As we emerge from the disruption of 2020-21, patterns begin to form that will define 2022 and the near future.
This year has been quite a boom year on the equity markets, and many of us have rethought – or been forced to reinvent – our work-life balance and finances. Now it’s clear that inflation is on the rise again too.
So coming to terms with and navigating the post-Covid financial landscape and rising inflation will be big factors in 2022. But so will sustainability, which continues to grow in importance in investor conversations.
Underpinning all this is the unstoppable rise of technology, so it’s important to take a look at growing trends here too.
So, many of us have looked long and hard at our work status, finances and use of time since the pandemic.
We have reflected on what’s really important and what we want to prioritise for the future. Building a clear financial plan can really help to underpin these priorities, allowing investors to realise goals and manage risk.
For example, anyone planning to leave the workforce early should make sure their pension provision and savings are up to the task of maintaining financial security and income.
Less demanding, pressurised part-time work may be a good solution for some, and wages have strengthened here as increasing numbers of people leave the workforce.
If Covid-19 taught us anything, it is that our health is not something to take for granted, so a post-pandemic financial plan could embrace private health insurance.
It’s impossible to plan for the unknown but knowing there is an extra safety net can certainly reduce the worry of future healthcare demands.
Perhaps most importantly, investors need to build their investment plan to suit their appetite for risk, level of financial knowledge and lifestyle.
This sheds light on the difference between financial planning and institutional investing such as pensions and endowments. Where big companies have the time, tolerance and experience to deal with market corrections and unnerving change, individual investors often won’t.
The key takeaway here is that small personal investors need to be prepared for market volatility and keep some money where they can access it easily – such as in high-quality, short-duration bonds or bond funds.
At the end of 2021, inflation rose at the highest year-on-year rate since 1991. It stood at 6% for the consumer price index for urban consumers [CPI-U]. This is hardly 1970s-style hyper-inflation, but it’s significant, so how should investors respond?
Naturally it pays to have a plan. A robust, healthy portfolio is a diverse portfolio, with a good balance of stocks, real estate investments and international investments.
Although cash and bonds are not inflation-proof, they should still be included, to add diversity and liquidity.
Other income sources and assets can protect against unexpected inflation rises. House prices have risen dramatically in recent times, so property remains a pretty good investment option, provided you ‘buy right’ and look carefully at trends on the ground.
Environmental, social and governance (ESG) is justifiably a hot topic in the investment world.
We think its prominence and importance will only grow in the future. The standards set by ESG criteria allow potential investors to assess individual companies and evaluate their performance in terms of green credentials and social conscience.
More investors than ever are taking these elements into account before committing their savings.
For investment advisers, ESG is a challenge, because to achieve true sustainability you need to have a thorough, holistic grasp of each asset class and its performance.
ESG is not simply about climate change, so it’s important to understand and consider the more nuanced details and take a wider view – looking at economic, social and political facets. In this way you can be confident you’re recommending sustainable investments.
Digital technology is now integrated into every facet of the finance sector, from basic transactions to insurance and investments.
Digital services are now so embedded in all we do that we take them for granted – especially post-pandemic. So where does digital innovation take us next?
The most obvious changes are seen face to face, where transactions are now increasingly contactless.
According to VISA, almost 33% of businesses now only accept contactless payments and nearly 80% of consumers have changed how they pay too. To remain at the sharp end, companies need to adapt fast.
In a world populated by over 6 billion mobile phones, it’s clear that digital access is now a given for a huge proportion of society, and by 2022 it’s very possible that digital payments will overtake cash payments for the first time.
One important way in which business has responded to digital pace and customer expectations is through automation.
In recent years, automation has emerged from streamlining backend core functions, to enhancing frontline services. Efficiency and client satisfaction increase and operational costs drop, leaving budget for future technology investment.
Financial businesses have traditionally been weighed down by the need to invest in data storage and technology management. Now, more and more, they are migrating to the cloud, with its potential for saving money and time. The cloud also allows employees to access work systems from wherever they are.
The initial stages of this process are costly, however, and there is a need for maintenance long term, so it’s not a decision that businesses can afford to take lightly
At the apex of digital progress currently you will find artificial intelligence (AI) and machine learning (ML).
In the simplest terms, AI solves problems, whilst ML learns from existing data. In 2022 and beyond, both these technologies will be used by financial institutions and businesses to automate routine services and provide smarter solutions to customers.
For example, AI will be able to offer individually created loans, shaped by real data and facts, not by industry norms and stereotypes.
Despite the spectre of inflation looming, it doesn’t seem that there will be a major dip or crisis in the financial markets in 2022.
Essentially the year will be defined by developments with deeper roots in the recent past: the rise of sustainability and ESG criteria, the exponential growth of technology and digitisation, and the societal and economic changes brought about by the pandemic.
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