We can never make investment predictions with absolute certainty, or at least we shouldn’t. That’s why radio ads for financial products are hijacked by caveats. All we can do is look for clues.
So what are the trends likely to impact on investment activity in the near future?
Though many sectors took a hammering during the worst of the Covid-19 lockdowns, others have had a very good pandemic indeed, from pharmaceutical companies to anyone who managed to source a reliable supply of laptops. Such businesses are likely flush with cash.
So too are many workers who found themselves saving a fortune on Leap cards or petrol as the daily commute shrank – in some cases, it was reduced to simply sitting up in bed.
Excess income is likely to have been stashed away. God knows there was little enough to go out and spend it on.
People’s natural caution at the beginning of Covid, when things seemed particularly uncertain, means some will have developed a savings habit too. And it doesn’t take much for savings to tip into investments.
Money in the bank ain’t what it used to be. With interest rates at zero or below, those with savings in the bank will know it’s not exactly working for them. Lob in inflation, which is already evident in everything from healthcare to housing, and it can’t be long before more people are checking out investment products instead.
The generational shift that has already given rise to digital banks such as Revolut, which makes buying gold as easy as sending pizza money to your mates, is only going to accelerate this trend. Need we say GameStop?
The sea change in occupational pensions has forced people to take more interest in investments too. It’s not so long since all you needed to figure out was what salary you were likely to retire on because that determined the amount of money you’d receive in retirement.
That’s no longer the case. Defined contribution schemes depend wholly on how much you put in and the investment returns they accrue. No wonder more people are paying attention.
Now that we’re expected to take personal responsibility for those investments for longer, to make sure we don’t run out of dosh in retirement, expect there to be even more interest – as in attention, there’s still no interest being paid.
Even more money
Ever since the financial crash, the government has been weaning businesses off an unnatural reliance on bank debt. The result has been a wall of cash coming into the country from international private equity funds looking to buy in, fund growth and exit with fat cheques all round.
That phenomenon is likely to grow, as global capital travels ever further to find a home.
The robots are here
Artifical intelligence has become a feature of the investment landscape but financial advisors are cool about it now. It’s all very well seeing youngsters buying mad shares for the craic, but serious money needs serious advice. The value of having someone who’ll hold your hand, or at least talk you down off the ceiling, when all around you markets are in chaos has become clear time.
It’s just too easy to dial the risk down to zero in a blind panic when you’re sitting on your own with a laptop, embedding a sub-par return as a result.
Past performance unlikely to see an encore
If anything, appetites for risk are going to have to grow. Inflation, which simply has not been a modern phenomenon, is pulling on its boots.
With bond yields low, cash at zero and equities expensive, getting a return in future will require more risk than in the past. For investors, the road ahead looks that bit steeper.