Even advised clients are not immune to the financial anxieties sweeping through the rest of the population, writes Ben Lester.
Investors are facing continually challenging times. It could have felt like the longest bull market run in history would go on forever, until it was stopped in its tracks by a global pandemic. While markets recovered it marked the start of a period of volatility that shows no signs of abating. And then there are persistently high inflation and interest rates.
We wanted to better understand investors’ concerns so we asked the adviser audience at our April webinar two questions:
- What are your clients most concerned about at the moment?
- What are your clients mainly asking you about?
More than six in ten (62%) advisers reported the investment environment as their clients’ greatest concern, followed by cost of living (33%).
This snapshot of adviser/client conversations lets us dig deeper into investor concerns where some distinct themes emerge with inflation and interest rates at the core.
Retirement planning and affordability are common worries
For many, achieving a comfortable later life is the primary purpose of investing. For those in the accumulation phase questions to their advisers focused on portfolio performance – would they, could they, still reach their goals? Inflation and interest rates are playing a major role here as other costs, mainly mortgages and energy bills, take a larger chunk out of budgets, leaving less to invest for the future.
For those in retirement, long-term affordability is a priority, with the risk of running out of money now feeling more real. Investment returns cannot currently be relied upon for long-term, consistent income. Something compounded by the steady increase in the amounts needed for a comfortable retirement.
There’s a dilemma between keeping money in cash and investing
While persistently high interest rates are bad news for mortgage holders, they have provided a boost for cash savings. Cash ISA and fixed-term account rates are higher than they have been in a long time. It’s easy to see the appeal of cash’s comfort and security, but rates are still a long way behind inflation.
Clients with money they could invest are cautious about timing the market. Should they invest now or wait? Will the markets outperform cash rates? Or might they lose money in equities if markets drop again? Whether to delay investing and leave money in cash for a just a little longer is a familiar debate.
Investment market performance is causing unease
Uncertainty is one of the biggest factors when it comes to investing. Markets don’t like uncertainty and neither do investors. They’re used to making decisions and managing their expectations based on facts and experience, but investing tends to disregard that particular convention.
While the market volatility that came with the pandemic was to some extent contained – the vaccine was rolled out, restrictions eased and the world slowly found its way back to something close to normal – the current causes of volatility are quite different. The war in Ukraine shows no sign of ending any time soon and continues to have broad and far-reaching implications. September’s mini-Budget sent shockwaves through the markets and continued strikes across the UK have also influenced economic output. It’s no surprise then that investors are asking their advisers what the next crisis is going to be, when a recovery might be likely and whether there’s going to be a crash. Even some ‘cautious’ portfolios are failing to provide much comfort based on recent returns.
Interest rates and inflation underpin all key concerns
Inflation and interest rates remain stubbornly high and the Bank of England’s chief economist’s comments that British households and businesses ‘need to accept’ they are poorer will have done little to help the situation.
One adviser, however, took a different stance. They made the point that ‘inflation is the greatest problem for many, though, in the long run it serves to increase asset values so one would continue to hold real assets’. In other words, keep calm and carry on.
Many of the concerns voiced here relate to investor expectations. For example: whether inflation would continue at its present rate for the forseeable, the outlook for mortgage rates and how to maintain their lifestyle. These clients have built up their expectations around investing, inflation and interest rates which have been developed and reinforced over many years. That things now look very different is understandably hard to process. One adviser addressed this very point, responding that they manage their client expectations, with a ‘no surprises’ policy. That chimes with Morningstar’s approach of being prepared and building robust portfolios which can withstand all market conditions.
Expectations and information can help to navigate challenging periods
We can’t influence the markets any more than we can predict them, but being well equipped to answer concerns and manage expectations is a good way to help keep investors on track towards their long-term goals. Our regular monthly adviser resources are designed to support advisers in that, with topics and content informed by their feedback.
 The Guardian – Britons ‘need to accept’ they’re poorer, says Bank of England economist, 25/4/23