Locked down with nothing to do
For financial professionals only
My recent return to the office after 18 months away has resulted in a period of reflection. With my commute extending from my staircase to the M5 – combined with a newfound interest in podcasts – the change in routine has provided me with an odd sense of lockdown nostalgia, and a healthy bout of contemplation about the impact it’s had on our lives.
Whilst there have been many changes, I’ll keep this broadly on topic and focus on the effect it had on attitudes towards personal finance and investing.
Time to kill
The absence of commuting and a general lack of ability to go out transformed us into a population rich in time. The “too busy” excuse could no longer be used, and those painfully boring “life admin” type tasks had to be addressed. For many, this involved money somehow – from ringing Sky to finally move off the expensive contract you rolled onto (which I still haven’t done) to addressing the lump of cash sat in a savings account attracting a 0.01% interest rate.
Perhaps an unfair statement given my profession, but I’m always amazed by how little understanding and interest we collectively have in personal finance. My smartest friends (that work outside of financial services) hold Cash ISAs doing absolutely nothing but losing purchasing power. Relics of an era where interest rates compounded into growth.
Clearly, I’m not accounting for everyone here. Many have been forced to address their finances because they couldn’t find work, which is a terrible consequence of the last year. But putting aside the reasons why for now, the result is many became much more aware of their financial circumstances in 2020.
A catalyst for change
However, awareness isn’t always enough. A change needs a catalyst. And I think we got that in a couple of different ways.
Firstly, the extra time also gave scope for more meaningful deliberations. Do we enjoy our job? Are we fulfilled? What are our future dreams and goals? And while not every dream or goal has a price tag – many do.
So how do you bridge the gap between the languishing Cash ISA and the deposit on a bigger house with extra home office space? Or a bigger family or an earlier retirement? Queue catalyst number two.
Stock markets fell off a very steep cliff and made mainstream news. When the FTSE 100 makes the BBC top ten most read, you know something big has happened. And unlike the last big stock market crash, this time it wasn’t shrouded in negativity around the behaviour and actions of an industry.
All of a sudden, anyone with cash in the bank was presented with an unexpected and unquestionably attractive entry point to investing. And based on the number of new account openings across investment platforms, many people took up the opportunity.
Exactly how the combination of time, motivation and opportunity resulted in this outcome is arguably not the most important thing right now, but rather that there’s an army of new investors, with accounts about a year or so old, sitting on comfortable double digit returns.
The only way is (not) up
I think the biggest near term challenge is putting those returns into perspective. We’ll all have different return expectations from here, but I doubt many feel a repeat of what we’ve seen through this recovery is likely anytime soon. Some asset classes, such as Emerging Markets equity, are helping to curb enthusiasm a little this year, but the true test will come when markets invariably take a protracted downward journey.
By the time this occurs, I hope enough new investors have encountered a financial adviser, or perhaps we, as an industry, have provided enough financial education to at least help people get close to an appropriate level of risk.
A podcast on the merits of a diversified portfolio doesn’t have quite the same ring to it as one on cryptocurrency or stock picking, but it’s probably the one that’s needed.
“The above article is intended to be a topical commentary and should not be construed as financial advice from either the author or Parmenion Capital Partners LLP. If a client wishes to obtain financial advice as to whether an investment is suitable for their needs, they should consult an authorised Financial Adviser. Past performance is not an indicator of future returns.”
Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact your financial adviser.