{"id":3040,"date":"2023-06-26T16:18:53","date_gmt":"2023-06-26T15:18:53","guid":{"rendered":"https:\/\/cms.consilium-ifa.co.uk\/?p=3040---c94b7d30-648d-402f-ba9e-b6513f2214bd"},"modified":"2024-05-28T16:46:13","modified_gmt":"2024-05-28T15:46:13","slug":"investment-strategies-for-2022","status":"publish","type":"post","link":"https:\/\/cms.consilium-ifa.co.uk\/investment-strategies-for-2022\/","title":{"rendered":"Investment Strategies for 2022"},"content":{"rendered":"

We’re all aware of the current crisis in Europe and the war between Russia and Ukraine. The first two months of 2022 have been tough from an investing perspective. January, we faced and continue to face inflationary pressures, and in February, the war in Europe commenced.\n

Many of our clients have inquired about the current issues and our perspective on investment strategies in 2022.\n

In reality, it is impossible to guess how investment markets will perform not just in 2022 but also every year. The picture below shows the variation of returns year by year for the major investment markets. As you can see, each market will perform differently each year, so it is difficult, if not impossible, to predict. For this reason, holding a diversified portfolio of assets does two things. Firstly, it spreads your risk and reduces the volatility of your investment or pension portfolio.\n

\"Annual\n

Despite all the current problems, we still believe the same tried and tested investment principles should be followed and adhered to.  We understand the concerns clients might have, and the initial reaction clients might have when it comes to times of uncertainty. The principles are:\n

    \n
  1. Use a long-term investment strategy. Ideally, investment portfolios should be kept for a minimum of 7 years. Short-term fluctuations in equity and bond markets have less of an impact the longer you invest.\n
  2. Portfolio diversification—Having a diversified portfolio of different assets reduces a portfolio’s volatility. For example, if you invested in a portfolio of purely Russian companies several years ago, you would not have been able to trade the portfolio due to the current crisis, and you would have suffered significant losses. A global portfolio would have seen losses since the start of the year, but nowhere near as much.\n
  3. Stay invested and try to ignore investment noise – With 24 media coverage of world events, it’s easy to get distracted from the long-term principles of investing. It’s important to ride out any short-term fluctuations in investment values.\n
  4. Be tax efficient – Use annual allowances and planning such as ISA and CGT.\n
  5. Be aware of the latest fads and trends regarding investing. Over the years, myths and trends seem to rise to the surface and detract from tried-and-tested methods.\n\n

    Over the years, clients have also enquired about many other types of investments. All have their advantages and disadvantages. Here are a few aspects of investing that clients have inquired about over the last few years.\n

    Is gold a good investment?\n

    Investing in gold has traditionally been viewed as an effective way to diversify a portfolio. The general opinion is that buying gold is a good hedge against inflation and is a significant investment strategy. People turn to gold rather than other investment strategies in challenging economic times. Therefore, many investors have made a small investment into gold, whether through an Exchange Traded Fund (ETF), a regular fund or by purchasing physical gold. However, do the figures back up gold’s reputation, and should you invest in gold?\n

    As with anything, arguments exist for and against making a gold investment. There is evidence to suggest that it does act as a hedge against falling equity markets. Between 2006 and 2012, when the financial crash occurred, gold provided significant returns on investment. This demonstrates that money flows into gold increases as investors show concern over other asset classes. Since gold is a finite resource, it is considered a reliable store of value because there can only be so much supply. Therefore, while it may not grow significantly, it is unlikely to experience large amounts of volatility compared to stock markets.\n

    However, compared with equities over a more extended period, the returns from gold do not fare so well. The graph below compares the price of gold, silver, S&P 500 and Dow Jones over the last ten years. This shows that returns from the equity markets have been significantly higher since 2012 than those of gold and silver. Gold has seen almost no growth, whereas the S&P 500 index has grown 300%. Furthermore, there is the added logistical issue of holding physical gold. Storing the gold safely can be difficult and stress-inducing. The other problem with physical gold is that you cannot hold it within a tax wrapper, so you are liable to tax on investment income arising when your gold increases in value.\n

    \"Gold\n

    (Source: longtermtrends.net)\n

    On balance, it is clear that gold has its place in investment strategies but should not be used as a source of investment returns. Holding a small amount as part of a diversified portfolio is sensible due to its quality during economic shocks.\n

    Buy-to-let property\n

    Buy-to-let property can be worthwhile, especially if you want to invest long-term. However, several essential points must be considered.\n

    Stamp duty is currently 3% higher in the UK when you purchase a buy-to-let property. You will also incur costs for the purchase on top of stamp duty.\n

    Property is classed as an illiquid asset and not readily saleable. If you need to sell a property quickly, you might have to reduce the price to sell it quicker. Also, there are likely to be costs associated with the sale that will impact the eventual return on the asset.\n

    Although property prices have increased in value over the years, there is no guarantee this will continue. This is not an issue if you intend to hold the property for a long time, for example, ten years or more.\n