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We’ve picked up plenty of habits during the pandemic — streaming endless box sets, working from home in leisure wear, and emailing colleagues asking if it’s OK to ring them (the shattering intrusion of a phone call being more than some people can bear).
As restrictions end, change is definitely in the air.
In the past week or so, global stock markets — and tech stocks in particular — have been volatile. Blame inflation, which is surging at its fastest rate in 30 years, the expectation of further global interest rate rises to contain it, and the withdrawal of asset-boosting monetary stimulus.
It’s symbolic that Netflix and Peloton, which powered ahead during the pandemic, have been the early casualties of the current earnings season.
Our habits are changing. The cost of living is shooting up. This is affecting our personal finances, as well as the corporate earnings of companies we invest in.
At home, we’re already contending with rising energy bills and higher food prices; next, we’ll have higher taxes and rising interest rates. This is particularly worrisome for young property owners with huge amounts of mortgage debt. Chances are that surging inflation has promoted an older doom-monger in your life to harp on about the double-digit interest rates they were hit with in the late 1970s and early 1990s.
To top it all off, bosses are summoning workers back to the office, with all of the extra costs that entails.
Considering the millions of younger people who started investing during the pandemic, I have been wondering if this is a habit they’ll stick with. Will they be spooked by market volatility as the “spare money” millions had to invest during the pandemic starts flowing back towards Pret A Manger?
Early signs from the US suggest smaller investors are holding their nerve — for now. Research from data provider VandaTrack shows retail investors are still pumping cash into US equities even as share prices tumble from historic highs.
Previous market wobbles have been an opportunity to profit, as gung-ho investors “buy the dip” and hang for the inevitable bounce. But the most experienced investors doubt this pattern will continue, predicting markets are heading for a fundamental shift that could unsettle recent entrants.
Danni Hewson, a financial analyst at AJ Bell, notes how “lockdown investors” have enjoyed a period of incredible growth — particularly when it comes to US tech stocks, and of course the volatile world of cryptocurrencies (another trend that’s now rapidly unravelling).
“The shift from growth to value stocks that so many traditional investors are making won’t appeal in the same way,” she says. “Who wants to invest in mayo when you could be putting your dosh into shiny Teslas with their maverick boss?”
Many older investors are now chasing dividends, but Hewson notes younger investors have always been fixated on share price growth: “Watching the numbers fly up can be addictive, but what happens to the enjoyment of the game now that it has changed?”
It’s a valid question — and assuming markets get choppier, I wonder if young investors will panic and take their money out, or adjust their portfolios and stick along for the ride.
In the rush to get invested, driven by the fear of missing out, not many thought about their long-term strategy. But I don’t see this as a huge problem. The biggest barrier has been overcome — they’ve got started. You might make mistakes as an investor — we all do — but assuming these don’t put you off the stock market for life, there’s a lot to be said for learning by doing.
However, the “get rich slowly” mindset of the value investor is vastly different from the “get rich quick” drama of chasing overnight gains in GameStop and AMC. Hewson worries that some newbies might lose interest in a longer term strategy before money can be made.
I am about to offer them some boring and sensible advice, but the older I get, the more I realise that “boring and sensible” is a wonderfully reassuring strategy that usually pays off in the long run.
First, think about the fundamentals. Everyone needs a cash emergency fund so they’re not forced into selling investments when markets are down and they need the money.
Be prepared to lock away money that’s invested for the long term — at least five to 10 years. This is psychologically difficult if you’re checking investment apps every hour of the day. I’ve got mine on my tablet, not my phone, so I’m tempted to check them less often.
Having cut down your screen time, start learning more about investment (growth versus value is a good place to start). Explore the themes that excite you, researching funds and investment trusts that could give you exposure to these areas of the market (for example, I’m particularly interested in small-caps at the moment). Use these to create a more diversified portfolio, perhaps using cheaper passive funds as building blocks.
Don’t feel you have to stop trading in single shares, but limit your exposure to a smaller percentage of your pot. Follow the advice of the Naked Trader: before he buys a share, he considers what his likely exit plan will be, and sets up a “stop loss” to limit the potential downside.
Consider writing down your long-term goals to provide reassurance in times of market turbulence. I’ve got a notebook I use for keeping track of my investments (old school, I know). In it is written: “I do not want to withdraw any money from my Isa until I’m over 60” along with a chart showing how the funds inside could grow at my current rate of saving, which I made using an online compound interest calculator. I’ve met other investors who create vision boards for the same reason. Patience pays!
Don’t try to time the market. I have long been a fan of regular savings plans, where you invest a set amount into your Isa every month, which is automatically allocated to funds, trust or shares of your choice. These start from £25 per month.
If my investments take a turn for the worse, I also like to think about what I might have spent the money on if I hadn’t invested it — in my case, clothes, shoes and handbags. My experiences of selling surplus items on Facebook Marketplace has shown me you’re certain to book a far bigger loss on these than you probably ever will on your investments!
There are no short-cuts to wealth, but nailing these investment habits when you’re young will hopefully pay dividends in the future.
Claer Barrett is the FT’s consumer editor: claer.barrett@ft.com; Twitter @Claerb; Instagram @Claerb
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