By Justin Rourke, head of advice, Armstrong Watson
2023 was the year that interest rates had a resurgence, and for the first time since 2008, the rate rose above four per cent and on it marched to 5.25 per cent.
Context is important when making financial decisions, and two specific factors require consideration when looking back at 2023:
- Inflation was much higher than interest rates for a large proportion of the year, meaning that the real value of money was decreasing.
- Whilst the media, press and social media were quick to paint interest rates of four per cent-plus as high, history shows that interest rates between 2008-2022 were actually the anomaly.
Understandably, 2023’s higher interest rates and high inflation were a shock to many people. Those under a certain age will not have known or experienced economic conditions prior to 2008 and for many, a low interest (and low inflation) environment has been their only norm.
Stocks and shares investors
Anecdotal evidence suggests that 2023 was a tough year for investors, with many people withdrawing money from the markets for a variety of reasons, including:
- Paying off debt that was more expensive due to higher interest rates
- Combating the rising cost of living due to high inflation
- ‘Taking advantage’ of better interest rates
- A loss of confidence in markets owing to volatility
Whilst the first two points noted above are likely to be driven by necessity rather than choice, the latter two need to be explored further.
How good are interest rates?
At the time of writing, the Bank of England Base rate is 5.25%, and according to Moneyfactscompare.co.uk the below are some of the current best savings rates* available:
Access – Rate
- Easy Access Savings – 5.22 per cent
- Up to 30 Days’ Notice – 5.10 per cent
- Up to 60 Days’ Notice – 5.41 per cent
- Up to 90 Days’ Notice – 5.41 per cent
- Up to 180 Days’ Notice – 5.50 per cent
- Over 180 Days’ Notice – 5.58 per cent
How did the investment sectors perform across 2023?
According to investment information and analysis website TrustNet, the main three Adviser Fund Index (AFI) sectors – the indicators that provide a benchmark for the investment community to compare fund portfolio performance – all performed at 6.4 per cent or above, with rates of return as follows:
- AFI Aggressive – 7 per cent
- AFI Balanced – 6.70 per cent
- AFI Cautious – 6.40 per cent
Meanwhile, investment solutions advisers, Asset Risk Consultants (ARC), recently published their review of 2023 containing estimates for Q4 portfolio returns as follows:
- ARC Cautious PCI – 4.40 per cent
- ARC Balanced PCI – 6 per cent
- ARC Steady Growth PCI – 7.30 per cent
- ARC Equity Risk – 8.10 per cent
Investing for the long-term
Whilst it’s important to review yearly performance, I’d urge extreme caution against look at any one year in isolation. 2023 was a year full of challenges and every individual’s circumstances and objectives differ.
Investing should always be a long-term plan that is reviewed frequently.
Highlighting 2023 specifically, it illustrates the need to spend ‘time in the market’. For a large proportion of the year, it was a difficult time for investors, but those who were able to and chose to remain invested will in most cases have ended 2023 with a better return than the cash alternatives.
To discuss your investment options, please contact Armstrong Watson Financial Planning by emailing [email protected] or call 01768 222030.
*Rates applicable as of January 3 2024
