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    Tag: Investing

    Is the new year a good time to consider your investments?

    Posted on by Katie Heaton

    With a fresh year underway, it could be the perfect time to review your investments and consider if there are any adjustments you should be making given the current challenging financial market.

    With huge amounts of uncertainty due to various reasons including the cost-of-living crisis, recession and the ongoing crisis in Ukraine, it can be tempting to make changes to your investments or look to withdraw them out of fear. However, as the well-known golden rule of investment states, “time in the market beats timing the market!”.

    What should I do?

    Although often difficult, it is important to ride out a negative market cycle where possible. There may be circumstances where access is unavoidably required, but investors must generally hold their nerve and remain focused on the long-term objectives.

    If an investor finds themselves in a phase of accumulation, ongoing investment contributions benefit from market volatility as, when markets fall, investors can often buy more units for their money. Regular investors can benefit from pound cost averaging to potentially smooth out market volatility. Fewer units are purchased when prices are high, but more units when prices are low.

    Investors who find themselves in a decumulation phase (i.e. those who are accessing their portfolio) must be ready to play the waiting game as it is typically better to ride out market cycles rather than try to time them. Those who exit the markets temporarily could find themselves buying back in after markets recover, which can be risky.

    If you are close to, or have reached your de-cumulation phase, you should hold a contingency fund to ensure any capital requirements can be satisfied from cash, rather than risk selling down part of an investment portfolio at a bad time. It is also important to consider retaining cash to provide the liquidity to fuel ongoing income requirements for a set period, reducing the risk of having to sell down for liquidity purposes during periods of volatility.

    Summary

    Investors should remind themselves why they are investing, have a plan in place and bravely ‘ride out’ a difficult market cycle – holding cash for contingency and shorter-term liquidity can help with this.

    Meanwhile, diversification across assets is also important to ensure you have a portfolio capable of withstanding a negative market cycle. This means including assets which are likely to do well during economic growth, but also some that are likely to do better in difficult times. It is usually a good idea to include a broad mix of equities, bonds and some alternatives. It may also be wise to consider a variety of sectors and themes too.

    Get in touch

    As always, every individual situation is different, and it is vital to get advice based on your exact circumstances when considering any type of investment. PM+M’s Managed Portfolio Service, is a bespoke investment portfolio produced by us, and managed in collaboration with AJ Bell, to make your life easier. At PM+M, we are currently having a rethink of our house asset allocation (blend of investments) and will shortly be implementing these changes for our clients as we plan forwards for them.

    If you would like to discuss your investments in more detail, or need some tailored advice specific to your situation, please get in touch by emailing financialplanning@pmm.co.uk or by calling 01254 679131.

    The value of investments can fall as well as rise. You may not get back what you invest.

    The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

    Is it a good time to invest during a recession?

    Posted on by Helen Buchan

    With predictions that we could be facing the longest recession since records began, we take a look at whether it can be a good idea to invest during a recession.

    If the moves by the central banks to raise interest rates fail to reduce inflation, it is looking highly likely that higher interest rates could further weaken economic growth.

    However…

    Successful businessperson, Warren Buffett, once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” It may be sensible to take a contrarian view on stock markets: when others are greedy, they may continue to pay a large price tag to buy a share or asset. When confidence is high, people continue to invest and don’t think about downsides. When others are fearful, it may present a good value investment opportunity. You buy more for your money when prices are low! This doesn’t mean to say that values may not continue to fall for a period of time, but it does mean that over the longer term you may derive good value from buying low.

    The impact on investments

    Generally, recessions mean lower stock market prices, therefore higher levels of volatility than normal. The price of a stock should represent the current value of a company’s future cash flows and cash flows are created by the earning of a company. If there is lower spending in an economy, then this means lower earnings for businesses. This may also result in lower dividend distribution from the company to shareholders.

    If perceived earnings are lower, then a company’s share price is also going to drop. With the increased chances of a business struggling or worst case, going bust due to the challenges faced in a recession, the markets also consider this as a risk in share prices.

    Not all stocks are the same

    Different stocks will go up or down more than others in certain economic conditions. Stocks which are more sensitive to the overall health of the economy are often referred to as cyclical stocks and are those which will suffer from a reduction in consumer spending or unemployment rates rising e.g. retailers and airlines, with people spending and travelling less.

    On the flip side, are those who provide something which consumers consider essential, such as utilities and food. These are often referred to as defensive companies or defensive shares and would generally fare better and fall less. Albeit, utilities have seen more volatility than usual due to an unusual set of circumstances.

    Diversification

    It is key that investors ensure they have a portfolio capable of withstanding an economic recession rather than trying to time the market. This means including assets which are likely to do well during economic growth, but also some that are likely to do better during a recession – this is known as diversification! Although it is essential to carefully consider the risk profile, it is usually good to include a broad mix of equities, bonds, and some alternatives. It may also be a good idea to consider a variety of sectors and themes too.

    One rule that is often viewed as a simple way of achieving diversification, is the 60/40 rule. This means having 60% invested in shares and 40% in other diversifying assets and is seen as a sensible theory for trying to smooth out any peaks and troughs of investing in the stock market.

    Bonds

    One of the most common assets that usually perform better during a recession, is government bonds. There are a number of reasons why bonds typically do better and are generally seen as safer than stocks. Governments of advanced economies tend not to default and the income produced by a bond is fixed, this means that during a recession, investors often rush into bonds which in turn can bid up their prices.

    However, it has not been a good year for bonds so far with rising inflation and higher interest rates causing bond prices to plunge. This has resulted in bonds and shares falling together and having a negative impact on those portfolios working to the 60/40 strategy.

    The outlook of bonds therefore rests largely on inflation and how inflation is likely to be impacted by a recession.

    How can we help?

    As always, every individual situation is different, and it is vital to get advice based on your exact circumstances when considering any type of investment. PM+M’s Managed Portfolio Service, is a bespoke investment portfolio produced by us, and managed in collaboration with AJ Bell, to make your life easier.

    Working together, we continually monitor the market and conduct ongoing due diligence in relation to the funds held within the Managed Portfolio Service portfolio. We proactively make fund and asset allocation changes when we feel as though this is necessary in order to manage volatility and drive long term growth. Our Managed Portfolio Service aims to provide you with the best combination of investments to maximise your potential returns with a level of risk that suits you.

    If you would like to discuss your investments in more detail, or need some tailored advice specific to your situation, including more information on our Managed Portfolio Service, get in touch by emailing financialplanning@pmm.co.uk, or by calling 01254 679131.

    The value of investments can fall as well as rise. You may not get back what you invest.

    The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.