The month of April was somewhat unusual in several ways.
First of all, we saw the conflict in Ukraine drag on far longer than anyone would have liked and it now seems to be somewhat likely that it will continue for many months (or even years) yet.
Second, it seems we are still not ‘done’ with Covid with it causing problems here at home in the form of yet more staff absence within businesses and all of the associated challenges that that brings. Not to mention the far more serious and significant measures being introduced in other parts of the world.
Then, we have inflation now running at a somewhat eye-watering 6%+ by the CPI measure (and much more than this if we use the now less popular RPI measure).
Just to top it all off, some global stock markets, most notably the US, suffered from their worst April in a long time (since the Second World War in the case of the S&P 500).
All of the above might give us reason to feel rather gloomy and you probably wouldn’t be alone in thinking ‘when will all of this end’. However, when we have bad news cycles like these, it can be tempting to abandon our long-term financial plans in favour of what seems like a ‘less risky’ course of action, however, this is rarely the right thing to do in the long run.
Some people may be tempted to put off ISA contributions, for example, feeling that it is ‘too risky’ to invest right now or that they wish to keep money in cash ‘just in case I need it’. While the recent cost of living crisis is undoubtedly having an impact on family budgets, it is worth reminding ourselves that the measure of our cost of living going up is inflation – the single largest risk to our long-term financial plans.
At present, the interest rates on most cash accounts are still languishing below 1% and with inflation now running at over 6%, the delta between the two is larger than it has been in a very long time.
Put another way (and as counterintuitive as it seems), the risk of holding cash right now is greater than it has been in a very long time so arguably it makes more sense to invest than it did this time last year.
In addition, ISA allowances are a ‘use it or lose it’ allowance. If we fail to capture the allowance this tax year, then it is gone forever, never to be seen again. Given the current political environment and the need for the Government to reduce the deficit once again, I would argue that further tax increases surely have to be under consideration, so why not do all we can to protect the wealth we have accumulated.
I use the above examples over ISA allowances just to paint a picture, but world events like we have going on right now can lead us to abandon our financial plans in other ways – reducing our investment risk profile, not adding to our pensions, or, heaven forbid, selling out of investments just because the market has fallen.
All of these things are tempting in a crisis. We are drawn to them by the body’s fight or flight response, however, submitting to these temptations is most likely going to be very bad for our long-term financial health.
As unsettling as current events are, we have every confidence that ‘this too shall pass’ (just like every other crisis over the past 200 or so years of modern stock market investing has passed). We build financial plans to have resilience, we use assumptions that are far lower or higher than what we believe will actually happen to ensure that we are prepared for these kinds of scenarios.
And so, as always, even now in these rather uncertain times, it makes sense to stick to the plan. Continue to do the things that we know make sense long-term and we have a much better chance of achieving our overall financial goals and objectives.
If you would like to discuss your own Financial Plan with a member of the Buckingham Gate team, please do not hesitate to get in touch.
