Last week, many people in the UK enjoyed a shorter week, as businesses and markets closed for two days to mark the Queen Elizabeth’s Platinum Jubilee.
Duncan Lamont, Head of Strategic Research at Schroders, reflected on how the economy has developed over the course of the Queen’s 70-year reign – which started a full decade before the FTSE All Share Index even launched.
In 1952, he says, the main stock market index of the day was the FT 30, which was dominated by shipbuilders, carmakers, and textile companies.
Lamont noted: “In June 1952 the Bank of England’s key Bank Rate was at 4%. Inflation stood at 10.5%. This was one of few periods in the last 70 years when – as now – inflation spiked sharply, rising significantly above the Bank Rate. Today the Bank Rate is 1% and inflation (CPI) just under 9%.”
Lamont also highlights the 1970s as a rather extreme example of volatility. In 1973 and 1974, markets fell by 28% and 50%, respectively. In 1975, the market bounced back to post 149% returns. Even if this was not enough to totally make up for the losses experienced over the previous two years, anyone who sold at the end of 1974 would likely have been worse off than those who stayed the course.
This helps demonstrate the importance of not panicking in times of volatility. Over the long-term markets generally rise and selling when they are down will mean crystalising these losses, and potentially missing out on any bounce back.
Today’s market isn’t currently anything like as volatile as in the mid-1970s, but it is struggling in the face of rising inflation and geopolitical issues.
The US market is no exception, and continues to face volatility. While two weeks ago the market had posted some positive returns, last week it returned to negative territory. This was partly the result of the release of May’s job data, which was lower than that of April. Investors are keeping an eye on the jobs market, as if there are signs the market is becoming too tight or ‘hot’, it could add to existing inflationary pressures.
Kristina Hooper, Chief Global Market Strategist at Invesco believes volatility will continue for now, and that the market may move lower in coming weeks. However, at some point in the coming months, she believes the market will bottom out, and that a strong, sustainable rally could follow.
She adds: “That means it’s time to begin taking advantage of opportunities, which I believe are abundant. I wrote about tech stocks last week. Another area where I see opportunity is Chinese stocks, where sentiment is very negative and valuations are very attractive, in my view. In addition, I anticipate continued monetary policy accommodation and strong fiscal stimulus.”
Turning to Europe, last week the Eurozone published its inflation data, which reached 8.1% – up from 7.4% in April, and well above consensus expectations of 7.1%.
Andrew Kenningham, Chief Europe Economist at Capital Economics said: “Members of the European Central Bank (ECB) Governing Council are unanimous in believing that interest rates should be raised but divided over how quickly.
“We expect them to confirm next Thursday that the Bank will end net asset purchases in early July and raise the deposit rate out of negative territory by the end of September. The policy statement is also likely to leave the door open to a 50bp hike in July. We think surging inflation will ultimately prompt the ECB to raise interest rates more than the consensus and investors expect this year.”
For a growing number of people, retirement is no longer a cliff-edge event that takes place when they reach State Pension age.
Living for a decade or longer in retirement was still the exception rather than the norm when those now reaching State Pension age began their working lives. Now, however, those of working age know there’s a decent chance of living for two or even three decades past their State Pension age.
A man aged 65 now can expect to live for another 18.5 years on average, while a 65-year-old woman typically has 21 years ahead of her, according to the Office for National Statistics.1
“Previously, getting to retirement was your chance to stop, but now it’s the next phase of life and the chance to start something new,” Tony Clark, Senior Propositions Manager at St. James’s Place, points out.
Here are some tips on how to make the most of it:
Whether or not you give up work entirely in retirement, you may wish to review how you spend your time and what you want from life.
Research in 2018 by the Institute for Fiscal Studies found that, on average, people in their 50s and 60s underestimated their chances of survival to age 75 by about 20 percentage points and to 85 by around five to ten percentage points.2 This increases the risk of running out of money if you live longer than expected.
As you enter your later years, you might be thinking about setting up a power of attorney, so that if you do lose capacity, support will be there. That invariably means having potentially difficult conversations with family members.
A financial adviser, for example, can ensure you don’t run out of money later in life taking longevity into account. They can map out your plans, review them as the years pass, make changes when necessary and help with the difficult conversations.
The key thing is to plan ahead, making retirement what you want it to be.
Sources
1 National Life Tables – Life Expectancy in the UK: 2018-2020, Office for National Statistics, September 2021
2 Subjective Expectations of Survival and Economic Behaviour by Cormac O’Dea and David Sturrock, Institute for Fiscal Studies, April 2018
Your Majesty, you have been with us in our difficult times. And you bring us together to celebrate moments of pride, joy and happiness. Maybe this year, it really is coming home.
Prince Charles pays tribute to his mother at the Queen’s Platinum Jubilee Celebrations.
Invesco and Schroders are fund managers for St. James’s Place.
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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