Volatility In The Current Climate

Craig is joined by financial advisors Jamie Benn and Jason Murgatroyd to talk about volatility in the financial markets.

These are challenging times and our hearts go out to the people of Ukraine and what they’re going through. Obviously, there’s a lot of families in the UK that are concerned about their families, and we all feel terrible about what’s happening.

And while the impact on the rest of the world is nothing compared to the stress and pain they’re going through, there are a lot of knock-on effects from a financial point of view. We are getting quite a few calls about investments and volatility in the markets.

The knock-on effects of the Russian invasion

It’s incomparable to the crisis of war, but as financial advisors it feels right to talk about the monetary impacts in a bit more detail. Inflation, fuel and energy prices, boycotts and sanctions and gas and oil shortages are all causing a lot of concern.

A friend’s Instagram this morning said they filled their van up with diesel and it cost £151. I got my energy bill last week – I’m coming to the end of a fixed rate tariff and going onto the standard variable rate. My monthly payment is going to go up by £100 a month. If I fix it again for three years, my payments will go up to £350 a month.

The shock, for a lot of people, is yet to come because not everybody’s coming to the end of a fixed rate tariff just yet. But when you do, you’re going to have one heck of a payment shock.

Keeping a sense of perspective

It’s interesting how things you read in the media often don’t have a big effect on you personally, but this is something that really is hitting closer to home.

When you’re as old as I am, you’ve seen this kind of thing before – that helps, because we know we’ll come out of it in the end, hopefully stronger and better for it. But without that experience, then it’s a very daunting prospect.

The point of this podcast is to look at the short term impact on energy prices and the petrol pumps, against the long term impacts.

Should we hold our nerve on energy bills?

In terms of energy bills, one good side thing is that we’re now heading into spring, the weather is better and it’s not going to have as big an impact. But at the same time, this is the time of year where you build your energy balance back up. This year that may not be the case.

Our take on it is that we should assume this is short term. I wouldn’t be taking a three year fixed deal at £350. But on the other hand, we don’t know what’s ahead of us. I have left the account on the standard variable rate. But I don’t know. These are unprecedented times.

Improving self sufficiency

One positive in all this is that it will force the UK to become a bit more self-sufficient. If you look at Scotland – granted they’ve got a fair few oil reserves – but they don’t need to take any power from elsewhere. They have a lot of renewable energy. So in the long term I think this is something that we as a country can improve on and bring it under more control.

It’s good to remember that only 4% of our gas comes from Russia, whereas other countries like Germany take 30%. So they’ve got more to worry about from that point of view.

Short term vs long term

I do try to look for the positives, I have built in optimism, but I can’t help thinking that the short term impact that we’re about to feel will be sudden and drastic. While it’s great having long term optimism about being more self-sustainable, we need to prepare for a significant short term blip.

Recently I’ve been sitting down with my clients and going through investment portfolios. And comparing the valuations against six months ago, they have dropped significantly. At times like this, you expect that. But to such an extent, it’s coming as a surprise to a lot of people.

The message we’re trying to get across is that this isn’t the time to start panic selling. Leave your money where it is.  The market always reacts to certain things out there, and we know that there’s always a bounceback at some point. It’s about trying to look to the long term, just as we were talking about with renewable energy. We need to look for the long term progress and gain that will make up for this short term pain.

Leave it to the experts

Coupled with all this, don’t forget, we’re still coming off the back of COVID-19, plus Brexit. The economy was already fragile. Add this into the mix… everything is up in the air at the moment.

We do a lot of webinars where fund managers give presentations on what they’re doing to manage their portfolios and our investments. And it always surprises me how ahead of the game these guys are. It’s comforting to know that there are adjustments being made with these portfolios and that’s built into these investment funds that we offer clients – they have diversification.

My fears are for people who have single company shares where there’s no diversification. They’ve put all their eggs in one basket. Those people, depending on what those shares are, could see some significant impacts in the wrong direction.

Play the long game

The point of this podcast was to say that, yes, you’re right to be worried. But you can get too hung up on investments, and it’s not helpful to look at them every day and worry about how much you’ve lost in 24 hours or a week. Put it to one side. Given the volatility, plus the fund managers we’ve got and the predictions that they’re working towards, you are in very safe hands.

There’s enough to worry about: what the war means in general, energy prices, the price of fuel. If you’re working from home your energy bills are going up, or if you’re commuting to work, that cost is going up too. Focus on overcoming these issues, not the long term future of your pension investments. That will come back. We’ve been through this before, and we will come out the other side. You’ll still see long term growth.

With investments, we set out with some objectives that we’re aiming to achieve. But 99.9% of the time those objectives are 20 or 30 years in the future. Things happening now are just short term bumps in the road.

Market cycles

This is what markets do. You will always see in a ten year cycle that there’ll be a peak and there’ll be a trough. And in fact if you’re looking at making investment, then now is probably the best time to do that. Prices are very low, so make hay while the sun shines.

It’s similar to the housing market. When the market’s dipped, that’s when the deals are there. Property hasn’t changed over the last 30 years, but its value intrinsically has risen. And it’s the same thing with the market and portfolios.

Investment bonds are designed to smooth out short term investment volatility. When you look at their current performance, the effects of what’s going on are minimal on funds like that. They’re not experiencing the same volatility – they are designed for times like this. So there are still investments out there that you might not be worried or concerned about. You might be surprised at how little they are being affected.

Rounding up

Thank you for listening to this edition. It’s difficult to focus on the financial side of the current situation and overlook the human element. We are very concerned about events in the Ukraine and our thoughts are with all of those going through such a difficult time. We hope that there can soon be an end to this tragedy.