2021 is nearly over. Like 2020, most of it was of course defined by Covid. It’s hard to believe now that in January few of us had received a jab and that we were heading back into lockdown – although for most of us the level of isolation was far less onerous than previous incarcerations.
But what about the financial effects? At Continuum we are looking at how events earlier in 2021 could impact your financial plans now.
Looking at the world
Potentially the most important of all world events in 2021 was the Glasgow climate conference, highlighting the now inescapable fact of global warming. The 2021 United Nations Climate Change Conference, COP26, resulted in some important decisions to try to keep temperature rises within 1.5C, which scientists say is required to prevent a climate catastrophe.
For the first time at a COP conference, there was an explicit plan to cut use of coal responsible for 40% of CO2 emissions. The world’s biggest CO2 emitters, the US and China, pledged to cooperate and switch to clean energy. Financial organisations controlling $130tn agreed to back clean technology, such as renewable energy and direct finance away from fossil fuel-burning industries.
Looking at the UK
Looking at the UK means looking at recovery – and inevitably the inflation that comes with it. The government’s determination to get the economy back up and running after lockdown triggered the worst recession in 300 years seems to be working, albeit with some setbacks.
Figures from the Office for National Statistics show that national output expanded by 1.3% in the three months to September, leaving it still more than 2.1% below its pre-crisis level in the fourth quarter of 2019.
Worries about another wave of infections, the Summer pingdemic and global supply shortages may have prevented the recovery being as swift as we want.
However, there is increasing worry about inflation triggered by the historically low interest rate. Dropping the Bank of England rate to just 0.1% may have helped get the economy back up and running, but it may also be causing it to overheat.
Inflation is already running at its fastest pace in almost 10 years, hitting 4.2% in the year to October (more than double the Bank’s target of 2%).
The Bank made its opening move on 16th December raising the Base Rate to 0.25% to tackle rising prices.
Inflation is a problem for savers, because money you put away is worth less when you take it out. It also means what seems a worthwhile pension pot now may not produce the income you need when the time comes.
However, by planning ahead and investing – which means turning cash savings into something like stocks and shares – it may be possible to use inflation as a tool to boost your wealth, rather than eat into it.
Looking at investments
The FTSE 100 index has had a good run in 2021 as the recovery took hold. Excluding dividends, which account for a significant proportion of long-term returns from UK stocks, it has gained 11.7% in the course of the year and almost a quarter (+22.6%) since the middle of 2020. There could be more to come. The realisation that Brexit is not spelling the end to exports to the EU and the opening up of new markets could provide ongoing growth opportunities.
Worries around inflation, rising energy prices and interest rates might mean setbacks, but there still may be scope for worthwhile returns.
It may be time to rebalance your investment portfolio, to ensure you have the stocks that will thrive in the new market conditions that are now emerging. At Continuum we can provide investment help.
Looking at house prices
A combination of pent-up demand from the months of lockdown, a stamp duty holiday and low mortgage interest rates meant a boom in house markets throughout 2021. Prices across most of the country now stand at record levels.
A likely increase in interest rates means getting the best possible deal on your mortgage remains crucial. Opportunities may exist for locking a mortgage in at the current low cost if you act now.
Looking at the future with Continuum
2021 may go down as the year when recovery really began and when it started to become possible to think about the future again.
That future and the route we need to get to it may have changed. Many of us will have had our financial plans derailed and at Continuum we can help you get back on track.
A fresh look at financial goals, at early retirement, pension planning and investment in the light of inflation and market changes, mortgage arrangements or even at the level of financial protection we provide for our families may all be due.
Our approach is always to arrange financial planning to help clients meet their goals. If those goals change or if the financial landscape means a new strategy is required to meet them, we are ready to help.
2022 is nearly here. We want to work with you to make it a prosperous new year.
The value of an investment can go down as well as up. Past performance should not be used as guide to future performance.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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.