The golden rule of successful investment is to align your portfolio with the level of risk you wish to take.
But in 2022 this will be more than usually tricky.
Geopolitical concerns include the possibility of full-blown conflict over Ukraine and tensions between the US and China over Taiwan, whose foundries supply the microchips on which the world depends.
Yet Rathbones, the investment manager, points to ‘healthy household balance sheets and precipitous corporate cash piles’, adding that it expects returns on shares ‘to moderate, but not to disappoint investors’.
Here are ways to make the most of your investments in the months ahead, whatever your appetite for risk.
You might consider yourself to be sheltered from storms if you have a mix of deposit accounts, National Savings & Investments and only a small amount in shares and investment funds.
But this strategy could be derailed if you are unknowingly exposed to areas that are more hazardous than they seem – and inflation can take a big toll on deposits.
You should think about whether any funds you hold are still suitable for you.
Online investment service Interactive Investor has a recommended list and fact sheets on funds, which you can use to check. Many UK investors have become over-reliant on the fortunes of US tech giants, like Amazon and Microsoft, without realising. The value of these ‘Big Tech’ shares – which is largely based on future profits – could be lessened if interest rates move rapidly upwards, providing richer rewards elsewhere.
You may be uncertain about the prospects for Big Oil amid the de-carbonisation drive.
But there is a global need for BP and Shell’s products, and these businesses also have the resources to spend on renewable fuels. Ben Yearsley of Shore Financial Planning suggests the Liontrust Special Situations fund as a route to these and other British stalwarts.
And another big British name – BT – could be at the centre of bid excitement this year. If you are one of the 800,000 or so loyal small shareholders, why not keep the faith for a bit longer?
A balanced portfolio is every investor’s aim. But in the past two years it was easy to be diverted by the gains on US markets.
As a result, many have too little invested in the UK which Wall Street regards as undervalued.
Tech stocks represent just 1 per cent of the FTSE 100, which is dominated by old-economy stocks, against 40 per cent for the S&P 500.
The willingness of the British to splash out on property seems set to continue, which could be good news for housebuilders, along with Kingfisher, owner of DIY retailer B&Q.
Shares in life insurers may be due for a reassessment in light of their profitability. Anyone holding Fidelity Special Situations and Fidelity Special Values has stakes in these sectors.
Yearsley says JO Hambro UK Dynamic may be a useful addition since it could be ‘a beneficiary of a recovering UK economy, increased dividends and takeover activity’.
Popular: The willingness of the British to splash out on property seems set to continue
Inflation fears are perhaps exaggerated. Nevertheless, if faith recedes in the ability of central banks to control inflation, volatility could result.
But if you can afford to be sanguine about market gyrations, a British name that’s part of a US group could be your 2022 flutter. Walgreens Boots Alliance would apparently like to sell Boots.
Shore Capital says Sainsbury’s or Tesco may pounce. Also interested could be private equity groups Bain or Clayton, Dubilier & Rice, which last year snapped up Morrisons.
You may be inclined to shrug off inflation anxiety, but even some at the audacious end of the investment spectrum are looking for some safety-first holdings.
Popular options in this zone are the Capital Gearing and Ruffer investment trusts which aim to protect your money through a mixture of index-linked bonds, shares and cash. Ruffer (one of my portfolio buffers) also holds BP and Shell. This could allow you to take a contrarian stance on tech stocks. So ingrained is technology in our lives that sections of Wall Street remain bullish about Amazon, Microsoft and T-Mobile.
The clamour for microchips – which will be amplified by the growth in artificial intelligence, augmented reality and 5G – is good news for Marvell Technology and Nvidia, held by the Blue Whale Growth fund.
If you own Tesla, Daimler would be another bet on electric cars, while Watches of Switzerland (pictured above) is a way to back demand for the luxury wristwatch. The most assiduous purchasers of such luxury goods come from Asia. Yearsley’s fund pick – Matthews Asia Innovative Growth – is a play on the spending power of these consumers. Investing for the long-term tends to make sense, whatever your readiness for a gamble.
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