As published in the Manchester Law Society Messenger (Nov 2022) and can be viewed The Messenger November 2022 (legalrss.co.uk)

Should I worry about inflation?

No doubt you’ll have noticed the rise in costs as you fill up your car or do your weekly shop and although some costs have fallen we continue to see inflation at its highest levels in 40 years. But what does this mean for investments – should you sell everything (probably not), or pile all your cash in to markets to take advantage of the sell-off in share prices (also probably not).

Inflation started to rise at the end of 2021. Central banks around the world began to plan interest rate rises to bring inflation under control fairly quickly – at least that was the plan. It soon became clear that higher inflation was going to stick around for a while, but what has caused this surge in CPI?

Covid-19 vaccinations enabled economies to re-open and we saw a recovery in sectors that had been impacted by the pandemic. Monetary policy in developed markets remained accommodative, fuelling the pace of recovery and leading to supply shocks across global industries. An already steep rise in energy and raw material prices raised concerns about inflation and the prospect of central banks raising interest rates from historic lows. This was compounded by the Russian invasion of Ukraine in February 2022 which sent oil and gas prices soaring further. Supply chain issues driven by sanctions on Russia, war zones in Ukraine and a zero Covid policy in China have all contributed to inflationary pressures. This perfect storm of events in the first half of 2022 led to high levels of price volatility in investment markets.

Investment markets hate uncertainty, and we have had uncertainty by the bucket load this year. This is nothing new and throughout history there have been events that have caused market crashes. Importantly, these are always followed by a recovery, and this time should be no different. The question is how long the recovery will take. This will depend on many factors, and it is of course impossible to know what is around the corner. With this in mind, I have set out some key things to remember when investing:

• Build an emergency fund – cash savings are the foundation of any successful financial plan and provide peace of mind that short term expenditure can be met.
• Don’t put all your eggs in one basket – diversification is essential. There are winners and losers in all markets and holding investments in different areas reduces stock specific risk.
• Look to the future – investments should be made on a long-term basis (at least 5 years). This allows you to ride out short-term volatility and provides greater potential for a positive return over time.
• Don’t panic! – making knee jerk reactions rarely works out well. A good financial adviser can be invaluable and having a solid financial plan in place that is backed up by a diversified investment strategy should provide reassurance that everything is on track.

Five Wealth Ltd is a Chartered Financial Planning and Wealth Management firm based in Central Manchester. We provide independent financial advice to clients throughout the UK, managing assets of c.£660m. Our bespoke financial plans aim to meet the specific needs and circumstances of everyone we work with from business owners to individuals and families. Further information on our services can be found on our website: www.fivewealth.co.uk

We are proud to work closely with legal teams in Manchester to provide a holistic service to our clients and have sponsored the Manchester Legal Awards Private Client Team of the Year Award since 2017.

If you are looking to review your existing arrangements or would like to discuss your financial planning, please get in touch:

Amy Grace – Associate Director and Chartered Financial Planner

Email: amygrace@fivewealth.co.uk

Mobile: 07966 590 849

Your capital is at risk. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a guide to future performance. Investments should be considered over the longer term and fit in with your overall attitude to risk and financial circumstances.

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