Growth and Inflation: A Tale of Two Economies
17 July 2023
To all Financial Friends
Inflation down from 9.1% to 3% year ending June 2023! That is if you are living in the USA not here in UK of course.
Skim your eyes down a list of banks taking your money on deposit here in the UK and you will commonly see rates of around 4%. Higher if you trap your money in for a set term of years.
Current UK inflation of over 8% pa means that prices in the shops in 12 months time on £1,000 will rise to £1,080 while your money in the bank will lag behind at £1,040.
Equities have risen on the good fillip of US inflation news. Our students who stayed with equities in these high-risk times have seen good growth over the last 12 months.
Equity funds held by some students in technology have risen by +32%. Funds held in American and UK equities by +21% and +16% respectively while those holding funds in gold made +15%. This after just 12 months.
Lower risk funds abide their time to rise, when and if global recession and other concerns hit, as many commentators and fund manager groups anticipate.
Interesting that Financial Times author, commentator and former portfolio manager Stuart Kirk reflects concern by holding 40% of his personal portfolio in inflation linked treasuries/ bonds and cash currently.
Investment House Fidelity have calculated that £15,000 invested in diversified funds (typical managed or mixed asset funds) turned £15,000 into £75,000 in 20 years. Money held on deposit in cash at the bank fell short by £53,000 turning £15,000 into just £22,000.
Meanwhile investment house Hargreaves Lansdowne say that people like you (DIY investors) on average achieve a better performance than mixed asset/default funds by as much as 4.9%.
I would be happier to see the calculations supporting these results but as they are reputable firms, fingers crossed! They point out also that “picking your own investments comes at lower cost and you could achieve better returns and you control where and how your funds are invested”
They quote examples of 5-year performance of mixed asset/default funds from one of the best and worst workplace pension schemes. They say the best returned 31% and the lower ranking funds just 13% over 5 years.
Seems quirky, when some of our students (see above) made between 31% to 15% in just the last 12 months.
Past performance is no guide as to future performance and the world is a different place compared to the last 20 and even 5 years!
The important issue for all investors now is to decide how they see the future of the way things will go. Those who believe that the system, the authorities, will win the battle against global warming, the threat of increasing war, inflation and the risk of global recession will be heavily into equity funds (shares).
Investors who hold a more negative view will want to stick with their already chosen more defensive holdings (inflation linked bonds, infrastructure, gold and consumer staples) that should rise in value if things become more challenging.
Do not hesitate, as a subscribing Financial Friend, to fix up a Zoom call to talk things through. Always pleased to update information and guidance as you reach decisions you are most comfortable with.
Book a time to talk right here: calendly.com/yourfinancialfriend
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
