Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
EVERY few months we get the chance to tap into the thinking of ordinary investors when we invite their questions ahead of the publication of our regular Investment Outlook.
The Outlook’s author, Tom Stevenson, and I tackled as many of the questions as we could in both a video and the latest episode of our weekly Personal Investor podcast. We only had time to tackle a fraction of the dozens of questions we received - but a number of common themes jumped out.
Here’s what you’re asking us right now.
Is recession inevitable?
Many investors are rightly worried about the signs coming from the UK economy. We’re not in recession yet, but many economists believe we may fall into one.
Is it inevitable? If the cost-of-living squeeze begins to hit consumer spending then recession becomes much more likely. One bulwark against that is the current strong jobs market, which has recorded record low unemployment and record high job vacancies. That offers some security for households - notwithstanding the fact they are getting poorer in real terms as prices race upwards - and should help underpin demand in the economy for a while longer.
Should I sell out and wait for better times?
As happens in any market downturn, some are wondering if they should sit things out for a while and come back when the climate for investments looks more positive. Many investors asked this question while also acknowledging that this has tended not to be the best strategy in the past - could this time be different?
The short answer is, we don’t know. It might prove very wise to sell out but you’ll only know that in hindsight. Selling now means that you potentially lock in the losses we have already seen this year. It’s clearly possible that markets take another leg down - but that’s not certain and we’ve already seen an encouraging recovery for prices in the past month.
Why hasn’t gold helped me fight inflation?
Many entered this period of high inflation hoping that gold would protect them from rising prices. History suggests that the precious metal can perform that job over very long periods - but over the short term it’s much harder to predict how it will behave.
In point of fact, gold did show signs of being a hedge against rising prices for a few months at the start of this year, posting healthy gains as the war in Ukraine emerged to put more upward pressure on prices. It has fallen back since then, however, despite inflation rising rapidly.
Currency movements might explain that. The dollar, in which gold is priced, has been very strong, making gold expensive for those buying in foreign currencies.
Rishi or Liz?
The race to be the next Prime Minister has investors wondering who will be the best for the economy and markets.
The dividing line appears to be between rampant tax cutting by Liz Truss, versus fiscal prudence from Rishi Sunak - although the former Chancellor has recently joined in with promising a tax giveaway.
The reality is that either candidate will find it hard to move the dial on the most pressing economic concern right now, which is the cost-of-living crisis. Perhaps the best investors can hope for is a Prime Minister that can balance helping relieve the pressure on budgets without adding to inflationary pressures via tax cuts.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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