It’s almost impossible to open your newspaper, read online news, or switch on your TV, without some feeling of trepidation at the consistent stream of downbeat financial news stories we’ve been subjected to recently.

One big reason for this is that the current plethora of news outlets means far greater competition for viewers and readers than there ever has been before. This means that even generally sober reporters from the BBC, or the broadsheet newspapers, can tend to hype bad news rather than take a more considered approach.

That’s not to say that everything is all sweetness and light at the moment. A mix of rising interest rates and high inflation isn’t ideal, and official predictions of a recession that could last a couple of years are concerning.

However, I think it’s important to keep a sense of perspective, especially when it comes to managing your money and looking at your long-term financial future.

So, here are five  tips for you to bear in mind when it comes to your financial planning. You’ll probably recognise some of the key messages I’ve highlighted here, as they’ll be similar to the messages I’ve given you, and will continue to give you, during our review meetings.

1. Always think long term when it comes to investing your money

Saving for your retirement is very much a long-term endeavour.

This means that the financial headwinds we may well face in the coming months need to be measured against your investment horizons. These horizons could be 40 years or more when it comes to accumulating your wealth during your working life, and then another 20-plus years while you enjoy a well-earned retirement.

Constantly checking your fund values and reacting to every short-term market fluctuation is just liable to give you the odd sleepless night. The reality is that, over an extended period, investing your money is generally the best way to grow your wealth and enjoy a comfortable financial future.

2. Appreciate that inflation will start falling soon

The rate of inflation is one of the key economic indicators.

There are several factors that are driving inflation to the high levels we’re currently experiencing. These include:

• Ongoing supply chain and distribution issues, meaning demand is outstripping supply
• The war in Ukraine that’s causing energy prices to rise
• Demand that had built up during the Covid pandemic taking time to work through the system.

While we don’t know how long the war in Ukraine will last, steps that the government and businesses are taking to manage supply chain issues are starting to have an effect.

As the Bank of England (BoE) made clear in their most recent Monetary Policy Report, they are raising interest rates to try and get inflation under control.

As you can see from this chart, taken from that report, they expect inflation to reduce sharply in the middle of next year, as it starts heading towards their long-term target of 2%.

Source: Bank of England

3. Don’t overreact to talk of a recession

Although they expect inflation to start falling in 2023, the BoE predict that we’re heading into an economic recession that could last well into 2024.

A contracting economy and reduced business investment clearly aren’t ideal financial circumstances. But when it comes to investing your money, a recent report from leading investment fund managers, Vanguard Asset Management, provides good reasons to be optimistic.

The report suggests that there’s no direct correlation between stock market performance and the timing of recessions. Markets tend to have recessions “priced in” to their value before they even happen, so they then start to recover while economies are actually still in recession, rather than any recovery being delayed until the downturn is over.

Furthermore, the report also suggests that the timescale of recessions tends to be short compared to your investment horizons (see point one above).

4. Your income strategy may need adjusting

If you’re currently drawing income from your pension fund, or other investments, you may need to review how much you’re taking, and where you’re taking it from.

High inflation reduces the spending power of your money, and this could have an effect on your household costs.

It’s difficult to make generalisations about this as your circumstances are unique to you, so there’s no “one-size-fits-all” solution.

However, the one strong recommendation I’d make to you is that if you do need to review your income strategy, you seek expert advice before you do anything too drastic.

Overreacting now could cost you in the long run, so it’s essential to ensure you take a considered and informed approach to managing your income.

5. Don’t meddle with your investment strategy

Investing money as part of your financial planning strategy is a long-term proposition.

The nature of markets, and of economies more generally, is that they do go through periods of turbulence.

Since the start of the century, we’ve had the dot-com bubble, the financial crash, and the unprecedented, worldwide impact of Covid.

That’s three events that all created market panic and a sudden fall in investment values. The chart below shows the performance of different globally diversified portfolios with various levels of equity content. As you can see, in each case there was a recovery immediately following the downturn.

Source: Dimensional

It’s easy for you to overreact to poor economic conditions and think that you need to make changes to your investment strategy. In most cases, however, any changes you make could do more harm than good.

If you only take two words away from the 1,000 or so I’ve set out here, they should be “don’t panic.”

As long as your underlying investment strategy is sound, and specifically designed to manage rough times as well as the smooth, your portfolio should deliver what it’s designed to do.

Get in touch

If you have any queries or concerns regarding your investment strategy, then please get in touch.

You can email me at graeme@macfp.co.uk or call me on 01349 832849.