Chapters Financial News

Having recently reviewed a client's pension and investment arrangements with them as part of our standard process, we discussed the events of 2022 which made the year rather turbulent for markets in equities, bonds and most other asset classes. He noted that 'the market was playing all of the right notes but not necessarily in the right order', which although amusing, was a rather apt description for what occurred in 2022 for investment markets.

You do not need me to remind you of some of the headline events, such as the invasion of Ukraine, the rise of inflation and correspondingly central bank base rates, and the energy price increases, amongst many other events. The economics proposed and changed by Liz Truss MP, our short-lived Prime Minister, (and now repositioned by the new administration), also spooked the markets, both in UK equities and the global view of the UK, but also in the bond, gilt and fixed interest markets.

It is noteworthy that at the time of writing (early February 2023), some markets are close to their all-time historic peaks, using the FTSE100 as an example, which has exceeded its past high.

We would normally anticipate lower volatility in bond, gilt and fixed interest funds than has been experienced in recent months, and it will take time for these values to recover (which is not guaranteed). Chapters Financial has an Investment Risk Scale which can be found on our website, which details further investment risk and other preferences, such as environmental, social and governance (ESG) requirements. This can be found here: investment risk scale

We all know that past performance is not a guarantee of future performance and on the second page of this document there is a graph of an example medium risk portfolio over time, which illustrates volatility further. It's an important consideration, and I have expanded on this point below.

Investment risk and return, in the aggregate, are inextricably linked. Generally speaking, the higher the percentage you invest in risky assets the higher the potential for losses, particularly in the short term. Below, we have illustrated performance over the 20 years ending in March 2021 for a very simple example medium risk portfolio comprising 50%
invested in the average UK equity fund (as a guide for equity investment) with the remaining 50% assumed to be invested in the average UK government bond fund. The chart shows that, although the value did increase over the longer term, during the worst run between 2007 and 2009 the value fell by 18.8%. Even portfolios run on a more cautious basis lost money over this period and there is no reason to believe that losses like these (or even higher) will not happen again.

Example investment risk (guide only, initial investment of £100)

The figures illustrated do not include any allowance for charges.

In part, what this illustrates is that market volatility is not uncommon, as history demonstrates. Having the ability and appetite to maintain position when markets are in negative territory can be important to ensure that real value is gained from your investments, ISAs and pensions over time.

If you would like to discuss your current arrangements and the investment allocations that you hold then please contact the team at Chapters Financial in Guildford.

No individual advice is provided during the course of this blog.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899