The UK Economy Is Growing Fast; It’s Time To Review Your Investments
Well, now the economy has made a full recovery from the pandemic, it looks like those chickens have finally come home to roost (the UK economy is growing faster than any of the other countries in G7)!
Of course, on a daily basis, the markets can go up and down. However, over a five-year period (as shown below), we can see that we are back to pre-pandemic levels – and that may well keep going, which is very good news for any investor who began moving funds into UK shares last year.
The wider picture
There has been some low-level turbulence over recent months. The wider share index in the UK hasn’t performed as well as the top companies in the FTSE 100 which has been driven predominantly by oil companies or banks. A number of the UK investment funds fell in November and December 2021.
At Applewood Independent, we predict that inflation is here to stay for the rest of the year, and potentially into 2023 (we talked more about protecting your money against inflation in this blog). It might go higher in the first quarter of this year in response to the anticipated change in energy prices in April.
We’ve already witnessed the cost of gas, electric and food items increase, which has been driven by supply chain issues caused by the number of employees who are still absent or in isolation due to Covid-19. All of this continues to impact investments in the short term, and you are right to question how this could affect you and your money.
However, we know that inflation has also been driven by spending: a significant proportion of the population has saved money over the past two years and is now willing to spend. It’s a spike, and although the inflation rate has given some investment managers initial cause for concern, and we’ve seen some shares fall in value, given time, we’re confident that the right, diversified portfolio will produce good returns (see this blog).
High inflation has also led to the Monetary Policy Committee deciding to increase the Bank of England interest rate to 0.25%, which, although extremely low, may lead to additional increases of up to 1% this year.
The impact of inflation
Other sovereign banks around the world are increasing interest rates, which is causing concern around share prices. There’s also been some profit taking (the sale of securities that have risen in price) in the US technology stocks where some of the smaller companies have endured a tough time with regard to their share price. This has led to a fall in fund values, but the FTSE is hitting an all-time high because a small number of companies continue to perform extremely well.
What does this mean for you as an investor?
The only hedge against inflation in the long term is equity investments (stock and shares, or through investment funds). I’ve met 25 fund managers over the last three months, and they are redirecting their focus from stock market growth (smaller, more aggressive companies that have performed particularly well for our clients) and moving towards more of a value element (traditional, larger capitalisation funds that can weather supply chain issues, interest rate rises, and rising inflation).
The support of a good independent financial adviser, who seeks input from trusted fund managers like we do, can help you make informed investment decisions for optimum results.
At Applewood Independent, we are recommending that our clients consider moving their portfolio investments from growth funds into value funds. We will continue to invest in some of the better growth funds, but we will balance the allocation between growth and value funds differently, in line with our client objectives.
A reminder for all investors
To get the most from your investments, you need to discuss them with an independent financial adviser. When did you last review your portfolio? We have always been able to add value to our client funds, which has supported them to outperform their FTSE 100 share index over the medium to long term.
It’s important that your funds are not simply invested and left to chance. Seek out the expertise and experience of an independent financial adviser who has their finger on the pulse. You are welcome to email me at email@example.com, or Alex at firstname.lastname@example.org, for professional support.
P.S. We’ve recently updated our website, making it more user-friendly and visually appealing. Check it out for more great resources, including blogs to support your knowledge around building a successful investment portfolio.
The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.
The value of your investment can go down as well as up, and you may not get back the full amount invested.
Past performance is not a guide to future performance.