Perhaps the most common investment advice is to stay invested. But with markets being so volatile, the ease of sticking to that advice has been sorely tested in 2020. Even though we’ve seen global markets bounce sharply from their March lows, understandably there will still be those investing for retirement who remain worried and wonder what the best approach is for the remainder of the year and beyond.
The coronavirus (COVID-19) pandemic has had a dramatic effect on the global economy. Around the world, economic activity has dried up. Fewer consumers are buying and fewer companies are investing.
If you take the view that inflation will go up in the long term, it is worth considering whether your savings and investments could be affected. After all, you need your investments, and the income from them, to keep pace with inflation to maintain the value of your buying power.
Inflation over the past decade
When we think about concerns over inflation today, we have to consider how the world looked immediately before the coronavirus pandemic, as well as our wider experience with inflation over the past decade.
In the run-up to the COVID-19 pandemic, things were actually pretty quiet on the inflation front. In fact, you could argue that policymakers were more worried about inflation being too low, or persistently low, rather than any return to the 1970s.
Decline in demand across the economy
There are a number of factors driving down inflation. A decline in demand across the economy due to the social lockdown to help combat the spread of the virus is seeing us having to stay at home, meaning we have generally been spending less. As elsewhere around the world, we have also been driving and travelling far less.
In addition, the price of oil has been a historic bellwether for the health of the global economy. The effect of lower oil prices feeding into lower costs of production for a wide range of goods will also push down inflation.
Spending could drive inflation higher
Despite unprecedented support from the UK Government to help workers and businesses, job security and consumer confidence has collapsed. Economic uncertainty and the threat of unemployment leaves many less willing to spend and businesses less willing to invest in capital.
Unless the damage done to the economy ends up lasting, it’s likely we’ll see a pick-up in spending once there is some resumption of normality. Depending on how much demand is pent up, and how willing consumers and businesses are to part with their savings when we start to emerge from the crisis, the rise in spending could drive inflation higher.
Other possible inflationary pressures
Over the long term, there are worries about other possible inflationary pressures. Prices can also go up because there is less supply of products. The ongoing situation caused by the crisis is seeing significant disruption to trade, and some companies going out of business. This could also have the effect of constraining the supply of goods and competition in the global economy, contributing to higher prices at checkouts.
Due to the heightened degree of uncertainty in global markets, it is difficult to forecast the outlook for inflation with any certainty. Nonetheless, it is worth considering the possibility that inflation may rise to levels that have historically been more ‘normal’.
Including some protection against inflation
Investors may not be overly concerned in the short term about inflation, but a diversified portfolio should always include some protection against inflation, whether through holding shares in companies that have the ability to raise their prices over time, or more direct inflation-protecting assets such as inflation-linked bonds. Exposure to inflation-protecting assets should be seen as part of normal portfolio allocation, rather than as a response to the threat of higher inflation.
Inflation poses a real threat to investors because it chips away at real savings and investment returns. Most investors aim to increase their long-term purchasing power. Inflation puts this goal at risk because investment returns must first keep up with the rate of inflation in order to increase real purchasing power.
Take steps to combat inflation
Inflation might be beyond your control, but that doesn’t mean you can’t take actions to help preserve your investments and savings from its effects. To discuss this further or for more information, please contact A1 Financial Solutions on 0131 347 8855 or email info@a1-financial.com.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
Mental health conditions might not be as easy to pin down as physical health conditions, but insurers are increasingly recognising the need to provide cover and support to people suffering with mental ill health. And with mental health behind so many income protection claims, it’s worth reviewing what protection you have in place.
According to the Global Web Index, 54% of UK adults said that their mental health has worsened during the coronavirus (COVID-19) crisis. This concern is widespread, as the biggest fear for 30% of people is their mental health deteriorating during the epidemic[1].
Most common reason
Claims for mental health account for 29% of income protection claims, with some 7% of adults in the UK seeking mental health support through Telehealth services[2]. Worryingly, a Mind survey found that one in four said they had trouble contacting a GP or community mental health team as face-to-face appointments stopped in recent weeks[3].
It’s worth recognising that when it comes to mental health, insurers can offer more than simply the chance of a payout. A host of insurers have attempted to rise to the challenge of improving our mental states by providing a range of additional benefits and services that may give your mental health a boost.
Anxiety and depression
During this time of uncertainty and anxiety that the COVID-19 lockdown has caused, it has never been more important to look after our mental health. Up to one in four people experience a mental health problem such as anxiety and depression every week, and there is a strong correlation between financial health and mental health.
There is no difference in any of the insurance decision-making processes for mental health to those for physical health. The process by which decisions are made and guidelines are written is consistent for every medical condition whether physical or mental (or, as is often the case, a combination of the two).
Some serious consequences
Mental health is one of the leading causes of work absence in the UK. Over the course of the last decade, mental health issues in Britain have reached crisis levels. Approximately one in six people in England have met the criteria of having a common mental health problem such as anxiety or depression[4].
It is estimated in the future that one in four UK adults will experience mental illness during their lifetime, which could severely affect their ability to work. According to official statistics[5], mental health problems represent one of the leading causes of work absence in the UK and are the most common reason for sickness absence notes issued by GP surgeries in England.
Achieve more and enjoy our lives
Having good mental health helps us relax more, achieve more and enjoy our lives more. The coronavirus outbreak means life has changed for us all. It may cause you to feel anxious, stressed, worried, sad, bored, lonely or frustrated.
The NHS website (https://www.nhs.uk/oneyou/every-mind-matters/) provides expert advice and practical tips to help you look after your mental health and well-being. A host of insurers have also attempted to rise to the challenge of improving our mental states by providing a range of additional benefits and services that may give your mental health a boost.
Providing real peace of mind and security
An income protection policy provides real peace of mind and the security knowing that should anything happen regarding your health which leaves you unable to bring in your usual wage, there will be an income to cover the essentials beyond statutory sick pay. Contact A1 Financial Solutions on 0131 347 8855 or email info@a1-financial.com to find out more.
Source data:
[1] Global Web index – Coronavirus Research, April 2020 – Series 8: Health, Personal concerns
[2] Global Web index – Coronavirus Research, April 2020 – Series 8: Health, Adoption rel=”noopener noreferrer” of Telehealth services
[3] Mental health charity Mind finds that nearly a quarter of people have not been able to access mental health services in the last two weeks
[4] https://www.canadalife.co.uk/news/britain-s-mental-health-crisis-and-group-insurance
[5] https://digital.nhs.uk/data-and-information/publications/statistical/fit-notes-issued-by-gp-practices/september-2018
There are lots of variables in retirement. How long people will live for, the costs of goods and services they will need, interest rates available on their accumulated savings, and so on. But once you have retired, investing is anything but straightforward.