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.
“The speed and scale of the UK’s recovery has surprised to the upside, persistently and significantly, for at least the past four months.”
These are the words of none other than Andy Haldane, chief economist and a member of the Bank of England’s Monetary Policy Committee, who was speaking to an audience of local business owners in the North West of England, only yesterday.
Mr Haldane went on to explain how back in May, the Bank of England had expected GDP to be around 18% below its pre-Covid level, on average, in the third quarter of the year. And economists’ consensus forecasts were even gloomier. Yet, four months on, GDP is now expected to instead be around 3-4% below its pre-Covid level by the end of the third quarter. In other words, the economy has already recovered just under 90% of its earlier losses.
Frankly, that’s a far cry from all the doom and gloom we have been led to believe will be inevitable in 2020, and beyond.
Now that’s not say that the situation hasn’t been as bad as we have been led to believe. Livelihoods have been lost and for anyone struggling, the fact that things aren’t as bad for the national economy as we might have feared will be of little consolation. Indeed, for anyone working in the beleaguered hospitality, retail or leisure sectors right now and facing the prospect of redundancy, it might feel anything but better than it was four months ago. Instead, with job losses mounting and the prospect of more to come, as the furlough scheme winds down this month, these may well feel like hollow words.
Worries will persist and that’s to be expected; the correlation between financial insecurity and poor mental health is well established. A recent survey carried out by Fidelity International only recently, looking at the impact of the pandemic on women’s finances and mental health, found that 24% of young women worry about money on a daily basis and 59% find it playing on their minds at least once a week.
There’s no doubt that 2020 has brought with it challenges, wholly unexpected situations and uncertainty and anxiety the likes of which, arguably, few of us have ever experienced before. A full nine months into the year and in terms of where we are, things look remarkably - and some might say depressingly - similar to where we were at six months or so ago.
However, stepping aside from the doom and gloom, it is possible to see, as Mr Haldane spelled out, that even since the Bank’s Monetary Policy Report in August, plenty has changed for the better. As he put it, had today’s far-better-than-anticipated third quarter GDP forecast “been offered as a forward contract in the early summer months, absolutely everyone would have been a buyer.”
He is still brutally honest though about the “unholy trinity of risks” that hang over the UK economy; the effects of rising numbers of Covid cases across the UK and the accompanying policy measures taken to contain them; risks to business activity and jobs in the light of these public health developments; and the effects of moving to new trading arrangements with the EU at the end of the year.
We are far from out of the woods yet. And it isn’t like his words will cancel out the worries and anxiety of people struggling with the reality of the situation.
However, his assessment does offer some much-needed respite and remind us that despite so many aspects of our daily lives seemingly up in the air, taking stock and doing what you can now can not only help ease our financial worries, but also help give us back a sense of control over our own lives. Here’s how to do it:
1. Stay invested
When uncertainty prevails it can be tempting to jump ship and sit-out the storm from the safety of the shore. But by staying invested you are more likely to meet your goals. Firstly, because you maintain the regular habit of saving and investing and secondly, because if you leave your savings and investments in situ they are primed and positioned to benefit from any uptick or market opportunities that arise.
2. Don’t run from risk
Risk and volatility are easy to get confused. Remember that while volatility reflects the movement of a price - whether the price falls quickly, and by how much - risk on the other hand is the measure of how likely the investment will deliver a permanent or long-lasting loss of real value.
If you’re investing for the longer-term, reducing investment risk is not about how much the share price moves in the short-term, but rather about the overall quality of the company and its long-term competitiveness. And remember too that volatility is no risk at all and is some cases can even be a blessing in disguise.
3. Make friends with volatility
Along the same lines as the point above, remaining invested during volatile times is paramount. Sometimes amid the storm, a glimpse of opportunity can emerge and it is important to remain positioned to take advantage of this.
4. Stay diversified
Diversification is key, as always, in making sure that you are spreading your risk. The chance of assets crashing at the same time is highly unlikely; even when it might feel otherwise. Having a mix of assets, from shares and funds to bonds and cash, across different sectors and geographies is a good way to make sure your portfolio is panic-proofed.
5. Keep going
Staying invested through tricky times is easier if you do it slowly and steadily, but surely.
By setting up a set regular savings plan, investing becomes automatic and stress-free and comes with the added benefit of spreading any risk. You will invest whether markets are rising or falling. It’s a process known as pound cost averaging and it can reduce your losses in falling markets and create an overall ‘smoothing’ effect on your investments.
There is no doubt that 2020 has been trying - and it’s admittedly far from over yet. But we will live to see a brighter day. And to paraphrase the words of Captain Sir Tom Moore, the 100-year-old veteran who has proved an inspiration to so many during these difficult times, it is OK to be an optimist - do believe that the future is going to be much better.
And you can start right now with these five simple steps.
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. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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 an authorised financial adviser.
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