23 March marks two years since the first UK-wide coronavirus lockdown and for many, life is starting to feel as close to normal with the end of all Covid restriction in England.
But there have been fundamental changes in how we live our lives and the cost of things over the past 24 months, which has formed a new status quo.
When it comes to investments, global markets have recovered from one of the most dramatic stock market crashes in history two years ago.
The FTSE 100, FTSE All Share, FTSE All Word and S&P 500 indices are up 50%, 53%, 83% and 99%, respectively since 23 March 2020 to market close 21 March 2022.
Keith Bowman, Investment Analyst, interactive investor, said: “A broad global strategy moving from lockdowns to vaccination programmes has allowed economic activity to rebound from its early impacted levels, taking global stock markets with it.
“The core stock market index for the world’s biggest economy, the S&P 500 in the US, has as a result about doubled from pandemic induced market lows back in March 2020.
“The tech heavy Nasdaq 100 index, including such household names as Apple, Microsoft, and Amazon, has more than doubled (+105%) as corporate and household practices under the pandemic have accelerated in their favour.”
Myron Jobson, Senior Personal Finance Analyst, interactive investor, outlines five ways personal finances have changed since the first Covid lockdown and what it means for consumers today.
Cost of living crisis
“There are many headwinds contributing to ballooning inflation, and Covid has been one of them. With many countries looking to be more self-sufficient, we’ve seen tentative steps towards deglobalisation, contributing to supply chain issues hot on the heels of Brexit.
“All this means that with the lifting of Covid restrictions, it has been a return to normal with a few extra pound signs for UK consumers. Many workers returning to the office are likely to have noticed that the cost of transport has gone up, as well as the cost of their usual lunchtime meal deal and mid-afternoon coffee. High inflation, which continues to outpace wage growth, means that those who plan on reverting to their pre-Covid work related spending habits will have to spend more to do so.
“A lot has been said about the cost-of-living squeeze on household finances. Many of those who became accidental savers during the pandemic, by keeping jobs while facing fewer outgoings during the Covid lockdown, may find themselves having to raid their cash pots to tide them over amid rising prices.
“The surge in the price of wholesale gas has fuelled a rapid increase in the cost of living, and consumers have no choice but to spend more for domestic energy – leaving the nation’s most vulnerable facing a heating or eating dilemma. Higher energy bills also leave less to spend on other items, which is why recent inflation figures saw a fall in recreation and culture expenditure.
“The increase in the cost groceries and other essential services, such as broadband, mobile phone tariffs transport – be it fuel for your car or public transport – exacerbates matters. Russia’s devastating invasion of Ukraine has also contributed to a considerable jump in the prices we pay at the supermarket and petrol pump.
“We all have our own inflation number, and it is worth keeping tabs on your spending habits to get a better idea of the goods and services that are eating most into your budget, and where you could cut back. The harsh reality is many UK household face financial breaking point. without meaningful government intervention.”
Surging price of rent and house prices
“Despite almost coming to a grinding halt during the first lockdown, the property market has staged a spectacular rebound, largely thanks to the stamp duty holiday as well as the releasing of pent-up demand.
“UK house prices has continued to rise almost half a year after the stamp duty holiday afterburners came off – fuelled by a lack of property inventory and high demand. The average house price has surged to another record high, breaking through the £350,000 barrier for the first time in March, according to the latest Rightmove House Price Index.
“When it comes to rents, the average annual UK rental growth has now reached a 13 year high, with rents increasing by 8.3% at the end of 2021, according to recent research by Zoopla. Renters are now paying on average almost £1,000 per month – £62 more than at the start of the pandemic.
“The reality is rising rents, ballooning inflation which continues to outstrip wage growth and a lack of affordable housing has priced many out of the market. The ongoing cost of living crisis has made matters worse, with many struggling to absorb rising prices and build up wealth to buy a home.”
Little reprieve for savers
“Interest rates been raised by 0.65% since the pandemic, but savings rates have only gone up a smidge which is disappointing given the extent of the cost-of-living crisis. Banks and building societies have been notoriously slow in passing on recent hikes to the base rate, and savers should expect more of the same following the latest increase.
“Some recent increases to savings rates are purely symbolic and have no real-world benefit. A 0.05% increase in the rate of interest applied on a typical high street bank instant savings account to 0.1% still translates to 1p for £100 saved.
“Recent research by Moneyfacts found that the number of savings accounts paying interest above the base rate of 0.5% is just 912, representing 55% of the total number of savings products on the market, and the lowest count since 2008.
“While saving rates are nothing to shout about, it is important to maintain an ample cash pot for emergencies now and in the future – three months’ salary is a good rule of thumb.”
The rise of young investors
“The past couple of years has seen a surge in the number of young people dipping their toe in the world of investments for the first time. The elephants in the room are cryptocurrency, GameStop and the broader meme stock phenomenon which helped to inspire a new generation of young adults to engage with investments. And now there is a sense of ‘what now?’ among many young investors.
“The challenge for the newly initiated is sorting the wheat from the chaff- which is difficult for those who don’t know what good looks like – particularly among those entered the market on the crypto meme stock FOMO hype train.
“When it comes to more conventional investments, the concern is young investors have experienced a baptism of fire by losing money – albeit paper losses – amid the recent stock market volatility further, which could put them off investing for life and, in turn, scupper their financial goals.
“Volatile markets mean there may be more bad days than good days but avoiding knee-jerk reactions and sticking with your convictions can make all the difference. Having clear goals and a framework in place before investing is key – so too is a balanced, well diversified portfolio which helps to spread investment risk.
“It’s also worth remembering that while there has been a focus on younger investors dipping their toe into the likes of crypto, it isn’t the only story and it’s important not to generalise. Among our own customer base, younger investors (18-24 year olds) have portfolios diversified between investment trusts, which account for 34% of the average portfolio, funds (26%), direct equities (23%), ETPs (7%) and cash (9%), according to the latest interactive investor Private Investor Performance Index.”
Rise in demand for ESG investments
“The coronavirus pandemic has affected all aspects of life and has raised some fundamental questions about how we live and how we work, and the sort of planet we want to live in. There is some evidence to suggest that this has fed to feed through to greater demand for ethically minded investments.
“The Russia-Ukraine war is also having an influence, with over half (54%) of investors claiming to have become more conscious of how their money is invested in the wake of conflict, according to a recent poll by interactive investor.
“However, not all investments labelled green is genuine in its pursuits of a cleaner planet or more equitable society. Greenwashing is a real problem. However, for investors wedded to investing in a way that closely aligns with their moral compass, there is no substitute for doing the legwork themselves.”
