Drawdown disaster averted as pensions and Isas bounce back in 2023 ‘pivot’ | Personal Finance | Finance
That would be a rare piece good news for millions of savers as it will help recover some of the losses from last year’s global meltdown.
And it would come as a huge relief for the growing army of pensioners who invest their retirement investments in drawdown in the hope they will continue to grow, only to watch them crash along with shares, bonds, crypto, gold and everything else.
Many have been forced to draw down extra funds at the worst possible time to pay for rocketing living costs.
The FTSE 100 index of top UK shocks has made a strong start to the year hitting 7,700 for the first time since the pandemic. The road to recovery will undoubtedly be rocky given all the threats still out there, including war in Ukraine and China’s Covid nightmare.
Optimism is in short supply but investors are banking on one trigger point in the next few months that will spark the turnaround.
Forget the war and pandemic, the biggest single reason stock markets fell last year was that the US Federal Reserve, Bank of England and other central bankers started hiking interest rates to combat inflation.
This killed off the cheap money era and burst a string of bubbles, notably US tech stocks such as Facebook (now called Meta Platforms) and Tesla, as well as cryptocurrencies like Bitcoin.
The Fed and BoE are expected to hike rates further but at some point this year inflation will ease and they will “pivot” to a policy of cutting rates instead.
That point could arrive closer than we think as wholesale natural gas prices fall during the current mild European winter weather.
Matt Weller, global head of research at City Index, said fears of a worst-case scenario have faded as European temperatures hit record highs, while China may be past the worst of its Covid surge. “Its economy could soon return to normal, raising global growth as a whole.”
Victoria Scholar, head of investment at Interactive Investor, also sees signs of optimism. “The worst may soon be over.”
Analysts know the Fed pivot at some point but cannot agree when. Some reckon interest rates could peak in March, others point to the summer.
What it needs is for inflation to fall further and the US economy to fall into recession. We are not quite there yet, said Rupert Thompson, chief economist at wealth manager Kingswood. “Markets face a few more months of volatility.”
Once the pivot comes, pensions and Isa funds could fly. The FTSE 100 is likely to end the year more than 10 percent higher to hit a record 8,250, according to fund platform AJ Bell.
READ MORE: ‘Turned £1,000 into £9’ – Savers lose billions as top Isa funds crash
Pensioners in drawdown should stay calm and wait for markets to recover, said Andrew Tully, technical director at Canada Life. “If possible, draw money from cash savings rather than shares, to give investment funds maximum time to recover.”
As UK taxes hit a 70-year high it pays to invest inside a tax-free stocks and shares Isa, said Kate Marshall, lead investment analyst at Hargreaves Lansdown, who tips five funds to consider.
Pyrford Global Total Return aims to deliver inflation-beating returns over the long term, Schroder Managed Balanced offers diversification, should benefit when bond markets recover, Jupiter Income pays generous dividends and offers a global spread of stocks for a low fee.
Cash was the big winner in 2022 with five-year fixed-rate bonds paying more than five percent at one point, although this has fallen to around 4.5 percent today.
Anna Bowes, founder of Savings Champion, is urging savers to shop around rather than leaving money earning next to nothing in a high street account. “Cash isn’t exciting, like shares, but after the year we have just had that is precisely its appeal.”