Investing in 2021: why wealth needs managing now more than ever

 05 February 2021
woman illustration lassooing pound sign.

The rollout of the three currently approved coronavirus (COVID-19) vaccines is gently illuminating our way out of a dark and long tunnel. However, uncertainty regarding both the variants of the virus and Brexit is likely to continue to weigh heavily on the UK and global economies in 2021, as well as on our personal finances. While overall the markets have calmed down since last April in terms of volatility, our financial markets and the economy could still remain at the mercy of further twists and turns in the worldwide fight against COVID-19.

Setting specific investment goals

Investment volatility can make us focus on the short term and those temporary peaks and troughs, rather than seeing the bigger, longterm picture. Setting specific investment goals can keep you focused, and will enable you to build a portfolio to get you where you want to be. 

More than ever, your investment strategies should aim for a balanced approach to risk and return, and include a combination of various investment and fund types. Maintaining this balanced approach is key to your chances of achieving your investment goals, while bearing in mind that at some point you will want access to your money.

Market factors and market volatility

Even for the most experienced investors, market volatility can be stressful. Market volatility can be impacted by many different factors, with the result of sending values of investments in either direction. Some common factors that determine the volatility of the market include:

  • Investor concern
  • Political events
  • Natural disasters
  • Major events in foreign markets

Don’t panic Mr Mainwaring!

It’s important to keep matters in perspective when investing. Avoid making rash decisions and focus on your long-term goals. Keep investing as you normally would. Don’t attempt to pick the market bottom or the turnaround to jump in, and resist the impulse to think you can! Investments don’t always go in a straight line one way or the other. As many investors found to their surprise during 2020, investments have the potential to react and recover from major but short-term market events. 

Rather than concentrating on short-term volatility, it pays to look at the bigger picture. Over the long term, investments will usually deliver returns that allow you to grow your wealth. With the new tax year just a couple of months away, now is the time to look at a twelve-month snapshot of your investment portfolio. This should show where investments have underperformed and others have fared better. Compare this with a similar period over the last five or ten years, and you’ll hopefully still be on track.

Your tolerance for risk

What is your tolerance for risk as an investor? Weighing up the level of risk you’re willing to be exposed to can be challenging. Whether you’re reviewing your pension or building a personal investment portfolio, balancing risk is a crucial part of the process. Every investor has a different risk tolerance with regard to their investment selections, known as your ‘risk profile’. Making investment decisions can depend on your risk profile and your personality as well as the goals you are investing towards. 

Investment portfolio asset classes

During volatile times, asset classes such as stocks tend to fluctuate more, while lower-risk assets such as bonds or cash tend to be more stable. By allocating your investments among these different asset classes, you can help smooth out the short-term ups and downs. Portfolio diversification may reduce the amount of volatility you experience by simultaneously spreading market risk across many different asset classes. By investing in several asset classes, you could: 

  • improve your chances of participating in market gains

and

  • lessen the impact of poorly performing asset categories on your overall portfolio returns

Diversification - protect and grow

Many businesses have had to diversify to survive during the pandemic, and you should do by same with your investments. In other words, “Don’t put all your eggs in one basket”. In addition to diversifying your portfolio by asset class, you should also diversify by: 

  • Sector
  • Size (market cap) 
  • Style (for example, growth versus value)

This is because different sectors, sizes and styles take turns outperforming one another. By diversifying your holdings according to these parameters, you can smooth out short-term performance fluctuations and mitigate the impact of shifting economic conditions on your portfolio.

Looking for sound financial advice? 

Call us to discuss your situation, your goals and your current holdings. At Panthera Wealth, we offer a blend of sound financial advice and practical financial planning solutions. Contact us to make a positive impact on your financial future in spring 2021 and beyond.

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I've known Paul for over 5 years. Paul is friendly, relaxed and a pleasure to deal with. He is extremely knowledgable and serious about financial planning which makes the process stressfree and I feel very confident about the plans in place to maximise my income, particularly during retirement.

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