It might only be July, but we’ve already experienced so much this year.
I want to reassure you that we’re doing everything we can to look after your investments in this turbulent market, and our Investment Team are constantly reviewing the market to ensure your Plans remain optimised for the long-term.
A perfect storm
Coming into this year, we were aware of concerns about inflation, budget deficits, and Coronavirus just to name a few. But there was no way to predict how these would interact with each other, the impact they would have on financial markets or be able to predict other events that have occurred.
Perhaps the biggest investment upset came from stocks and bonds moving downwards in alignment. This is something that doesn’t normally happen. Historically, these two assets work against each other, so when stocks go up, bonds go down and vice versa.
With both falling at the same time, investors all over the world have been affected in one way or another. For Wealthify customers, this effect has been felt by both our low-risk and high-risk customers.
Our Deputy Chief Investment Officer, Kyle Cox, wrote a particularly good summary of what has happened in the bond market this year which explains why this has happened.
What’s affecting the markets?
Despite the political turmoil we’ve seen this week, it hasn’t had much of an impact on the markets – with any changes likely to be short-lived. This unrest shouldn't impact global markets, that could only happen if there’s a change in government policy that would affect the UK economy. The market movements we have seen this year have largely been caused by global issues.
At Wealthify, we are all greatly saddened by the ongoing invasion of Ukraine, and our thoughts are with everyone who is affected by this.
As the war continues, it is having repercussions across the world. Perhaps the most obvious impact is on global supply chains, with many essential commodities such as oil, gas, wheat, and fertilizer becoming harder to access. As a result, the prices of these commodities have increased.
We are all feeling it as the cost of everyday goods and services continue to soar, especially fuel and energy bills. Due to the shortage of supply and steady, continued demand, many oil and gas companies have seen their share prices increase.
This positive performance in oil and gas has helped to balance performance slightly across our Original Plans, but as these are industries we avoid in our Ethical Plans, they haven’t seen the benefit of this.
We have also seen many established and respected companies’ stock prices fall this year, with those in the tech sector being hit particularly hard. This is because tech companies are seen as ‘Growth stocks’, which are companies that are expected to produce higher-than-average long-term earnings. They have endured a particularly challenging year, as their company valuations are sensitive to interest rate increases. As a result, the outperformance of tech stocks over the last 2 years has mostly been lost in the last 6 months.
These changes have had a big impact on our ethical performance, and our Investment Team has written an article that details the reasons behind ethical performance.
What are we doing?
The Investment Team is constantly monitoring the markets and making informed, long-term choices that look beyond short-term volatility.
At Wealthify, we do not make short-term bets against movements in prices. We invest by matching our investment strategies with the long-term nature of our product. We believe in time IN the market, rather than trying to time the market. While timing the market may seem desirable, it requires consistently buying and selling at exactly the right time, which is impossible over an extended period. By taking a long-term approach, choosing a level of risk that suits your situation, and trusting us to manage your investments, we’ll focus on helping you achieve your long-term financial goals.
It’s important to remember that investments work in cycles. As much as we’d love to be able to, we can’t control these investment cycles, but history tells us that markets have always recovered. So, while we wait for signals of recovery, we’ll continue to monitor the market, select the best funds, and look for long-term opportunities as they arise.
What we can do in these times is make sure that you’re kept informed and up to date with what’s happening to your investments. I believe that open and transparent communication is key during these challenging times, especially if this is the first time you’ve experienced a market downturn.
Please continue to check our blog and emails for our updates and please be assured we’re all working hard to provide you with the best investment service possible. If you have any questions or concerns at any time, please don’t hesitate to ask.
What could you do?
We’re all bombarded by negative news stories every day, but it’s important to avoid becoming pessimistic and short-term focused, and instead focus on your long-term goals.
With Wealthify you have complete freedom to access your investments whenever you choose. However, while it’s never nice seeing the value of your Plan fall, it’s only when you sell that you’ll make that loss real. By staying invested, your investments will have the potential to benefit from positive market movements during a recovery, which could put you in a better position in the long run. It’s worth remembering that when you invest, you’re taking a risk with your money, which means you could get back less than you invested if you sell when your investment value is down.
We also see some customers who use market downfalls as an opportunity to buy investments that are undervalued. An investment strategy called ‘pound cost averaging’, which is when you buy investments little and often, helps not only reduce the risk that you time an investment decision incorrectly with market movements, but could also help you pick up some bargains.
Whatever your investment choice is, it's worth taking the time to read our Investment Team’s regular ‘Month in the Market’ updates. These talk through what has happened to your investments each month, what impact they have had on your Plan, and how we’re managing your investments.
If you still have any questions and would like to ask me anything directly, please get in touch. I’ll do my best to answer them in a vlog alongside Wealthify’s Chief Investment Officer, Colleen McHugh, in the coming weeks.
Thank you for using Wealthify for your investments.
Andy Russell
CEO of Wealthify
