There are few more frightening phrases for investors than “inflationary spiral”, but the consensus among commentators is that’s precisely what we’re in. According to the UK’s Office for National Statistics, the Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 6.2% in the 12 months to March 2022, up from 5.5% in February. And if you think that’s bad, spare a thought for the people of Turkey, where inflation surged to a 20-year high of 70% in April.
Opinion is divided on what, if anything, investors should do in response to rising prices. One suggestion is that they stop investing in bonds; fixed-income portfolios have fallen in value of the last 12 months. But should fears about rising inflation cause you to rethink your investment strategy? As ROBIN POWELL explains in his latest article for rockwealth, most investors to need to curb their natural instinct to act and simply sit tight.
We’ve all heard of the distinction between those with a half-glass-full and a half-glass-empty mindset. Generally speaking, life is easier for the former than the latter, and the same is true in investing.
To invest is, in itself, a declaration of faith in the future. It requires you to be optimistic. Whatever challenges the world might be facing, investors have to believe that human beings have the resilience and ingenuityto overcome them.
That’s not to say you should view the world through rose-tinted spectacles. There will always be setbacks — and occasional disasters — and there are bound to be periods when the outlook seems gloomy. It’s also human nature to attach more weight to the negatives than the positives.
The secret, for investors, is not to deny those negatives exist, but to ensure that we maintain our equanimity. We should also remember that nobody can predict the future; yes, things could get worse than they are, but they’re just as likely to improve.
Today there are several things you could fret about. There are lingering concerns over Covid. Climate change forecasts are as dire as they’ve ever been. And any hope that the war in Ukraine would soon be over have all but evaporated.
But the biggest fears right now concern inflation. How much higher will prices continue to rise? And will the Bank of England and other central banks succeed in taming inflation through higher interest rates without causing a recession?
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