‘Buying British again’: Investors pile in as ‘world’s best stock market’ nears record high | Personal Finance | Finance
London’s blue-chip index has rocketed more than 15 percent since mid-October, as investors anticipate a more positive year for the global economy and share prices.
After years of going nowhere it ended 2022 as the world’s best performing stock market, helped by the recovery in oil and mining stocks as energy and commodity prices rocketed.
Its recovery is great news both for investors with Stocks and Shares Isas, and pensioners who have put their retirement savings in drawdown, said Victoria Scholar, head of investment at Interactive Investor.
“Isa and drawdown investors saw their holdings fall sharply last year, particularly those who put money into the US, where the Nasdaq technology index dropped by a third.”
Drawdown savers were in shock as their retirement funds plummeted just as they were forced to withdraw more to meet soaring living costs.
Now things are starting to turn around.
The FTSE 100 hit its highest level ever of just over 7,900 points almost four years ago in May 2018. That was before the Covid pandemic, war in Ukraine and the cost-of-living crisis.
It ended Tuesday trading at 8,846.20, just a whisker away from that record, having added more than £300billion to UK share values since October.
There is no guarantee that the stock market recovery will continue, as uncertainty continues over war in Ukraine, Chinese Covid lockdowns, high inflation and rising interest rates.
A global crash that wipes out all the recent gains cannot be ruled out. That is always a risk when investing.
Nobody should pile into shares assuming they will to continue to rise, but some will be tempted as returns on cash have slipped back in recent days.
Last year, United Trust Bank issued a five-year fixed-rate savings bonds paying a market-leading 5.05 percent.
Today, the best rate savers can get over five years is just 4.25 per cent, from RCI Bank, as providers anticipate the Bank of England will slow the pace of rate hikes. The base lending rate is currently 3.5 percent and the BoE’s next decision is due in February 4.
By contrast, investors who are willing to take on a bit of risk can get tax-free income of almost five percent a year from some top investment funds, free of tax inside an Isa.
This leaves many facing a tough choice between putting money in cash or taking a chance on the stock market again.
Second-guessing where stock markets and savings rates will go next is almost impossible, as they are too unpredictable, said Laith Khalaf, head of investment at analysis at AJ Bell
“It is worth retaining some exposure to the stock market, even in retirement, as it should help your savings keep pace with inflation and retain their spending power.”
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Make sure you also have access to cash that you can get your hands on in a hurry, Khalaf added. “This could spare you having to make withdrawals from equity Isa or drawdown funds after a crash.”
Drawdown is popular among pensioners and a flexible way of leaving money invested while taking retirement income as required.
But as many have discovered, it also carries risks, said Andrew Tully, technical director at Canada Life.
“Pensioners will be hoping the stock market recovery continues, so they can make good last year’s losses. Unfortunately, money already withdrawn to fund higher living costs will miss out.”
The stock market recovery is cause for celebration, but the future remains uncertain.
As far as investors are concerned, the old adage applies. Never put all your eggs in one basket.