Category: Investment

How sustainable is your portfolio?

Increased investor focus on environmental, social and governance considerations 

Environmental, social, and governance (ESG) issues continue to be a priority for many investors. Your values define you. But do your investments reflect who you are?

Staying invested

Staying invested and giving your money the greatest chance to grow

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.

Inflation-proofing your portfolio

One of the biggest threats to the health of your investments

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.

Managing volatility

Diversification is paramount in uncertain times

The outbreak of coronavirus (COVID-19) has understandably been dominating the news headlines. Market fear over the escalating global spread of coronavirus has seen a sell-off across many asset classes. This period of market stress further emphasises the importance of diversification within portfolios. Investors’ objectives can rarely be met by investing in a single asset class.

Coronavirus impact on the global economy

It’s more important than ever to stay the course

The coronavirus (COVID-19) outbreak is first and foremost a human tragedy, affecting hundreds of thousands of people. It is also having a growing impact on the global economy. The markets have been extremely volatile as investors weigh the effect of the coronavirus against measures aimed at easing its economic impact. Therefore, it’s hard to say how this will affect investments in the short term.

Focus on long-term horizons

Time in the market, not timing the market

During this difficult time, fear and worry are understandable, particularly as the coronavirus (COVID-19) outbreak led to the biggest daily drop in the FTSE 100 since the financial crisis of 1987. Trying to second-guess the impact of events such as the coronavirus or the recent stock market volatility – or even attempting to make a bet on them – rarely pays off. Instead, investors who focus on long-term horizons – at least five to ten years – have historically fared much better.

Portfolio diversification

Don’t put all your eggs in one basket

Portfolio diversification is the foundational concept of investing. It’s a risk management strategy of combining a variety of assets to reduce the overall risk of an investment portfolio.

ISA returns of the year

Time to explore your ISA options?

An Individual Savings Account (ISA) enables you to save in a simple, tax-efficient way, while generally giving you instant access to your money.

Tax-efficient shelters

Use your ISA allowance or lose it forever

Even though the Individual Savings Account (ISA) deadline may be a number of months away, and despite the tax year date remaining the same year in year out, somehow it always creeps up on us. A tax year runs from 6 April one year to 5 April the next.

Cultivate the art of patience

Avoid knee-jerk reactions by focusing on long-term investment objectives

Creating and maintaining the right investment strategy plays a vital role in securing your financial future. But we live in the era of the 24-hour news cycle. Human tendency is to prioritise negative over positive news content, and no one is immune from bad news. So as an investor, when you do get it, how do you process the information, deal with it and move on unscathed?