The Threat of Recession

Navigating current challenges like rising prices, interest rate hikes, and European conflicts impacts investment returns. Amidst this, the looming threat of a recession adds complexity.

Picture this: the economy is like a rollercoaster, with ups and downs. A recession hits when we reach the economic peak and start descending into a trough. In the UK, it’s defined as two consecutive quarters of negative economic growth.

Recall the last economic downturn triggered by the onset of the Coronavirus Pandemic in 2020. Now, let’s delve into how recessions influence our financial landscape.

What impact will this have on your investments?

Amidst a recession, the financial landscape shifts, and investment prices may take a dip, reflecting on those monthly statements. It’s a moment that often triggers a pang of unease, a flicker of concern. Yet, resisting the urge to hurriedly sell off investments is the golden rule.

The allure of moving funds to the reassuring embrace of bank accounts or cold, hard cash is tempting. It’s a familiar instinct—seeking safety in turbulent times. But, and it’s a significant ‘but,’ this move comes with its own set of risks, akin to a high-stakes gamble.

First, there’s the precarious art of ‘timing’ the market—a challenge akin to hitting a bullseye in the dark. Buying when prices are at rock bottom and selling at their zenith is a dream scenario, but it’s elusive, an enigma that even seasoned investors grapple with.

Now, imagine this scenario: you decide to dance with this market timing challenge. You choose to sell your investments to dodge those looming short-term losses. Sounds like a prudent move, right? Well, here’s the tricky part—you need to get not one but two decisions right. Sell at the perfect moment, and then reinvest at an equally opportune time.

So, what should you do?

Clients should remember that investments are designed to be held over the longer term. For many, investments are held for future purposes, like retirement or for a dream holiday way down the line.

As funds are not required imminently, many can afford to hold on to their investments if they drop in value. This is because most clients will have sufficient time to give their investments chance to recover some, or all, of the losses seen.

Where possible, clients should avoid knee jerk reactions to falling markets. If in doubt, please contact us.

We are confident that investments can continue to return a superior rate of growth compared to cash over the longer term.

We do not advise clients try and time the market by selling and re-purchasing their investments. This can often only lead to further losses.

Further research by Quilter suggests that large percentage of clients’ growth comes through being invested on the ‘best days’ in the market.

Based on an investment of £10,000 over a 30 year period, by missing the 25 best days in the market, clients could miss out on over £114,000 of growth compared to the position they could have been in had they remained invested for the full 30 year period.

By trying to time the market in these difficult conditions, the negative impact on investments could be significant if you get your timing wrong.

Check out Quilter’s research in full, here.

What should you do if you need help?

Pick up the phone. If you have any concerns, please contact us. Several clients often wait until their review meetings to discuss their concerns. Some even lose sleep over the way their investments are performing. Please do not fall into this category.

IFP’s advisers are on hand to take your calls and to talk through any questions you have. We’re no good at singing lullabies, but we can help you sleep easy at night without any concerns about your investments.

Written by Managing Director, Josh Richardson. 

Related Posts

ESG vs Ethical – The Rumble in the Investment Jungle

As the voices of the activists grows in the media and governments are striving to do better with the numerous COPS, the investment world is progressing and incorporating ethical ideals and ESG practices into its models. The investment world is…...

Ellie Dickens

10 Tips On How To Be More Sustainable

10 Tips on How to be More Sustainable - By Senior Paraplanner, Rachel Naulls  It is becoming harder and harder to avoid the media and narrative that we need to do something to save our planet. Just by watching David…...

Ellie Dickens

Financial Pressures at Christmas? Here are 6 Financial Tips

Senior Paraplanner, James Foston, has written his 6 top tips on how to deal with the financial pressures of Christmas! James has been with us at IFP for 5 years and is a valued member of the Paraplanning team so…...

Ellie Dickens