- Markets around the world fell on the outbreak of the Iran war, but the S&P 500 and Nasdaq recovered and hit new highs on 15 April
- The FTSE 100 remains below its 27 February peak, but has climbed from its dip on 23 March
- Gilt yields remain significantly higher than before the outbreak of the war sent oil prices soaring, raising inflation fears
- Huge uncertainty remains about the outlook for peace, so investors may not be out of the woods yet
Sarah Coles, head of personal finance at AJ Bell, comments:
“Investors have been through the wringer in recent weeks, as the outbreak of war sent stocks plummeting. More recently they have made up some ground – and some markets have recovered completely – but the outlook remains highly unpredictable.
“These movements have demonstrated how important it is not to panic at times like this and crystallise your losses. Anyone who sold to try to protect themselves in March is likely to have missed out on the subsequent bounce back. As ever, if you have a balanced portfolio that meets your needs, then sitting tight is often the right approach in volatile times. It’s going to be something to bear in mind if we’re hit with more turbulence in the coming days and weeks.
“However, it doesn’t mean everyone should sit on their hands entirely, because for some people, volatility provides a handful of planning opportunities.”
- The start of the new tax year is a good time to consider using the Bed & ISA process to move up to £20,000 of investments outside an ISA into the tax wrapper, in order to protect them from capital gains tax and dividend tax. When you do this for an asset that has made significant gains, you need to be careful not to bust your capital gains tax allowance for the year and trigger a tax bill.
- Now is a sensible time to consider whether your portfolio is as diverse as it needs to be, or whether the volatility has exposed your need to spread the risk a bit more.
- It’s also worth looking at whether you still have the right combination of investments, or whether ups and downs in particular assets have left it unbalanced.
- It’s a good chance to revisit your de-risking strategy, so you can move some of your investments into less volatile assets, like money market funds or cautious bond funds, at sensible times, ahead of any withdrawals.
- Consider monthly investments. By drip feeding your money into the markets you remove timing risk, because you will be buying throughout the ups and downs of the market. When markets are lower, your monthly investment will go further and when they rise, you’ll benefit from the growth.
- If you were already planning to buy an annuity to generate at least some pension income, the fact that incomes have risen on the back of inflation fears could work in your favour. When higher inflation is expected, the market assumes that interest rates will rise. This makes existing government bonds look less attractive – because the return looks poor compared to cash. It means the price of bonds fall and the yield (the income you get on the bonds expressed as a proportion of the price) increases. Bond yields are used to price all sorts of things, including annuities, so if you’re planning to buy an annuity, you can get a better income. Right now, a 65-year-old with £100,000 in their pension buying a level single-life annuity could get an income of £7,840 a year.
- If you have cash savings you won’t need for at least a year, sitting in an easy access account, you can consider tying it up in a fixed rate account now that rates have nudged up. This will guarantee the rate, regardless of volatility in the wider world.