Words by Jake Webster, managing director of 79th Group
First of all, it’s important to say that investing has been in my blood since I was born, I was brought up around it and taught about it from the moment I was old enough to begin to understand.
Furthermore, I’ve been professionally involved in the natural resources and asset management sectors for many years now and have worked internationally with central banks and global commodity houses to establish and arrange finance for projects and commodity supply chains.
So, when I say the things that I’m about to, it’s not whimsical, I’m speaking from a position of first-hand experience of the market and the trends, and peaks and troughs we’ve seen over the past 15-20 years.
Gone are the days where investors put money into assets to simply build upon their wealth. With eye-watering inflation and the rising cost of living, there has been a huge turning point in the motives behind investing for many people.
A new wave of investors are now looking for ways to beat inflation and retain their wealth, investing to cancel out increased costs by investing smarter. These investors understand that during an ongoing recession, investing – and investing well – is more important than ever.
The effects of inflation on the UK economy
Inflation has hit a 40-year high with predictions now that it could reach 12 per cent by the end of the autumn. The potential recession is forecast by many to be worse than the last, due to a wide range of events – including the coronavirus pandemic, cost-of-living crisis, Brexit and the ongoing conflict in Ukraine. All of which have culminated in a huge rise in inflation and ongoing economic uncertainty. It’s not hard to see why there has been a huge shift in mindset from many investors.
Inflation is currently the number one topic investors want to discuss. On average, UK investors would previously receive an 8-9 per cent return, but now need a 12-15 per cent return in order to beat inflation, which has risen for the ninth month in a row. Despite the Bank of England’s vow to “deliver inflation back to its 2 per cent target” through rising interest rates (which has its own knock-on effects on the economy), it makes sense that people are turning to investments as a way to secure their future, understanding that the economy is going to dip further before it gets better.
The truth of the matter is that inflation isn’t going anywhere. It is only set to rise in coming months, and we haven’t seen the worst of the economic situation yet. Although this is a troubling thought for many reasons, taking time to review, consider taking a risk and diversifying an investment portfolio and flexing with the times could reap many rewards.
This starts with taking an open and honest look at how the market and the economy is going to change in the coming months and years. Any advice given to investors in the current market is not realistic if it doesn’t heed broader warnings of tough conditions for the foreseeable future. However, it is how investors use that information to their benefit that will help them to move forward and take calculated risks with their wealth.
Creating a salary through investments to cover the cost of living
Another motivator is that the living wage is not increasing at the same rate as inflation. When adjusted for inflation, pay actually fell by 4.5 per cent in the year to April. Lower pay levels are not helping to draw people back into the workplace and those with disposable income or savings, who may not currently be in employment, are using this money to create money – effectively creating a salary for themselves that can help offset their living costs.
Investors also no longer want to leave their savings in banks with low interest rates. To avoid seeing their savings decrease in value, they are investing to get a return from their savings. With the instability of the banks, it is not hard to see why people see this as a less risky option.
Investing in assets that retain their value during times of crisis, such as property or gold, can lead to long-term benefits. Although many tend to act more cautiously during times of economic uncertainty or crisis, the real opportunities exist when people look for ways to invest smarter, so that when the market picks up they can benefit from significant returns.
A move toward ‘hands-off’ investments
One such example is the increased trend in ‘hands-off’ investments, which allow investors to reap the financial rewards without the added stress and administration headaches. Standard buy-to-let properties, as one of the most popular forms of investment, are not currently providing the return many hope for – often the returns are lower than promised and they can be time intensive investments, which can be prohibitive for many time-poor investors.
Hands-off investments are a good alternative and are a great option for those looking for foreign investments, as it is possible to benefit from generating an income from high-yielding assets without having to live in the same country.
Investing remains a reliable way to grow and protect savings
In the current climate, investing remains one of the most reliable ways to grow and protect your savings – provided it’s done correctly. Many people are now seeing that investing is a less risky option, as it protects their savings against inflation. When inflation rises, personal savings lose their purchasing power as cash is worth less at the point of spending.
There has been a significant turning point for UK investors who are now looking for ways to offset their increased living costs whilst building their wealth during the ongoing cost of living crisis. And, with prices continuing to rise at their fastest rate for more than 40 years, people are looking for new ways to invest to secure their future; and property and gold are, in my opinion, the best ways to diversify a portfolio to be able to do this.
The 79th Group is an award winning asset management company headquartered in the United Kingdom.
Disclaimer: Investing money carries risk, do so at your own risk and we advise people to never invest more money than they can afford to lose and to seek professional advice before doing so.
