Investments

This year the FTSE 100 index turns 40. Over the last four decades, it’s become a way to measure the health of the UK stock market. During that time there have been highs that investors no doubt celebrated, and lows that serve as a reminder that there’s some truth in the saying: it’s time in the market, not timing the market.

In 1984, Margaret Thatcher was serving as prime minister and, similar to today, interest rates were increasing in a bid to reduce inflation – the base interest rate exceeded 12.8% in July 1984. The country was also grappling with miners’ strikes and high levels of unemployment. Yet, it was also a time of technological advancement and scientific discoveries.

Against this backdrop, the FTSE 100 index launched.

The FTSE 100 is made up of the biggest 100 companies that are listed on the London Stock Exchange.

Jeremy Hunt delivered his second Autumn Statement as chancellor on 22 November 2023. While the headline news was cuts to National Insurance rates for employees and self-employed workers, there may have been less attention-grabbing changes that could make your finances easier to manage.

Read on to discover how ISA and pension changes might be useful to you.

1. ISAs are set to become simpler 

ISAs were launched in 1999 to promote saving and investing in a tax-efficient way. Statistics suggest they’ve achieved that goal – according to the government, in 2021/22, 11.8 million ISAs were subscribed to, with around £66.9 billion added to accounts. 

Yet, over the years, ISAs have become more complicated. New ISAs have been launched, including the Lifetime ISA, aimed at aspiring first-time buyers, and the Innovative Finance ISA, which allows you to invest in peer-to-peer loans that are typically higher-risk than traditional investments. 

There are also rules around contributing to multiple ISAs during the same tax year and transferring between different providers.

Experts are predicting that the UK will face a recession in 2023. While it can be tempting to react to this news by changing your investment strategy, sticking to your long-term plan makes sense for most investors. Read on to find out why.

Several factors are contributing to economic uncertainty, including high inflation and concerns about energy supply. The long-term effects of the Covid-19 pandemic and the ongoing war in Ukraine are two of the reasons for these challenges.

In its November report, the Bank of England said the economic outlook was “very challenging”. It expects the economy to be in “recession for a prolonged period”, adding that inflation was forecast to remain high until mid-2023 when it is expected to fall sharply.

Other predictions also paint a gloomy picture of the UK economy.

According to the EY ITEM Club, the economy will contract by around 0.2% each quarter from the final quarter of 2022 until the second quarter of 2023.

High levels of inflation and economic uncertainty continue to plague the investment markets. Investment portfolios are likely experiencing volatility – read on to find out what has been influencing markets.

Despite the doom and gloom statistics, financial services firm JP Morgan suggests that a global recession could be avoided as inflationary pressures ease.

As an investor, you may worry about what the current circumstances mean for your investments and financial goals. Remember, you should invest with a long-term time frame in mind and focus on performance over years, rather than weeks or months.

If you have any questions about your investment portfolio, please contact us.

UK

There were several pieces of big news in the UK during September.

Liz Truss was appointed prime minister on 6 September after winning the Conservative Party leadership race. Just two days later, Queen Elizabeth II passed away and many businesses chose to close or limit operations as a mark of respect during a period of mourning.

When you imagine the worries that might come with taking investment risk, it’s probably “taking too much” that comes to mind. After all, you’ve likely heard stories of people that have invested in high-risk opportunities and lost some or all their money.

However, when you’re investing for the long term, taking too little risk can also be damaging.

As inflation remains high, considering how you’ll get the most out of your money is more important than ever.

While interest rates are also rising, they still remain far below inflation, which was 10.1% in the 12 months to July 2022. As a result, money held in a cash account is likely to be falling in value in real terms. So, you may be wondering if investing could provide you with a way to maintain or grow the value of your assets.

One important thing to consider is: how much investment risk should you take?

Investment decisions should be based on logic and fact. But it’s easy for emotions and biases to affect your decisions, and this can lead to investment mistakes.

Behavioural bias can be useful in some circumstances. It’s a way of making mental shortcuts when you need to make complex decisions. When you consider how many decisions you need to make day-to-day, being able to make quick decisions is important. However, it’s just as important to recognise when biases can be harmful, and investing is one example.

Biases may come from your past experiences, unconscious beliefs, or the way you use information. Being aware of how biases may influence you can help you reduce the risk of making a mistake. Here are five common cognitive biases that could have an impact on your investments.

1. Confirmation bias

When you’re deciding which stocks, shares, or funds to invest in, you’ll seek out information to help you make a decision.

In the space of just 12 years, the global economy experienced two events that are considered “once in a lifetime” occurrences. As well as having an impact on economies, the 2008 financial crisis and 2020 Covid-19 pandemic are likely to have affected your finances too.

Many people will remember the impact of the 2008 financial crisis that triggered a global recession and the uncertainty it caused. From job insecurity to large falls in the markets, it had a far-reaching impact. Then, just 12 years later, the Covid-19 pandemic created uncertainty again.

While government support in the UK through the furlough scheme has helped to protect jobs and limit redundancies, it’s come at a cost. The latest fiscal report from the Office for Budget Responsibility show that over £1 trillion was added to the public debt, which is now above 100% of GDP for the first time since 1960.

While ESG (environmental, social, and governance) investing is growing across all investor segments, it’s the millennial generation that’s leading the trend. A huge wealth transfer in the upcoming decades could change how money is invested.

ESG investing involves considering non-financial factors when making investment decisions across three core areas: environmental, social, and governance. This may be done to reflect investor values or to identify risk and growth opportunities. While ESG issues are often associated with climate change and the environment, they can also include things like how a company treats its employees or the size of executive bonuses.

ESG investing is growing in the UK. Figures from the Investment Association show UK investors added almost £1 billion a month on average to responsible investment funds in 2020. Yet this remains a relatively small portion of the £8.5 trillion assets under management. However, there could be a shift that pushes ESG investing into the mainstream in the coming decades.