The stock markets have been in a state of confusion for some time, with war and galloping global inflation upsetting all financial forecasts.
The Truss-Kwarteng mini-Budget of 23rd September only added fuel to the flames. The pound fell sharply, the market for UK government bonds (gilts) took fright. Demand for long-dated gilts fell dramatically meaning their price slumped and gilt yields, which move inversely to prices, soared.
Bad news about the UK economy followed. Official figures showing that UK business had shrunk by August, with a surprise 0.3% drop as factories and consumer-facing businesses struggled, increasing worries about a full-blown recession.
Bond, stock and even commodity prices have fallen, while property may be teetering on the edge.
Investors fear losses. At Continuum we are looking at what you can do.
Risk is part of investing
As stock markets around the world remain volatile over of inflation and recession fears, investors are facing a perfect storm of higher costs, higher interest rates and slower growth prospects.
The risks of investment suddenly seem much greater.
Risk is of course inevitable and can actually be used positively – the investments with the higher risks can often offer the potential for the highest returns. But in times like these, many investors are looking for ways to reduce the risk they are currently exposed to.
Getting out of investing might be your first thought. But cashing in may mean that you crystallise losses – losses that you would make back as the markets recover.
What’s more, inflationary times make it unwise to convert your investments into cash, where steady erosion of wealth is inevitable.
Panic is a costly mistake when it comes to investing. That said, it is always worth reviewing your portfolio.
Time to spread the risk
Not putting all your eggs in one basket is a golden rule of investment. It is so important that it has acquired the impressive title of diversification.
Diversification is a risk management strategy which mixes a wide variety of investments, within a portfolio. This portfolio would contain a mix of asset types and investment vehicles, which could potentially reduce your exposure to any one asset class or risk type.
And how to do it
A large spread of asset types within a portfolio will mean a great deal of research. But there is an easy way for you to achieve a diversified portfolio, by speaking to an expert.
There are many funds and finding the one that is right for you, your investment objectives and your attitude to risk is essential. Past performance cannot be relied on, and you need to look at the fund objectives and the costs.
That is where Continuum can help. We can work with you to understand your investment plans, and together develop the right plan for you and your circumstances.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.