This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
The world has been on a rollercoaster with COVID-19. In late 2021, just as it started to look like the UK, US and other developed countries would be able to “live with” the virus, a new variant hit the headlines. Markets have reacted with volatility in the past weeks – worried about states introducing new quarantine, social distancing and work-from-home measures stifling economic growth and business activity.
Investors are understandably concerned about what this means for their portfolios. Many people are also wondering whether to delay investing in the stock market until things settle down, and more is known about Omicron. In this article, our financial planning team in Padiham, Burnley takes a look at the investment outlook as we enter 2022.
Find our thoughts below, which we hope you find useful. If you’d like to speak to an independent financial adviser then you can reach us via:
T: 01282 772938
Omicron – what is happening?
Very little is still known about this new COVID-19 variant at the time of writing. The World Health Organization (WHO) has stated that it is not yet clear whether this variant is more transmissible, deadly or severe than the current, most prominent Delta variant. Time will tell as more research is done, and this should also shed more light on the effectiveness of existing vaccines.
What is known is the reaction of countries to the Omicron discovery. Southern African nations have been added to the UK’s red list (which had only recently been scrapped). With the variant spreading across Europe and also now in the UK, there is uncertainty about how this may affect travel rules. Many stocks in industries such as aviation, tourism and also “small caps” suffered as investors sold to pre-empt possible losses in their portfolios.
The current investment landscape
Omicron arrived at an already “choppy” time in the markets. First of all, the US Federal Reserve is widely expected to start “tapering” in the coming months – i.e. easing the stimulus they’ve provided during the pandemic. Over the past 18 months, the Fed has been buying a minimum of $120bn of bonds each month. This has buttressed both the economy and financial markets – helping to keep interest rates low (making the potential returns from stocks more attractive to government bonds, called “gilts”).
Secondly, inflation is rising in both the UK and US, which is putting greater pressure on central banks to raise interest rates to counteract this. A rate rise would make the yields offered by gilts more attractive – possibly leading to many investors switching from stocks and causing a bear market. Add to this the current global supply chain issues in the run up to Christmas, companies struggling to hire workers (e.g. lorry drivers) and the new Omicron strain, it’s easy to see why investors are nervous right now.
2022 outlook & implications
So, what should you do? It would be easy to believe that stock markets are destined for a big “correction” soon – pulling out your investments and holding them in cash, to protect yourself. Yet we urge you to rest in the strategy you agreed with your financial adviser. When you crafted this together, you should have discussed your long-term investment goals and risk tolerance. Now that there is uncertainty in the financial markets, it is important to reflect upon these and ask yourself: “Have my goals and strategy changed – even if the market might have?”
If you are nearing retirement, for instance, then it is likely that your strategy is more focused on wealth preservation as you enter the “drawdown phase” of your life (i.e. living on your pension savings). In which case, your portfolio should probably not be composed mainly of equities (i.e. which could crash) – but rather more “stable” investments with lower returns, like inflation-linked government bonds.
However, if you are still early in your career and investing for retirement (e.g. via a workplace pension) then you will likely want to be more “aggressive” with your strategy – despite any short-term concerns about Omicron, the markets and the wider macroeconomic landscape. This is because, even if stock markets may fall in the short term, you can reasonably expect them to keep rising, overall, as you invest over the next 30+ years.
The investment outlook for 2022 is, frankly, not clear. Headwinds include rising inflation, a new COVID-19 strain and tensions between the US and China. Yet tailwinds for stock investors may include interest rates (likely to remain at historic lows, even if they rise), a greater push towards “ESG investments” as the world goes “greener” and continued economic growth. Investors do not, ultimately, know what will happen and so it is important to “pound-cost-average” where you can, and ensure your portfolio is appropriately diversified so it is not exposed to needless risks.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
