While homeowners can still benefit from low mortgage rates, savers will be struggling to enjoy any kind of growth on money they have on deposit, leading some to consider a riskier investment.
If you’re considering investing in the stock market, one crucial and very personal issue is, quite simply, how you feel about the prospect of putting money at risk and your ability to accommodate any loss in value.
What’s your appetite for risk?
It’s a fact that risk and the potential for reward go hand in hand: Investments that are low in risk are low in potential reward, whereas the more risk you’re willing to take with your money the greater the potential for reward.
Factors in determining risk
As investment advisers, we will consider a range of factors when assessing your attitude to investment risk:
- Age – how old you are may affect how you would like to invest, particularly the closer you get to retirement.
- The need for emergency cash – you should always keep a certain amount readily accessible (for example, in a deposit account) in the event of an emergency or as a foundation for your longer-term savings and investment.
- Can you afford to take a risk? – if your investments dropped in the short term, do you have the time to wait for them to recover?
- Can you afford not to take a risk? – leaving all your money on deposit may carry minimal risk, but you may miss out on higher potential returns and possibly see the spending power of that money fall due to inflation.
- Are there tax-efficient opportunities available – such as pensions or ISAs?
Devising an appropriate investment strategy
Once you are clear about the risk you need to take to reach your goals and you feel entirely comfortable with your risk profile, you’ll need an investment strategy that is finely calibrated to deliver the results you’re looking for.
This is where a number of other key aspects of investment come into play:
- How to avoid the ‘eggs-in-basket’ principle. We can make sure your portfolio is invested across a range of assets in order that the positive performance of some neutralises the negative performance of others.
- Making sure that your money is in the hands of some of the best and most consistent investment managers in the business.
- Making sure you can give your investments time – the longer you can leave your investments in place, the more likely you are to cope with any short-term changes in market value.
Talk to us
As members of Openwork, one of the UK’s largest networks of financial advice businesses, we follow a clear and thorough process designed to clarify exactly what you need from your investments. We also have access to a meticulously researched and managed range of investments specifically designed to meet clients’ different needs.
Taken together, you will know not only that your money is in good hands, but also that given time, there is an increased level of probability that it will perform in line with your expectations.
Good investment advice involves building a clear picture of the results you’re looking for, taking into account your current financial position, your future goals and your personal attitude towards the subject of investment risk.
Talk to us for expert advice.
The value of investments and any income from them can fall as well as rise. You may not get back the amount originally invested.
LAST WEEK – KEY TAKEAWAYS
Mixed news for UK economy…
Economic think tank, the EY Item Club, has upgraded its growth forecasts for the UK economy, lifting its gross domestic product (GDP) estimates for 2018 to 1.7%, up from the 1.4% predicted in October. It acknowledged that growth was better than expected in 2017, and it expects this momentum to carry into this year. However, the latest IHS Markit purchasing managers’ index (PMI) data for the manufacturing, construction and services sectors all disappointed for January. The surveys question firms on measures such as new orders, hiring and inventories to gauge the health of various sectors.
… As UK consumer confidence improves
UK consumers have started the year with a rosier outlook as the widely followed GfK consumer confidence index climbed 4 points to -9 in January. This was a boon to economists, who had predicted no change with the reading holding at -13. However, the index still remains in negative territory and is likely to stay that way while UK wage growth remains below inflation.
Eurozone on the rise
The eurozone continues to impress having grown at its fastest rate in a decade in 2017, according to Eurostat data. It reported that GDP expanded by 2.5% in the bloc last year, which represented the most rapid rate of growth since the 3.4% achieved in 2007. Further good news came from the latest composite purchasing managers’ index (PMI) from IHS Markit, which showed that output from private companies in the eurozone grew at the fastest pace for nearly 12 years during January.
US wage growth accelerates
Growth in average hourly earnings in the US registered at 2.9% for January. This was the strongest year-on-year gain since 2009 and, with the economy close to full employment, it suggests that employers are having to increase pay in order to attract scarcer labour.
German coalition talks pass another deadline
There was further progress in negotiations between the chancellor Angela Merkel’s CDU/CSU and the Social Democrats (SPD) last week, though the two sides missed their self-imposed deadline to forge a new government by Sunday. Discussions have already resumed this week, with the main talking points being disputes over healthcare and labour policy.
Looking ahead – TALKING POINTS
UK set for another ‘super Thursday’
This week, the Bank of England (BoE) takes centre stage for ‘super Thursday’ as its Monetary Policy Committee (MPC) will vote on whether to move interest rates, and we will also see the release of its quarterly inflation report and minutes from the MPC’s last meeting. The BoE is expected to hold interest rates at 0.5% for now, while the EY Item Club (as mentioned above) forecasts two rate rises later in May and November – the think tank expects rates to hit 1.25% in 2019.
Interest rate policy is the BoE’s primary mechanism for controlling inflation. The headline inflation figure stood at 3% in December, continuing to overshoot the Bank’s 2% target, though it is expected to fall back this year. Inflation has in part been caused by weakness in the pound, which led to increases in the cost of imports, but more recent strength in the currency should mean UK consumers begin to see slower price rises.
UK CPI inflation rate (%) – January 2014 to December 2017
Source: Office for National Statistics, Tradingeconomics.com
Industrial production data due
Another widely watched measure of economic performance, industrial production data is due from Germany, France, Italy and the UK this week. The industrial sectors covered are manufacturing, mining and utilities, and although they often only contribute a small portion of a country’s gross domestic product (GDP), these are highly sensitive to moves in interest rates and consumer demand. As the eurozone’s largest economy, analysts are keen to see how well Germany is holding up – its industrial production rose 3.4% month-on-month in November, easily beating market expectations.
Italy’s output increased by 2.2% in the same month, while France is looking for a positive figure with its industrial production having shrank by 0.5%. On a year-on-year basis, the November figure for the UK was up 2.5%. Looking specifically at manufacturing, the Office for National Statistics reported last month that output is expanding at its fastest rate since before the financial crisis in early 2008.
UK industrial production index – December 2016 to November 2017
Source: Office for National Statistics, Tradingeconomics.com
THE OMNIS VIEW
Through a well-diversified approach to asset allocation, the Omnis investment team aims to defend and grow the value of your portfolio through market cycles. For all the efforts of central banks, inflation has remained stubbornly low in the post financial crisis era. However, robust data – most noticeably in the US labour market – are beginning to challenge this trend. Having become accustomed to a low inflation and low interest rate environment, the market’s reaction to this challenge is likely to dictate investor outcomes over the coming months. The Omnis investment team continues to run diversified portfolios that seek to balance this risk against what, for the most part, remains an encouraging economic backdrop.
The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address: Washington House, Lydiard Fields, Swindon, SN5 8UB) which is authorised and regulated by the Financial Conduct Authority, 25 North Colonnade, London E14 5HS. Omnis Investments Limited does not offer investment advice nor make recommendations regarding investments. Potential investors are particularly advised to read the specific risks and charges applicable to the Funds which are contained in the Prospectus and Key Investor Information Documents (KIIDs).
Omnis Investments Limited is registered in England and Wales under registration number 06582314 (Registered Office: Washington House, Lydiard Fields, Swindon SN5 8UB).
The first month of the year marked the first anniversary of Donald Trump as US President, his state of the union speech, the World Economic Forum in Davos, Switzerland and that interview… between Donald Trump and Piers Morgan… Trump’s first international broadcast interview.
The FTSE 100 ended January at 7,533.55, which was 2.0% lower than the 2017 year end closing figure of 7,687.77. During January, the index climbed to an intra-day high on 12 January of 7,792.56.
In the US, the Dow Jones Industrial Average continued its general upward momentum, closing January at 26,149.39. This was 5.4% above the 2018 opening level of 24,809.35 and was the tenth straight monthly gain, leaving March 2017 as its last losing month.
In terms of £ Sterling, it ended January at 1.41 US Dollars. This was 5.1% higher than the closing figure at the end of December of 1.35 US Dollars, and 15% higher than the closing figure in 2016 of 1.23 US Dollars.
Against the Euro, £ Sterling ended January at 1.14 Euros, which was slightly higher than the year opening rate of 1.13 Euros.
Inflation, as measured by the Consumer Prices Index including owner occupiers’ housing costs (CPIH), was 2.7% in December 2017 (this is December’s data which is reported in January). This was down from the previous month’s rate of 2.8%. The 12-month rate for the Consumer Prices Index (CPI) rate which excludes owner occupied housing costs and council tax was 3.0% in December 2017, which was also down from the 3.1% in November 2017.
The increase in interest rates during November 2017 helped long-suffering deposit savers slightly. However, they continue to lose money in real terms when you consider the rate of savings interest compared to the rate of inflation.
The Omnis Managed funds, Openwork Graphene Model Portfolios and new Omnis Managed Portfolio Service provide you with a diversified asset allocation in line with your Attitude to Risk, investing in Developed Market Equities, such as UK, US, Europe and Asia Pacific as well as Emerging Market equities. Cautious and Balanced investors will also have significant holdings in UK and Global Bonds, as well as Alternative Strategies.
We believe this multi-asset approach aims to give you the best opportunity for the highest level of return for your stated level of risk.
Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested.