We can only speculate what 2024 will bring to the economy and investment markets, to society and to our personal circumstances. Some events will happen we don’t expect, some will have a greater impact than we predict, and some things will deliver a milder outcome. Yet there are steps we can take – and habits to embed – to help us better face situations we anticipate, and be better prepared for events which take us by surprise.
Be diversified when investing
Because different assets and different regions often perform differently from year to year, it’s impossible to predict which might do better with any regularity. This is why a globally diversified portfolio of different kinds of assets (featuring stocks and bonds) is so important – to help you adapt when events take a turn for the worst (like a localised recession or regional conflict) and to benefit when investment markets are buoyant.
A recent poll by global bank Citi of professional investors (summarised in Bloomberg¹) revealed that geopolitics was perceived as the top concern for the year ahead. Also included in the mix was the US election, inflation, the potential for interest rates and recessions. Any number of these could have a greater or lesser impact than we expect – and cause different markets to rise or fall depending on the actual outcome. A suitably diversified portfolio can help you to prepare for these eventualities.
Stay invested (even if your emotions tell you otherwise)
Whatever the actual outcome of events, history has shown us the benefits of staying invested – during good and difficult times. Even after momentous events (such as the 9/11 attack in 2001 and the 2020 pandemic) markets have proved to be remarkably resilient and have continued their trajectory after the initial shock.
Various studies have shown the perils of trying to time the markets over the years. Recent figures compiled by JP Morgan (for the 20 years to the end of 2022)² highlighted that if an investor had missed just the 10 best days in the S&P 500 index over this period, they would have less than 50% of the returns of someone who stayed invested. So while your emotions can (often understandably) nudge you towards making rash decisions – to dip in and out of the market, for example – the evidence suggests you are better off staying the course.
Have enough cash for emergencies
Your personal circumstances could change with little or no notice, often disrupting your financial situation. You may be facing a divorce or coping with illness, a change in employment or an unexpected bill – having cash on hand can help you to maintain your long-term investment commitments.
It might be an idea to have six to twelve months of income to hand. This can act as a useful buffer for unexpected expenses, so you don’t have to withdraw funds from an ISA or pension, for example, and can continue to enjoy the tax-free and compounding benefits of these wrappers.
Seek advice if you need it
You may face an unexpected change of circumstances, need a second opinion or are unsure how to manage your money effectively. While tailored financial advice can bring you valuable peace of mind, studies by the International Longevity Centre (ILC) also show that those who take regulated financial advice are measurably better off a few years later. A survey by Unbiased³ agreed with these findings – when looking at pension pots specifically, they found that the return on the initial cost of advice was 4,336% if taken at age 35, with more than £3,500 in extra income a year in retirement for a £100,000 pension pot.
Don’t discount inflation
While inflation appears to be heading in the right direction, even the impact of relatively low inflation is rarely negligible. The impact of 2% inflation a year on £100,000 means the real value of your money (its spending power) would be around £82,000 after 10 years, or just over £74,000 if inflation is 3%.
We don’t know where inflation will settle over the next year so make sure you factor its effects into your long-term plans – then you can consider whether you need to take more investment risk to ensure you are on track to meet your goals.
Make sure your financial plan is fit for purpose
The best way to assess whether a financial plan is fit for purpose is to check whether it still matches the needs you have now, and those you anticipate. When you established your financial plan you may not have been married, or had children or formed a clear idea of when you planned to retire – changes to your circumstances, income and savings levels may provide a good incentive to review your financial plan each year.
Find out about the steps you can follow to establish a resilient financial plan, or for some useful pointers to see if your financial goals are on track.
Assess the fees you are paying to invest
Paying less money in investment fees can have a bigger impact than you might think – and therefore provide greater returns than you might expect. With a £500,000 portfolio, for example, you would have £70,000 more in your pocket after 10 years if you pay 1% in fees rather than 2% on your total investment costs (assuming 5% average returns).
Why hesitate to start making savings? What is stopping you from making a meaningful difference to your financial outcome this year and every year, just by reviewing how much you pay in fees – and taking appropriate action if you are getting a raw deal.
Make the most of your financial circumstances in 2024. Please get in touch today to arrange a complimentary, obligation-free financial health check at a time of your convenience.
Please note, the value of your investments can go down as well as up.
Netwealth offers advice restricted to our services and does not provide independent advice across the market. We do not offer advice in relation to tax compliance, personal recommendations with regards to insurance and protection, or advise upon the transfer of defined benefit pensions.