Time in the market: 2023

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2023 was the year that interest rates had a resurgence, and for the first time since 2008, the rate rose above 4% and on it marched to 5.25%.

Context is important when making financial decisions, and two specific factors require consideration when looking back at 2023:

1. Inflation was much higher than interest rates for a large proportion of the year, meaning that the real value of money was decreasing.
2. Whilst the media, press and social media were quick to paint interest rates of 4% + 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%
Up to 30 Days Notice	5.10%
Up to 60 Days Notice	5.41%
Up to 90 Days Notice	5.41%
Up to 180 Days Notice	5.50%
Over 180 Days Notice	5.58%

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% or above, with rates of return as follows:

AFI Aggressive	7%
AFI Balanced	6.70%
AFI Cautious	6.40%

 

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%
ARC Balanced PCI	6%
ARC Steady Growth PCI	7.30%
ARC Equity Risk	8.10%

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.

*Rates applicable as of 3 January 2024