Following a calamitous and often unpredictable year for the UK, the FTSE 100 Index, an index that tracks the 100 most valuable companies on the UK stock market, is edging closer to its pre-pandemic level. This comes despite the fact that, as recently as last winter, the FTSE was at one of its lowest points in years.
The UK economic recovery exceeded expectations in the summer of 2021 and the stock market followed suit, lifting the value of many investors’ portfolios considerably.
However, now it seems that the UK recovery could be potentially starting to lose steam. So, what does all of this mean for investors in the UK? Read on to find out.
Has the FTSE become re-tethered to reality?
One thing that we learned last year was that the stock market’s connection to the overall economy was, in some ways, more tenuous than we might have assumed.
Despite record numbers of job losses and cratering GDP figures, major stock indices such as the FTSE and NASDAQ grew at a breakneck pace, driving a historic bull run that few people could have predicted.
Market watchers have explained this by pointing out that markets had “priced in” the anticipated recovery before it actually happened. Since then, the UK market has recovered in fits and starts. So what does this mean for the future?
While the economic recovery gathers pace and the initial shock of the pandemic recedes into the distance, investors must always be prepared for further ups and downs along the way.
As this beginner’s guide to investing explains, if you are investing for the long-term, exchange-traded funds, or ETFs, which track the performance of indices like FTSE 100, could be a good option. ETFs can provide investors with broad exposure to different stock markets or sectors and this should mean your portfolio isn’t dependent on one aspect for growth.
While it is impossible to predict exactly how the UK or any stock market will perform in 2022, ETFs provide a relatively easy way for investors to diversify their portfolios and spread their bets across different markets.
While stock market ups and downs are not always comfortable, investors should keep in mind that over the long-term (think 10, 20, 30 years, and beyond), most major stock markets have risen.
Ethical investing is key
One of the most dramatic trends we are seeing in finance right now is the en masse shift towards ESG, or environment, social and corporate governance-led investing. Essentially, these are investment decisions that are guided by ethical principles.
This could mean avoiding investing in fossil fuel companies or those that cannot prove they have a cruelty-free supply chain, for instance. The demand for such investments is demonstrated by the flurry of ESG investment product launches in London that have attracted record investments from around the world, as people look to make more ethical choices with their portfolios. Expect this trend to grow in the year ahead, especially as the UK gears up to host COP26.
Crypto loses its sparkle
Although it might be somewhat premature to call it a day on cryptocurrencies, it is looking likely that crypto’s golden days could be waning. Institutional investors and financial bigwigs are increasingly warning people to stop pouring into highly volatile assets such as NFTs and bitcoin. Many have concerns about a crypto bubble but only time can tell if these assets are suitable as long-term investments.
Inflation is back
One thing that is agreed on by many is that inflation is back. That’s thanks to an unprecedented economic recovery and soaring demand in every sector of the economy. What matters for investors is the options they have for hedging against inflation to reduce its corrosive effects on their portfolios.
That suggests investors can expect many of the tried and tested inflation hedges are likely to come back into vogue in 2022.
While it’s unwise to predict exact market events, a steadily improving FTSE can only be considered a positive step forward on the road to recovery. An appropriate message to investors might be: keep calm, stay invested and make sure your portfolio is well diversified.
