and we promise not to shy away from the tough questions. And if someone you know has an adviser who isn’t getting in touch, or as open about discussing these issues, send them our details – often a second opinion really helps.
It’s not always easy to tell the difference between good and bad advice until hard times are upon us. But that’s exactly the time when our role is most important.
If you are unsure about the state of your pension or of the financial markets and would like more information about our cashflow models, please get in touch with Alastair Moore or your usual AAB Wealth contact.
Investing is uncertain. But markets never stay down for long
Experienced investors are always at pains to point out they don’t have a crystal ball.
And maybe that’s a good thing.
Why? Let’s think back 25 years ago. Mid-1997 and, in the UK at least, the economy was looking relatively healthy; Britain had just won the Eurovision Song Contest and the country had just elected a new government on the back of the optimistic campaign slogan: “Things can only get better”.
But imagine you’re an investor back then and you get a glimpse of what’s to come. You might not think the picture too rosy: in just a few months’ time, economic problems in Asia would spark fear of worldwide economic collapse – this would pale in comparison to the Global Financial Crisis (GFC) a decade later.
Along the way there are a list of events that will leave the market reeling – the dotcom bubble bursting, the September 11 terrorist attacks, a decade of ‘stagnation’ in Europe followed by Brexit, the Covid pandemic and, most recently, Russia’s invasion of Ukraine.
Knowing all of that, would you invest?
For every negative, there’s a positive around the corner
Of course, back to the present day, and we know now how things have panned out.
Even with all that uncertainty, markets have continued to climb to new highs. Those who invested wisely and willing to go the distance are likely to have seen their savings grow.
Take a look at a big financial index like the MSCI All Countries World Index (ACWI). Here, big European companies such as Nestle rub shoulders with US corporations such as Apple and emerging market giants like Taiwan Semiconductor. According to a research tool from investment app Curvo, investing the MSCI ACWI would see your investment grow more than four times between July 1997 and July 2022.[1]
And we can see elsewhere that this is no accident.
The FTSE All Share, made up of large and medium-sized UK-listed companies, has also had notable dips in performance around large global events such as the GFC and Covid-19. But it too has continued to rise – it’s doubled since the early 2000s. And looking back at the annual returns for the world’s oldest stock index, the Dow Jones, since the turn of the last century, returns have only been in the red for about a third of the time.
For every negative ‘surprise’ experienced by the market, there are usually positives to follow that spur it on to greater heights.
Source: Investing.com
Annual returns of the Dow Jones since 1900
Source: Macrotrends
Keep looking long term
So, what does all this tell us?
If anything, it’s a reminder that even though we’re in a period of what seems like extreme uncertainty, many of these events are only damaging in the short term. While we still have to pay close attention to challenges from the Russia/Ukraine conflict, rising energy costs and the threat of global recession, they’re not a reason to lose focus on our investments.
The key is investing wisely. Making sure you’re diversified across markets, with a balance between companies in developed and emerging economies; not overly focused on one specific sector; and considering important external such as environmental, social and governance factors.
We can’t tell precisely what happens next, but investing isn’t about trying to predict the future. What we do know from previous experience is that markets don’t stay down forever. Even with the myriad of risks currently on the horizon, we can be confident that a recovery will happen.
[1] Past performance does not guarantee future returns. Calculation from Curvo based on Lyxor MSCI All Country World UCITS ETF Acc (USD) over a simulation period July 1997 to July 2022 and does not include transaction fees or management fees. The information is for illustration only and should not be considered as financial advice or recommendation.
