In the latest edition of Construction Magazine, Susan O’Mara, Business Development Manager in CPAS, reflects on the past year from an investment perspective.
As another year comes to an end, many of us reflect on the highs and lows of the last 12 months. Many articles online try to capture the year in a single snapshot – from what we searched for online, the types of content we consumed to the words we used. The summaries invariably uncover some deeper meaning and offer some lessons.
You may read that in 2022 “goblin mode” (arguably two words), is the Oxford English Dictionary’s word of the year. While “permacrisis” is the Collins Dictionary offering. Quiet the concise snapshot indeed.
My word of the year: Inflation
For me, the word of the year for 2022 was inflation. Inflation – defined as a rise in prices, which can be translated as the decline of purchasing power over time. The spiralling increase in the costs of goods and services in 2022 was headline news across much of 2022. Grocery price inflation ending the year in double digits coupled with huge energy prices increases dominated news across much of 2022, due to the ongoing war on the Ukraine.
As increasing interest rates go hand in hand with inflation, “inflation rates” would be the second word on my list (if Oxford can double up on the word count, so can I).
These are not just words; they have a profound effect on our personal finances. Inflation and interest rates affect our personal finances.
A silver lining for some?
However, these higher interest rates are not good news for mortgage holders. (Word to the wise if you have not yet secured a fixed rate and are still on a variable rate; speak to your mortgage provider now). In contrast, higher interest rates may be good news for deposit holders. For many years now, we have seen low and negative interest rates on deposit investments and regular savings. We may now begin to see positive interest payable again. While positive, it is worth bearing in mind that the deposit interest is never as high as the mortgage interest and will likely be below the inflation level. As a result, holding money in a cash deposit still means that the value of your savings could be losing value in real terms (something I previously wrote about for Milestone Advisory).
What about Investing?
Once again, those rising interest rates can also affect stock markets negatively. So far, in 2022 world markets are down nearly 10% year to date (MSCI AC World Net TR 2022 YTD 09.12.22).
Along with rising costs, the predominantly volatile and overall negative performance was a main concern for investors this year. Whether investing your savings or saving for retirement, dealing with negative stock market performance and fund returns can be rather unsettling.
Hold the course
The conventional wisdom at times like these is for the majority of investors to hold the course, stay invested as per the goals and objectives. An investor who had €100K to invest back in 2002 would have €327,365 in their investment today if tracking the MSCI AS World Index.
I have said this before, but it bears repeating, “It’s time in the market and not timing the market”.
Investors who rushed to Cash or other so called “safe haven” assets back in March 2020, (when the market was at its low point during the Covid crisis), would have missed the subsequent recovery. With a long-term investment, such as a pension, if you are not close to retiring, staying invested, even when it seems ill advised, is advised! I previously penned an article on this topic for Milestone Advisory here.
Susan O’Mara is Business Development Manager in CPAS. CPAS helps companies in the construction and related sectors navigate through the ever-changing pension environment. If you would like to discuss your personal or company pension options, please contact our dedicated team on (01) 223 4947 or contact me directly via email (susan@cpas.ie).
