investment strategy

What Will a Recession Mean for My Investments?



Posted on: 26th January 2023

The new year has opened up even more discussion and predictions of an impending recession in the UK in 2023. Whilst the news outlets love the scaremongering for sensationalism, it will lead to reaction and temptation to change investment strategy. Sticking to long-term plans makes more sense for most investors, and let’s look at why.

Convinced On Recession

Economic uncertainty has been fueled by a handful of factors, such as high inflation and energy supply concerns. These challenges have been a result of the long-term effects that the Covid-19 pandemic and the war in Ukraine have provided.

The Bank of England has been the most prominent voice in discussing the very challenging outlook ahead, expecting the economy to suffer a prolonged period of recession with inflation to remain high until mid-2023. It is expected that the economy will contract by 0.3% in the year, compared to a previous forecast that the economy would grow by 1%. This is shallow in comparison to previous recessions, and that is thanks to the government’s energy bill intervention.

Goldman Sachs has also downgraded its growth forecast for the UK, now expecting the UK economy to shrink by 1% this year. Whilst these predictions don’t paint a pretty picture for an investor, it is important to remember that markets have recovered from all previous downturns.

Before Temptation

If you are feeling the temptation to make changes to your investments, there are a few things you can look into first that will help you make smarter decisions.

The first is to stay focused on your long-term goals, especially as investment markets have historically delivered returns over the long term. Rather than reacting to short-term economic changes, keep your attention driven on why you are investing. Making knee-jerk decisions during investment volatility is very easy, but the decisions you make have longer-lasting effects. These must be measured and weighed for the pros and cons that will highlight where mistakes can be made in volatility reactions.

Importance of Review

You must review investments alongside your financial plan, something that independent financial advisers Cheshire will work with you on.

Don’t think of your investments in isolation, make them play a role in the overall financial plan so that when you are tempted to make changes, you can review the options in the context of your wider goals and finances. Before you make any decisions around your investments, consider how they could make a change to your risk profile.

Choosing a risk-appropriate investment strategy is crucial, as taking too little risk could result in you not reaching your goals whilst taking too much could expose you to volatility.

If you have questions about how the economic shift will affect your investment goals, speak to the team at Haven IFA independent financial advisers Manchester today.