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Why it’s important not to worry about the prospect of a recession


A storm cloud on the horizon

One of the best things about building your wealth through investing is that you can tangibly see your progress towards your economic goals. Whether you’re wanting to buy a home or enjoy a comfortable retirement, watching your assets grow can be hugely satisfying.


That’s why, when markets dip, it can be very stressful as you may worry about whether you can still achieve all your ambitions.


In the past few weeks, the UK economy has been struggling due to the lingering issues of Brexit, the coronavirus pandemic, and the ongoing conflict in Ukraine. According to the Guardian, the country’s GDP shrank in April for the second month running.


This has made many people concerned that if this trend isn’t reversed, there could be another financial recession on the way. But even if this dip lasts for longer than you might like, it’s important to stay positive.


Read on to find out how recent events have caused the economy to struggle, and why it’s important not to panic about your portfolio during this time.


Rising inflation has meant that many households have cut back on their spending


In the past few months, the UK economy has faced several major challenges. Global events, such as the coronavirus pandemic and the war in Ukraine, have caused huge disruptions to international supply chains and contributed to rising inflation.


According to data from the Office for National Statistics (ONS), the Consumer Price Index (CPI) rose to 9.1% in the year to May 2022.


One of the biggest contributors to this has been the surging cost of fuel, as the price of oil has increased sharply due to the western sanctions on Russia. According to the Guardian, the cost of filling up the average car is now more than £100.


On top of this, the invasion of Ukraine has also caused food prices to spike. According to data from the ONS, the UK imports around £830 million worth of goods each year from the country, mostly in the form of agricultural products, such as wheat and vegetable oils.


Due to the rising cost of living, many Brits have had to cut back their household spending to save money. As such, many businesses have struggled with lower profits, as well as surging energy bills.


With these problems in mind, it may not be surprising to hear that the National Institute for Economic and Social Research (NIESR) has predicted a moderate recession in the second half of 2022. But as you'll see, even though this might sound scary, it's important not to panic about your assets.


The value of your portfolio can still rise even during a recession


While it might sound strange, it can be useful to bear in mind that a recession doesn’t necessarily mean that you won’t see returns on your investments.


It can be easy to think that the stock market and the economy are the same thing, especially when newspapers and politicians use the two interchangeably. But while they can sometimes go hand in hand, this isn’t always the case.


During the pandemic, the price of assets boomed while many people struggled to get by, which shows us that the performance of stock markets isn’t always a reflection of the economy at large.


Due to this uncoupling, a fall in the UK’s GDP doesn’t necessarily mean that your assets won’t see any growth. This is why, even if headlines are strongly negative, it’s important to stay calm and wait for the rough period to pass.


Furthermore, if you are worried about a stock market dip, you can protect your wealth through “diversification”.


Diversifying your portfolio can make it much more resilient to market shocks


One of the most important ways that we protect your wealth from shocks is by diversifying the assets in your portfolio. In simple terms, this is the act of not putting all of your eggs into one basket!


A properly diversified portfolio contains a variety of asset classes, with varying levels of risk, from a wide range of sectors and geographic areas. The main benefit of this is that if a market shock does happen, the downturn will only affect a small portion of your assets.


With this approach, you hold a variety of investments from different areas, so a fall in one sector could be offset by another.


Having a properly diversified portfolio can help to give you peace of mind to know that your wealth is protected against shocks, helping to ensure you’re on track to reach your long-term goals.


Get in touch


If you want to know more about how we protect your wealth from market volatility, get in touch. Please email us at info@athertonyork.co.uk or call us on 0208 882 2979.


Please note:


The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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