2022 so far … fasten your seatbelts!
We’re six months into 2022 and as I write, supermarkets are reporting that people are buying less food as prices rise … sales were down 0.5% in May, with a greater fall of over 2% in specialist shops such as butchers and bakers. Tesco, the UK's largest supermarket, has said it is seeing early signs that shoppers are changing their habits due to high inflation, buying less food and visiting more frequently. Shoppers are “choosing value-range items where they might previously have bought premium goods," said Helen Dickinson, chief executive of the British Retail Consortium. Prices overall are continuing to rise at their fastest rate for 40 years, with UK inflation at 9.1%, the highest level since March 1982. Below are the 10 highest rises in food …
Source: Office for National Statistics, May 2021 to May 2022
The wine drinkers among us will be pleased to hear that wine is much further down the table with an increase of 1.6%, whilst fruit and veg have increased by between 4% and 5%.
By the Autumn and winter the focus may well shift to people heating their homes less!
Workers and unions are pushing for pay rises, with strikes on the railways this week and BA workers at Heathrow voting to strike over the summer. But the UK government has warned against employers handing out big increases in salaries as ultimately those costs would be passed on to customers through even higher prices … resulting in an inflationary spiral.
Add this to fuel hikes (oil being one of the biggest indicators of inflation increases) and the result is consumer confidence at its lowest score since records began in 1974. This sentiment has spilled into stock markets, with investor anxiety over inflation and interest rate increases playing a major part in the turbulence we’ve seen in the first half of the year. The markets don’t like uncertainty.
High market volatility is likely to continue until there’s clear evidence that inflation is declining, it’s difficult to see any likelihood of a sustained stock market rally in the near future, the markets could be in for an even worse third quarter as inflation is expected to rise further. The S&P 500 alone has tumbled more than 15% since the end of March. Yet even with all the uncertainty, analysts remain bullish about corporate earnings, with net margin estimates for S&P 500 companies at a record high.
So lets talk about the impact of dips in the market. The most recent stock market crash began due to Covid 19 in March 2020. Other famous stock market crashes were in 1929, 1987, 1999-2000, 2008, and 2020. Although history can tell us how long crashes, stock market corrections and bear markets typically last, unfortunately no one gets a calendar notice announcing the time, nature and projected magnitude of future dips.
However, there are a number of things you can do both before and during a dip …
Know what you own … and why
For those in panic mode this might be a good time to revisit the reasons you decided upon a particular investment solution, whether it’s your pension or your savings, consider the reasons you decided to invest originally and keep your long-term goals in mind.
Trust in diversification
Distributing your money across investments is key to reducing investment risk. Diversifying helps ensure your investments (eggs) aren’t concentrated in one type of asset (basket). So, if one stock or industry has a bad day, month or year, your other investments may help offset that.
If your portfolio is well diversified it's best to sit tight and trust that it’s ready to ride out the storm. You’ll still experience some painful short-term jolts, but sitting tight will help you avoid losses from which your portfolio can't recover. Remember, markets reward discipline!
Be ready to buy in the dip
Market dips can also be a buying opportunity. Think of it as buying stocks on sale when the market crashes. The trick is to be ready for the fall and willing to commit some cash to snap up investments whose prices are dropping.
Here's how to tell if you might be ready to buy the dip: You already have an emergency fund, you’ve allocated money for retirement and you have cash available for everyday expenses.
Focus on the long term
When stock markets fall it can be difficult to watch your portfolio’s value shrink and do nothing about it. It can be especially hard to watch your portfolio shrink when it’s your life savings or your pension fund. It’s normal to feel pessimistic, but if you’re investing for the long term, doing nothing is usually the option that will give your portfolio the greatest probability of long term success.
It's important to remember that when you sell investments in a downturn, you lock in your losses. If you plan to re-enter the market at a sunnier time, you’ll almost certainly pay more for the privilege and sacrifice part (if not all) of the gains that could have been made from the rebound, which is often not too far away on the horizon after a dip.
If we look at the American Index (S&P 500) over the last six months, we can see that it’s down 20% from its peak in December 2021 … a portfolio that has a global stance would typically have approximately 50% invested in the US.
Now let’s look at the same index over the last five years … as you will see, even in the dip we are currently experiencing, the American Index has achieved over 11% pa growth when averaged over the five year period.
So if you know your portfolio is sufficiently diversified and actively managed, buckle up and sit tight … this too shall pass!
Speed Financial Solutions are a highly qualified and fully regulated financial services provider looking after clients throughout Spain and the UK. Established in 2010, we provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your financial planning.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, Taxation and Trusts, and a qualified Pension Specialist. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII (Level 7) and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels. Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
Please take a look at our website – www.speedfinancialsolutions.com
For further information contact us on Tel 951 315 271 or 951 318 529
We are happy to discuss your own situation in more detail. One of our advisers would be pleased to spend some time with you either in your home or at our office to review your current savings, investments and pensions, so do call to make an appointment. Our Financial Review is completely free of charge and without obligation. Follow us on Facebook for regular updates.
This communication is for information purposes only based on our understanding of current legislation and practices which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
29 June 2022