Russia’s invasion of Ukraine surprised many, with the sudden escalation hitting economies worldwide. Both Russia and Ukraine are key exporters of commodities – including oil, gas, and wheat. This impacted global supply on a vast scale.
Fuel prices in the UK reached record highs in July, with the supply and demand disparity driving inflation and raising concerns over the cost of living.
To combat this, the Bank of England (BOE) and The European Central Bank (ECB) are continuing with the tightening of monetary policy. BOE raised interest rates to 1.25% in June, and then to 1.75% in August, in attempt to control inflation. Whilst higher interest rates contribute to reduced spending, it will also make it more expensive to borrow. This can have a particularly negative affect on those applying for mortgages or seeking to re-mortgage in the coming months, further contributing to concerns over rising costs in the UK.
During times of uncertainty, it may seem wise to withdraw your money and hold it as cash, but this can have a corroding effect. Whilst it is beneficial to hold some cash (many keep 6 months expenditure aside for emergencies), Cash ISAs are currently advertising up to 2.8% interest. With inflation expected to continue rising from 9%, this will reduce your overall spending power.
It is important to avoid short-term changes when it comes to investing. Over the last 30 years, global equities have returned an average of more than 9% each year despite stock market falls**. History shows that markets often fall during times of conflict, yet they have proven to recover – often at a faster rate than predicted.
Volatility is an expected part of investing, and you should ensure that your risk profile is right for you and your investment time horizon. A well-diversified portfolio suited to your risk profile will ensure that you are not exposed to a single asset class. If one part of your portfolio performs poorly, another area should outperform, and this can help reduce overall volatility and steady returns in the long run.
It is important to discuss any changes in circumstances with your investment manager, allowing opportunity to tailor your portfolio in order to meet your long-term objectives.
This commentary is for general information only and is not intended as investment advice or any other specific recommendation as to any particular course of action or inaction. This information does not take into account the specific investment objectives, financial situation, tax situation or particular needs of the recipient. You should seek your own professional advice (including tax advice) suitable to your particular circumstances prior to making any investment or if you are in doubt as to this information.
Although this information has been obtained from sources believed to be reliable, no member of the EFG group represents or warrants its accuracy, and such information and/or investment research may be inaccurate, incomplete or condensed. Any opinions in this commentary are subject to change without notice. The commentary may contain personal opinions which do not necessarily reflect the position of any member of the EFG group. To the fullest extent permissible by law, no member of the EFG group shall be responsible for the consequences of any errors or omissions herein, or reliance upon any opinion or statement contained herein, and each member of the EFG group expressly disclaims any liability, including (without limitation) liability for incidental or consequential damages, arising from the same or resulting from any action or inaction on the part of the recipient in reliance on this document.
* Bank of England – Bank rate increased to 1.25% August 2022
** MSCI World Index in GBP terms.