Is it a good time to invest?
26th January 2021
I recently got asked the above by one of our clients. Easy to ask, far less easy to answer perhaps, especially after the year we’ve just had, you’d think, with the UK’s largest 100 companies having lost over 14% during 2020 and was at one point down around 33%!
We are, yet again, living in interesting times as the Chinese say, more on that later. We’ve seen global markets in recent times close to all-time highs, despite the ongoing Covid issues and with the real-world economy looking a trifle sluggish in many sectors, especially retail & hospitality.
Politically Brexit may be ‘done’, but issues clearly remain to be ironed out and practicalities will surely cause some issues over the coming months. Across the pond the Trump years are behind us, but what a Biden presidency, with slim majorities in both the Senate & Congress, will bring remains to be seen. Some volatility in US markets is a given and it does seem highly likely that there will be increased taxes, fiscal stimulus and a greater emphasis in green policies & health care. That said the ongoing US China trade wars do seem to be here to stay, albeit done in a more diplomatic tone, which should at least dampen some of the over exuberance.
And what of Covid and its impacts? Are we likely to see a return to the economics of the last decade, with low inflation & corresponding low real asset returns or is an increase in inflation more likely and a risk to think about? I tend to subscribe to the latter view, but it’s by no means certain. Some inflation would be welcomed by central banks & Governments alike as it would help to reduce the burden of the huge amounts of debt taken on to support people through the pandemic. Our debt across the Western world growing to record levels in recent months & with no sign of the taps being turned off just yet. That said in recent times the talk in capital markets seems to have moved on from the level of the debt to the capacity to ‘carry’ it in the times of very low interest rates, which in some circles are expected to remain for far longer than many anticipated.
One area that does appear to have gained significant traction over the period of Covid is the increasing interest in Environmental Social Governance (ESG) investing, with funds across all asset classes becoming more widely available. Perhaps the generational shift in assets, that we’ve started seeing from Baby Boomers and is likely to accelerate as a result of the hideous events of recent times, will also increase this shift in investing sentiment? Certainly younger investors do seem more interested in investment ‘outcomes’ as well as the bottom line financials. Topically one ESG investor is already putting pressure on Compass group given the recent school lunch issues, so this can make a difference.
As well as this we’ve seen a real leap forward in the ‘digital’ economy. Is that here to stay, alongside working from home? I think it’s a strong possibility with the associated impacts on more traditional business models, office space and the like. One thing is for sure the drive for innovation in the business world, and investment, grows ever quicker as can be clearly evidenced in the speed workable vaccines have been developed.
So, with all that going on should you invest? I think it’s safe to say yes, economies and real assets tend to grow over time, but one market or sector is not going to cut it. It’s a wildly complex world, with markets reacting at ever faster pace to information, and so a diversified portfolio, across asset classes, geographies and management styles seems prudent and offers the only surety. Even then there will be volatility and there will be business failures, but in the longer term you have always been better to be invested rather than not, especially if inflation starts to make a resurgence.
An old adage, but a true one remains. It’s not timing the market that matters it’s time in the market.
Chartered Wealth Manager
G+E Wealth Management Ltd