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Jan 07

Where to invest in 2022

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You could be forgiven for searching around wildly right now as you wonder where to invest in in 2022.

Let’s face it the investment terrain is even more uncertain than it was in 2021.

However, there are intelligent ways to approach the 2022 investment dilemma. I’ve spoken to a few investment specialists to get their take on where to put your money in 2022 and come up with these ideas.

If you thought 2021 was a bit of a roller-coaster, just wait for the joys that 2022 has in store for us!

Nick Hubble, senior editor with SouthBank Investment says: “The interest rate hiking cycle has begun, with the UK’s Bank of England being the first major central bank to make its move. And some economists predict the UK economy to outperform the rest of the G7, including China and the US, not just last year but this year too. So, is it boomtime for Britain?

“Not so fast. History says that rate hiking cycles end in a crisis. And each peak in interest rates since the 80s has been lower than the last, before a new crisis began. That’s because there is more debt in the system each time, and so it takes less high interest rates to trigger a crisis.

“If that cycle repeats again, it won’t take much to trigger another crash in financial markets this time. Central banks have lit the fuse already. And debt levels have exploded thanks to the pandemic.”

Gulp!

So, where does the novice, or even experience, investor put their money this year? Here are some ideas…

 

where to invest -Is it worth having any cash savings in 2022?

Not really.

I always recommend that people have some savings ‘just in case’. It’s important to have money you can put your hands on quickly in case of sudden need (the car breaks down, the boiler blows up, you lose your job, your partner leaves you in the lurch etc), so do make sure you have that.

It can also be useful to have savings accounts for Christmas, holidays, saving for a house deposit.

But other than the above, you should keep your money out of ‘Cash’ (i.e. savings accounts) if possible at the moment.

Why?

Because in real terms you are losing money with all of the savings accounts on the market right now.

Average savings rates right now are an absolute joke. Seriously – about 0.35%!!

If you factor in inflation at, currently, 5.1% and rising to 6%, they say, in April (I think it will be higher), then in real terms your money is losing 4.75% while it’s sitting in the average savings account.

So if you have a good wad of cash languishing in savings accounts right now, you certainly do need to be actively looking around for somewhere else to deposit it.

 

Will the stock market finally crash in 2022?

Car crash

Yes and no!

There are many who have been waiting for our stock market – and others around the world (particularly in the US) – to crash for a while now. Many say that the only reason they have held up as well as they have (the US S&P 500 has done particularly well) is because of the quantitative easing (money printing) that has been going on. Much of that extra (pretend) money has gone into investments which has artificially inflated the price of thousands of shares. At some point that has to come crashing down. Will it be this year? Might be.

On the other hand, there are those that feel the UK stock market (the FTSE) is undervalued and they are expecting it to go up further this year. Many make the point that much of the FTSE is made up of companies that deal in commodities and that these do very well in inflationary times so that could buoy things up. Good point.

In this article, for example, analysts at Morgan Stanley explain that our stock market is running at a 30% discount to those on the continent, they say that discount is largely due to concerns about the impact of Brexit, which still hang around, but it’s possible that the UK economy will bounce back quickly as it has fewer constraints on it than many of its continental counterparts.

So it looks like it’s worth keeping hold of money that you currently have in the stock market and, potentially, adding more in in a judicious way – perhaps into some funds that are heavy on commodity-producing companies.

Rob Morgan of investment house Charles Stanley says “For those just starting out or those wanting a more cautious, resilient investment I would highlight Ruffer Investment Trust and Personal Assets Investment Trust.”

  • Ruffer Investment Company is designed to be an ‘all-weather’ vehicle. The managers combine conventional asset classes – global equities, bonds, currencies and gold – with the use of derivatives strategies that serve as protection to market downturns. The overall aim is to protect as well as grow, so the balance of different assets is designed to pay off in a variety of economic scenarios – and the managers have a strong record of making shrewd macro-economic judgements. The trust is positioned for a period of stubborn inflation, so it could be an important diversification tool for many investors’ growth-biased equity allocations or, more generally, make a more stable ‘core’ holding in a portfolio.
  • Personal Assets Trust also has a flexible investment mandate and focuses on preserving capital. The manager builds his portfolio using three “pillars”: solid, global companies with strong cash flows, index-linked gilts and gold. He is also willing to hold a large amount of cash if he is cautious and wishes to guard against market volatility. Performance can seem quite pedestrian when equity markets are strong but the Trust has historically fared relatively well in weak markets. It therefore might be worth considering for investors wishing to tread carefully.

Growth or value stocks

What they call ‘growth’ companies (those that become increasingly popular and valuable) have outperformed ‘value’ ones (those that are cheap considering their underlying fundamentals) in the last ten years.

But that may not continue into this decade. AJ Bell Investment Director Russ Mould says “If that environment persists, firms which are seen as capable of providing secular trends increases in sales, profits and cashflows (or maybe even just the first one) will remain highly prized. If it changes, and inflation and strong nominal GDP growth take over, then there would be no reason to pay high multiples for secular growth when cyclical growth (or ‘value’) would be available at much lower valuations. Industrials and banks could then lead the charge.”

So consider ‘value’ companies as well as those that look like they could offer good growth.

‘Developed’ versus ‘emerging’ markets

There has been a lot of growth in the economies of emerging markets, but they’re generally quite volatile and you never know if they could crash at any time.

Russ Mould says that “emerging markets dominated for the first decade of this millennium but developed ones have subsequently ruled the roost. Any attempts by China to loosen monetary policy and stoke growth could also help emerging markets, where the Shanghai market has a big weighting.”

However, you may feel that there is still more potential in, say, Asian funds than old European and even UK ones. It’s up to you to decide which geographic areas to spread your money. Thinking of ‘diversifying your portfolio’ as a rule, it’s a pretty good idea to have some money (perhaps in index-tracking funds or other funds) in different parts of the world, not just in the UK and Western economies.

 

Is property a good investment this year or should I sell?

property as an investment

Nick Hubble’s Fortune and Freedom newsletter has quite a lot to say about whether now is a good time to invest in property…both pro and con.

Annoyingly, I’m going to say that it is up to you!

Property involves quite a lot of money as a deposit and then a fair amount of work going forward. If you’re happy to put the time and effort in then it can be rewarding.

Last year it was assumed that prices would go down but they leapt up, thanks to government intervention. Who knows if that could happen again this year! Frankly anything is possible.

Also, though, it’s very variable from region to region and from type of property to type of property. So far people have been moving out of towns and into larger houses with gardens. This year, if things open up, they might come back into town and might be looking for flats.

Last year the North did way better than the South. That looks set to continue but you never know. Again, if things open up then London and the South East might pick up and become ridiculously expensive again.

If you’re going to invest in property make sure you read up about it and, ideally, do a course like the ones run by Fielding Financial, which make sure that you don’t make expensive mistakes from the start. Look on it as a business: try to get a bargain and make sure that you know it could be rented out to two or three different types of people so that if one lot (say students) suddenly aren’t there then you know you can still rent to, say, local nurses, and so on.

 

Is this the year for commodities?

I think so.

Inflationary times generally mean that commodities (the things we use day-to-day and are used by businesses, like gold, iron, wheat, steel etc) do really well. It’s likely that they will do well this year as prices rise.

“Looking at the relative performance of the Bloomberg Commodity and the FTSE All-World (equity) index, commodities and ‘real’ assets outperformed between 2000 and 2010 but equities and ‘paper’ assets have dominated since,” says Russ Mould of AJ Bell. He continues “if inflation (or maybe stagflation) take hold, ‘real’ assets could come to the fore for three reasons: they could be stores of value; central banks may keep printing money but they cannot print oil, gold or property; and investment in new resources finds is dwindling thanks to pressure from politicians, investors and the public alike amid environmental concerns.

“Commodities outperformed in 2021 but nothing like to the degree that ‘real’ assets beat ‘paper’ ones during 2001-02 so if this trade does get traction then there could be a long way to go yet.”

Rob Morgan says: “Commodities can be quite cyclical. Booms tend to lead to more capacity being financed, which then sows the seed of price declines as the supply to demand equation changes. However, some areas do look constrained and funds investing in energy producers, mining and other areas could benefit from structurally higher prices and may act as a ‘hedge’ for those worried about rises in the cost of living. Exposure via a UK fund with sizable energy and mining exposure could be one option, for instance JOHCM UK Equity Income, which has about a quarter of the portfolio invested in basic materials and energy but has lots of diversification in other areas too. For more specific exposure, you could look at a mining fund or possibly funds with exposure to economies that are skewed towards producing commodities such as Russia or Latin America. However, these are emerging markets, can be exceptionally volatile so are not for the feint hearted – so they should only be a very small component of a broad portfolio.”

 

Gold or Bitcoin…or both

Again, inflationary times tend to be good for gold, silver and the money metals generally, as we explain in this webinar.

increasingly, though, as governments print and print more money, investors are looking to cryptocurrencies – specifically Bitcoin – as a good ‘store of value’.

Russ Mould says  “The subject of ‘stores of value’ and ‘haven assets’ can lead to heated debate. It is hard to argue that Bitcoin is a store of value, given the wild price swings of the last five years, and the same accusation can be levelled at gold. Neither produces a yield. And both trade way above their marginal cost of production.

“Yet rampant deficit creation by Governments and money printing by central banks (in an attempt to effectively monetise and fund the extra debt) do persuade many to make an investment case for one or the other (although rarely both). Gold did next to nothing and underperformed Bitcoin again in 2021. But its role as a haven during times of great uncertainty – when it looks like the authorities are not in control – could come into play if inflation gallops higher. The gold price relative to Bitcoin makes for an interesting chart – gold may have finally started to do better (or less badly) – but the metal may remain dormant if inflation fizzles out.”

In the webinar above, one of our experts suggested that investors should have 15% of their money in gold and 5% in Bitcoin. It’s worth a thought. However, if you haven’t invested in Bitcoin before and you’re not sure how to do it, don’t just jump in. Come and take my one-hour, easy introduction to investing in cryptocurrencies first!

 

should i still diversify my portfolio?

presents mixed

Yes, that is something you HAVE to do.

As you will see above, nothing is certain, no one knows definitively what will work and what won’t, so always the safest thing to do is to spread your bets, in other words, diversify your portfolio. When you think about where to invest in 2022 make sure it’s a few different places.

Don’t imagine that keeping your money in ‘cash’ (savings accounts) is the safe option. It’s not. It’s the sure-fire way to lose money. You should have some in a savings account but not much, just enough to keep you going if everything went pear-shaped.

The important thing to do is to have some money in one are, some more in another and so on. Have some in a pension (or pensions), have some in stocks and shares ISAs, have some in gold, maybe crypto and in property if you have the cash to do it.

Rob Morgan of investment house Charles Stanley says “Many investors have limited experience of dealing more inflationary periods and no recent data to guide the repositioning of their portfolios in the face of heighted inflation, if indeed that does transpire. We are therefore cautious that while investment gains can be made this year, they will likely be harder won.

For more experienced investors too, it may be a good time to build some more resilience into portfolios and be cautious about areas with a significant degree of exuberance and speculation. The most important principle is diversification – spreading investments between different asset classes and geographical areas can lead to a less bumpy ride overall. If one of the investments is performing poorly, another one could be making up for it.

“A broad ‘multi asset’ investment can do this for you, incorporating shares, bonds and other things.” F

 

This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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