Global equities had one of their worst weeks in the past 12 months last week. The FTSE All World index fell over 4% over the week, marking its steepest weekly drop since 2020.
Stocks of US companies have struggled this year, as markets weigh up the likelihood that the Federal Reserve will raise interest rates more quickly than expected, in order to deal with rising inflation. Actions by central banks like the Federal Reserve have kept asset prices buoyant throughout the pandemic, and the tapering down of their support in the future is affecting markets.
The Federal Reserve’s plans are in keeping with other major central banks. In December last year, the Bank of England raised interest rates from 0.1% to 0.25%. The European Central Bank also said it would dial down its own bond-buying programme as inflation increased on the continent.
Last week the markets continued responding to the Federal Reserve’s expected plans, with the technology-heavy Nasdaq Composite dropping over 7% by the end of the week. The S&P 500 Index of large US companies dropped less, at nearly 6%.
The technology sector has been one of the hardest hit in the recent drop. On Thursday, streaming giant Netflix updated investors, revealing that its growth in new subscribers would be lower than expected in the first quarter of this year. Its shares dropped more than 22% on Friday.
Oliver Allen, an economist at Capital Economics, wrote that markets are responding negatively to signs that the Federal Reserve will hike interest rates more quickly than expected because the central bank has supported markets in the past.
He wrote: “With inflation eye-wateringly high, the Fed is on course to steadily remove the ultra-accommodative monetary policy that has been a key prop to stock prices for over a decade now. Admittedly, other big declines in stock prices in recent years – such as the sharp sell-off in late 2018 and the meltdown in spring 2020 – arguably saw the Fed come to the rescue.”
He added: “Even so, while acknowledging the downside risks, we forecast that the S&P 500 will continue to make moderate gains in the coming years. Despite the high valuations in some parts of the US equity market, we remain of the view that the valuation of the S&P 500 overall is not alarmingly high when compared to the very low ex-post real yields of US Treasuries.”
Of course, the best way to deal with changing investment conditions is to invest for the long-term with a well-balanced range of investments. If your funds are invested in a wide range of assets, then their performance won’t be overly reliant on any one outcome.
Meanwhile, in the UK last week, new data emerged showing that the cost of living is becoming noticeably higher for most households. The Office for National Statistics (ONS) reported that two-thirds of UK households believe that it has risen. The main reasons for the increase were higher food prices, plus fuel and energy bills, according to the data.
While much has changed since it was introduced in 1948, the State Pension age – currently 66 for both sexes – continues to shape the way we approach retirement.
Lifestyles, the nature of work, life expectancy and healthcare have evolved beyond recognition since then, while the default retirement age was scrapped in 2011. Changes to pension rules in 2015 also gave people much greater freedom when it came to accessing and using their pension savings. For many people, however, the State Pension age still dictates how they think about and plan for retirement.
While it can be useful to have a target, the idea of reaching a specific age and immediately entering full retirement is outdated and often unhelpful, says Tony Clark, Senior Propositions Manager at St. James’s Place. “We’re trying to move away from that idea of retiring at a certain age, and towards a point where it’s about when you feel ready to make some changes,” he explains.
If you’d like to take control of your retirement – whether it’s several decades away or rapidly approaching – the first step is to develop an idea of what you want. These days, retirement might be about stopping work as early as you can or reducing your hours and continuing in some form of work for as long as you’re able to.
You might have post-retirement goals to aim for, a certain amount of money you want to leave for your beneficiaries or a new venture to start. Or you might simply want the peace of mind you’ll never run out of money during retirement, no matter what age you finish work.
The idea of phasing gradually into retirement is increasingly common. More people are reducing the reliance on their earnings over time and making a shift towards drawing on their pension assets. This might occur over the course of a year or over several years, Tony points out.
“We already see it now and it will become a normal approach to retirement,” he says. “The value of advice is in helping you imagine what later life might look like, identifying the potential or the opportunities and pulling it all together in a plan that can then be put in place.”
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
“Even as policymakers continue to address rising prices, our economic recovery will face significant risks until we have moved more decisively past the pandemic.”
US Treasury Secretary Janet Yellen says that the COVID-19 pandemic remains the most pressing economic challenge.
The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
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