There’s no such thing as a risk-free investment, although it’s fair to say that this simple rule has been exacerbated considerably against the backdrop of the coronavirus pandemic and increased geopolitical uncertainty.
However, not all investment risks have been created equal, and there are some that investors should look to avoid at all costs through 2022 and beyond.
In this article, we’ll look at the key things to be aware of as an investor during economic uncertainty, while appraising precisely what traders should avoid in 2022.
What Uncertainties Should UK Investors Be Aware of in the Marketplace?
Ultimately, both anecdotal and statistical evidence has reaffirmed that broad and specific economic uncertainties impact negatively on the economy.
This has been borne out during Brexit and the coronavirus pandemic, which has had an adverse effect on the UK’s GDP along with the value and trading range of the pound and long-term job creation.
What’s more, even metrics such as GDP are no longer as applicable or relevant as they once were. More specifically, real GDP fails to reflect income distribution and omits valuable unpaid work, while Harold Hutchinson, who’s the Head of UK Research at investment management firm Investec, says that a focus on core assets is far more relevant as it enables individuals to think proactively about preserving them over time.
This creates further uncertainty in the economy, as both households and businesses become uncertain about economic datasets when they’re presented and struggle to take stock of the prevailing climate.
From an individual perspective, such uncertainty impacts future work prospects and their prospective income, along with the value of their savings and disposable income. Subsequently, firms will be preoccupied with consumer confidence, while potential changes in export and import values could also impact the core cost of operation and profit margins.
What Investments Should Investors Avoid in 2022?
According to Hutchinson, investors themselves can drive the cycle of volatility and uncertainty during challenging economic climates, particularly amid growing market noise and a desire to “chase short-term security in price movements”.
In derivative markets, this only serves to increase price volatility and cause the deviation of prices from a fair valuation, further compounding uncertainty across the board.
In some respects, it would be wise for retail or risk-averse investors to avoid such securities in the near-term, instead favouring reliable buy-and-hold assets that can appreciate gradually and retain their value during challenging economic periods/
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However, Hutchinson advises that it’s far more important for investors to heed the market’s fundamentals or at least liaise with an investment manager in the current climate, in order to realise the increasing importance of investment research during periods of wider economic uncertainty.
This type of due diligence can ensure the ideal balance between minimising the impact of volatility and identifying growth opportunities, allowing for sustainable profits to be earned over time.