Looking back on the last couple of years it would be fair to say it has been somewhat of a bumpy ride. Yet despite this, investors have typically received strong annual returns in both 2020 and 2021. As we look ahead as to what 2022 and beyond may bring, it is important to reaffirm the key investment principle that has served our clients so well over the last two decades that we’ve been advising them…
Unfortunately, none of us have a crystal ball, nor do any economists or financial experts, which is why when events such as a global pandemic happen, which nobody could have foreseen, markets can and do fall. However, as long-term investors we know that in times of uncertainty and heightened volatility the best thing to do is to do nothing. In March and April of 2020 this was our advice to all of our clients, to not panic and to remember you are investing for a long term and therefore have the ability to ride out any bumps in the road. That advice was proven with markets recovering to above pre-pandemic levels.
And so, with the latest headlines of leaps in inflation and rising interest rates we want to reiterate to our clients that in spite of any short-term market volatility, you are long term investors and the investment principles, strategy and advice you receive will best serve you in helping you to achieve your financial goals.
Despite this, 2022 has started on the back foot, with headline inflation figures hitting a 30-year high of 5.4%. Abrdn Investment Managers state this was driven by a series of interrelated shocks including spiking energy prices; chip shortages and transport bottlenecks generating severe supply-chain disruptions for durable goods; growing labour shortages; and booming house prices. Together, they have created a perfect storm of supply-and-demand imbalances, driving price growth to multi-year highs in many key economies.*
This will have a knock-on effect on the cost of living this year which will likely be felt by all of us. It will also affect short term market volatility; however, the longer-term outlook remains positive. Vanguard (the worlds second largest investment manager) are modelling 10-year averaged annuals returns ranging from 4.6% to 6.6% for the UK market and 2.8% to 4.8% for the global market.**
Just remember, though, that markets don't move in straight lines. Behind these numbers lie a multitude of possibilities; there will be good years when share values jump significantly, and other years when they don't. Rarely is there an average year and therefore it remains important to stick to the core principle of:
*Article by Abrdn Investment Managers, The Inflation Menace by James McCann, Deputy Chief Economist – Macroeconomic Research, Research Institute. 10/01/2022
**The Vanguard Capital Markets Model® (VCCM) is a proprietary financial simulation tool developed and maintained by Vanguard's primary investment research and advice teams. Its projections are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The model forecasts distributions of future returns for a wide array of broad asset classes and are derived from 10,000 simulations for each modelled asset class. Simulations are as of 30 September 2021. Results from the model may vary with each use and over time.
Investment risk information: The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results. Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.