Rachel Lacey reveals her ISA goals for 2023 and why she’s staying on the ‘queasy’ stock market roller coaster.
It’s a bit of a cliché to compare stock markets to roller coasters, but a quick glance at the FTSE 100’s performance during 2022 and it’s easy to see why the analogy is so frequently made. Heart-lifting climbs, followed by sudden, belly-churning falls. Again and again. A cycle on repeat.
It’s hardly surprising, then, if many investors are ending the year dizzy and disoriented. Unsure of what the next year will bring.
The outlook for 2023
I’m a journalist, not an economist or an analyst, and I’m not going to pretend to have any real ideas as to what will happen in 2023. But, with no resolutions on the cards to many of the challenges we’ve faced over the last year, I’ve a hunch that as far as the stock market is concerned, volatility will likely continue, for the next few months at the very least.
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So, where does this leave investors?
It’s over the next few months that thoughts turn to ISAs – whether that’s using this year’s allowance or making plans for next. And, in the run up to the start of the new tax year on 6 April – ISA season – investment pundits will invariably be coming up with numerous fund and share recommendations for uncertain investors.
I’ll read these articles with interest, but my plans this year aren’t to either tinker or make fundamental changes to my own investment portfolio. Nor am I going to allocate any more of my ISA allowance to cash, despite savings rates reaching a 10-year high after the Bank of England interest rate climbed to a rather lofty 3.5%.
Keep calm and carry on
To use another often-used phrase, my plan is to keep calm and carry on.
As boring as it sounds, it’s time to stick with the basic principles of successful long-term investing.
I’ve no interest in showing off or bragging about stock market achievements and I don’t have any desire to hunt down the next big thing.
Although I can call on my ISA savings whenever I like, my plans for that money are very much long term and, at this point, abstract. It will be there to help us with the costs of later middle age – whether that’s helping our children with university and home-buying, or funding a (heaven forbid) expensive cruise habit.
I can’t, of course, afford to gamble that money, but I do feel we can afford to take a reasonable amount of risk with it and, for me, that means staying on the proverbial roller coaster. I might feel a bit queasy at times, but I hope that when I do eventually get off, I’ll be better off for it.
Living with volatility
The worst thing I think I could do now would be to cash in any of my investments.
Going back to the actual ups and downs of the FTSE 100 this year – if you’d pulled out after the markets bottomed out in the aftermath of Kwasi Kwarteng’s disastrous mini-budget, all you would have done is locked in your losses and missed out on the upswing that came as political stability started to improve.
Some investors will invariably attempt to time the market – but with few active fund managers being able to do that consistently well, I’m not sure what chances I’d have.
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Instead, I’m focusing on the benefits of regular investing, which comes into its own during periods of volatility.
I’ll admit I might be apprehensive if I’d recently paid a big lump sum into my ISA, but I’m drip-feeding my money in each month. That means I can take advantage of pound-cost averaging, scooping up more units when markets are down and prices low, smoothing my returns and boosting my holdings for when markets do invariably recover.
The eighth wonder of the world
Amid all the chaos, it’s also timely to think of another reason to stay put over the long term: compounded returns.
Einstein supposedly described compounded returns as the ‘eighth wonder of the world’ and it describes the growth your money can achieve over time as your returns, start earning returns. Think of a snowball rolling down a hill, gaining momentum and gradually getting bigger and bigger as it picks up more snow.
The bigger picture
I also find it helps to keep the bigger picture in mind and try to filter out short-term ‘noise’.
When we talk about investing over the long term, it’s very much about looking forward. But once you have been investing for a while, looking back over the years you have been investing can be helpful and give you some much needed perspective.
So while that one-year snapshot of the FTSE looks like a total horror show of a roller coaster (and one that I’d never be brave enough to get on in real life), when you zoom out over a longer period, say 10 years, the ride looks rather tame, relaxing even. Yes there are still ups and downs but it’s clear that the overall trajectory is upwards.
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It's not always easy though. When I’m looking at my own ISA’s performance over the last few months, I can almost feel my blood pressure rise and I start getting twitchy, wondering about new investment opportunities. I’ll find myself scrolling through recommended fund lists on my investment platform and downloading multiple fund factsheets. But, when I look at the bigger picture, and see how much my portfolio has actually grown over the last 15 or so years, I start to relax again.
This is what happens when you invest.
My ISA has been through turbulent times before: the financial crisis in 2008, the Brexit referendum in 2016, and more recently in 2020 when the pandemic sent global stock markets plunging.
Each and every time markets recovered. Going back to Covid-19, markets had returned to pre-pandemic levels by Christmas 2021.
Despite all the turbulence, my investments are still doing what I need them to. Long may that continue, whatever 2023 holds in store.
Happy new year!
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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