How defensive investments are changing
In a world of constant change, stability can be a comforting thing – especially when it comes to...
When the pandemic began last year, many experts believed the increased time spent at home would lead to a baby boom, because what else was there to do..?
Fast forward 12 months, and research shows that the pandemic has actually so far led to a decrease in birth rates. A study in the US found that more than 40%* of women have changed their plans about when to have children or how many children to have. Homeschooling horror stories will do that to you – not to mention pandemic-squeezed finances and less job security.
But you’re probably wondering, what has this got to do with investing? Quite a bit actually.
‘History will judge us by the difference we make in the everyday lives of children.’ — Nelson Mandela
For those still planning on having a family, it’s worth remembering that babies are expensive. Budgeting for the cost of a new child should be both long term (to cover things like university fees) and short term (paying for their nappies). Whether you already have a little one or are planning to start a family soon, you should factor more costs into your budget.
Higher prices for some things may also be on the cards. Companies that make baby supplies are already feeling the pressure from lower demand and could supplement losses by raising costs – making everything even more expensive. Birth rates were already declining in China, combined with a strong decrease in the US, so firms in this sector are also moving to premium products – the idea being, fewer kids might mean you’re willing to spend more money on better quality goods, where margins may also be higher.
For those deciding against a family (or not to extend your existing one further), if it’s due to financial worries, the first thing to do is make sure that your emergency pot is full and ready to fall back on if you need it. Then take another look at your budget to see if you can make any savings.
If all this is in place and you find you have some spare money, with little to spend things on at the moment, you could consider investing a little more now for your retirement. A substantial decline in birth rates can have knock on effects for years to come. Fewer people born now, means a smaller number of people to replace an ageing workforce. This can be problematic when it comes to tax revenues needed to keep the economy running smoothly in the future – and to pay pensions. This means your tax rate could go up to bridge the gap. Investing as much as you can now and as you move through your career will mean you’re less reliant on a government pension to have the retirement you crave.
There’s no “one sum fits all” for retirement. It’s a personal goal that will depend on your circumstances and what you envision retirement will look like.
But generally, it’s suggested that you should look to have one year of salary saved before you’re 30. Having double your annual salary saved should be the goal of 35-year-olds. Four times your yearly salary is the target for people turning 40. And (don’t freak out) eight or more times by the day you say, ‘I’m retired.’ That’s an incredibly scary number, which is why we can’t be talking about simply putting cash under the mattress. You have to invest and enjoy compounding to get those figures.
If you’re new to investing, I’d suggest starting with our guide to retirement to learn some of the basics.
For younger investors, emerging markets can be a good option. They are riskier to invest in, but the better longer-term growth prospects also make the rewards potentially better too. And if you are in your 30s or 40s, you have plenty of time to ride out a few market ups and downs.
The Goldman Sachs India Equity Portfolio aims to capture the growth potential of the Indian economy and is run by an experienced local team in India. The manager has a very good and consistent track record. With the resources available to him there is no reason why he should not continue to outperform.
GQG Partners Emerging Markets Equity is a concentrated portfolio of high quality companies with durable earnings. The emphasis is on future quality, rather than companies which have simply done well historically. The fund currently has 16%** in India, compared to benchmark 9%**.
Launched in 1991, JPM Emerging Markets Investment Trust has an established long-term track record of investing in emerging market equities. The manager, Austin Forey has delivered excellent returns on this trust for more than two decades. The trust takes a focus on companies rather than country weightings.
The FSSA Global Emerging Markets Focus fund invests in large and medium-sized companies in emerging markets. The manager looks for firms that can show sustained and predictable growth over the long term. The fund has a strong level of ESG ethos worked into the process and could be suitable for those building an ethical portfolio.
Even if you’re risk averse you can still gain emerging market exposure through fixed interest. Headed up by Claudia Calich, the M&G Emerging Markets Bond fund is able to invest across the entire emerging market bond spectrum – whether this is in government bonds or corporates, and whether the assets are denominated in local currencies or US dollars.
*Source: Guttmacher Institute, June 2020
**Source: Fund factsheet, 31 December 2020