2023 was not an easy year for many investors. The FTSE 100 did not progress much, although the US-based S&P 500 had a better year (driven heavily by rising valuations of tech giants). Inflation continued to ride high in the UK, slowly falling from a 41-year high of 11.1% in the previous October. Looking ahead, what can investors expect from 2024?
Below, our Carlisle financial planners here at Vesta Wealth offer five tips for investors as we move into the first quarter (Q1) of 2023. We hope these insights are useful to you. Please contact us for more information or to speak with a financial adviser:
t: 01228 210 137`
e: [email protected]
#1 Keep a strong emergency fund
Investing is vital to growing an individual’s wealth. Yet this growth can be undermined quickly by a sudden setback, such as an expensive home repair. Having a healthy financial “buffer” ready will help investors avoid the temptation to turn to credit (e.g. credit cards, where average APRs currently stand at 34.8%).
A good rule of thumb is to aim for 3-6 months’ worth of living costs available in easy-access savings. This gives you more flexibility and peace of mind if you unfortunately encounter a “financial shock” in 2024, such as lost employment or an urgent dental bill.
#2 Stay diversified
It can sometimes be tempting to shift investments around to try and “time the market”. Perhaps you have heard predictions about a particular market or company which is ready to “take off”. Or maybe you are worried by alarmist headlines about a certain asset class.
Here at Vesta Wealth, however, we encourage investors to remember their long-term strategy and to stay diversified. It is impossible to accurately predict what will happen in the economy or markets consistently. “Spreading out” your investments – e.g. across different companies, markets, and asset classes – helps investors to stay humble and avoid impulsive decisions.
#3 Consider interest rates
One caveat to the previous point is interest rates. In the UK, the base rate currently stands at 5.25% and is expected to start falling later in 2024 (as inflation hopefully comes down). This outcome is not guaranteed, but its probability does raise some key questions for investors.
For instance, if your fixed-rate mortgage is coming up for renewal in the next few months, should you wait a while before fixing it again (to take advantage of lower interest rates)? If you are soon coming into some money, should you put it into a fixed-rate savings account now before interest rates fall?
The answers to these kinds of questions will vary depending on your financial goals, situation, and attitude to risk. Consider talking through them with a financial adviser to ensure that your decision(s) integrate appropriately into your wider financial plan.
#4 Bear market? Keep a cool head
Some analysts are predicting recessions in various countries in 2024. Others are saying that a “bear market” could occur (a fall in asset prices) if the US Federal Reserve cannot engineer a “soft landing” for its economy. Only time will tell.
However, investors should remember that a bear market is not something to fear necessarily. Indeed, it can present opportunities. When share prices are down, this can be a great time to buy quality ones “on the cheap”.
This perspective needs to be balanced, of course, with avoiding the temptation to time the markets (point 2 above). Here, investors can be disciplined by following a strategy of “pound-cost averaging”; that is, making regular (e.g. monthly) contributions to their portfolios.
This approach will, naturally, lead investors to buy certain shares sometimes when they are “cheap” and sometimes when they are “overpriced”. The long-term trend, however, is long-term portfolio growth (assuming a well-conceived strategy is followed, ideally with the help of a financial adviser).
#5 Be careful of hype
A lot of exciting new technologies are emerging at the moment, particularly since the mainstream arrival of generative AI (e.g. ChatGPT) in late 2022. These innovations are opening up a range of exciting new markets and opportunities for investors.
However, they are also causing a lot of disruption and uncertainty. Regulations are still being ironed out and key issues – such as privacy, data protection, and copyright – remain to be fully resolved or tested in the courts.
Here, investors need to take great care not to fall into common investor biases – e.g. hype and herd mentality. Work with a financial adviser to ensure that your portfolio comprises funds and assets that are built on strong fundamentals rather than grandiose narratives.
Investor biases can be difficult to identify and manage on your own. Working with a financial adviser can be very helpful in this process – providing an expert second opinion and insights which you may have missed.
Invitation
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.