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An Extraordinary Year for Investors (and everyone else too…)


Following the Russian invasion of Ukraine in February, we responded to the investment questions which arose – in particular, “Shall I sell everything and switch to cash?” We leaned back on long-standing investment principles and reflected that unless things had changed in one’s own circumstances, investors should hold tight. Decisions regarding when to exit and then re-enter the “market” are notoriously difficult to get right, and although cash could prove a useful buffer at this time, history has repeatedly indicated that attempting to “time the markets” should not be considered a long-term investment strategy.

We concluded: “Clearly, all geopolitical events are different and what is happening in Ukraine is particularly serious, but we are confident that markets will recover once tensions subside.  We continue to take a long-term approach and favour a broad mix of internationally diversified equities (shares in companies) alongside lower risk alternatives such as bonds (money lent to governments and companies), and cash. Rest assured that we are monitoring developments closely.”

Since then, the economic situation – internationally, nationally and personally – has further destabilised & deteriorated. A controversial start for the new government has poured additional fuel on the fire, and high inflation is eroding the value of cash, despite rising interest rates.

Bonds, which are typically considered to be less volatile than shares, have actually fallen significantly in value as interest rates and inflation have risen. Moreover, ethical approaches – which avoid some sectors such as armaments, oil production, mining and tobacco (which can be more resilient in times like these) – have faced headwinds too.

So, we revisit the question – is a change in portfolio allocations now timely?


Some questions to consider:

When pondering what one should do in seasons such as this, some key questions can help clarify the core issues and give you certainty about your approach:

  1. Liquidity – Do you have sufficient cash reserves, or are you likely to need to withdraw money from your investment portfolio?
  2. Your financial planning objectives – Have they changed?
  3. Your investment time horizon – Has this become shorter?
  4. How you wish to invest – Has your risk profile (or your desire to invest ethically) changed?
  5. The world – Has there been a readily identifiable systemic change in the world?

The jury is out as to whether current events will coalesce into systemic change (question 5) but if the answer to the other questions is “No”, we hold to our strategic methodology, which is evidence-based and fortified to manage downturns through deep diversification.


The two pots approach

Sometimes it is helpful to divide your capital into two pots:

  1. A liquidity pot – these are cash deposits to meet short-term cash flow needs (such as regular spending, emergencies and major costs).   Unless you make withdrawals, these can’t go down in their numerical value, but when interest rates are lower than inflation (as they have been since e.g. 2021) their real value (i.e. their “spending power”) diminishes over time.
  2. An investment pot – these are investments in shares and bonds, which typically provide inflation-beating growth in value over the long-term.  These investments are expected to perform better than cash deposits, but their capital value can also go down – as we are experiencing in 2022.

The challenge is in getting the balance right between these two pots in order to ensure that you are not eroding the real value of your capital too quickly (by holding too much in cash), whilst at the same time maintaining sufficient liquidity for your cash flow needs.  We consider this with you at our annual reviews.

In times of greater volatility for investments, it might be appropriate to hold slightly more in cash deposits, so that you have, say, 2 or 3 years of liquidity covered, and can leave the investments the time they may need to recover.  You might even wish to increase your holding in cash relative to bonds.

If you think that you may need more cash at this time, then let us know and we will help you to re-balance your portfolio accordingly.  If your liquidity requirement is not imminent then we are likely to suggest that you reduce the risk of making a poor market timing decision by staggering any withdrawals from your portfolio over time.



The main challenge that 2022 is presenting to those making investment decisions is over where to place their money.

This investment decision is first and foremost one about asset classes (i.e. how much to hold in the stock market, how much in bonds, and how much in cash) rather than stock selection. Many of our clients have also given us an “ethical” investment mandate which means overlaying an additional consideration on the process.

However, the presenting problem is that no asset class is scoring well at the moment! There is “nowhere to hide” and, much as we experienced in the months after the credit crunch 14 years ago, we may not like the look of one asset class but when we peer over the fence, the grass is no greener over there: none of the other asset classes look particularly attractive either!

Since 1998, all asset classes have grown over the long term. Nevertheless, they have, of course, fluctuated, usually in different ways from each other (which is why diversification is the best long-term strategy). Most unusually though, all the major asset classes have fallen at the same time over recent months, with inflation being the only indicator to have been ticking upwards.

So, it may be boringly repetitive and a counsel of more patience and the gritting of teeth, but our advice remains a careful step-by-step process of ensuring you have sufficient cash for the shorter term, whilst also adopting a longer term approach for your portfolio with a balance of bonds and shares which are most likely – over that longer term – to deliver the return you need within the risk tolerance parameters you have agreed.


CHANGE TO MINIMUM PENSION AGE – from 55 to 57 on 6 April 2028.

The government is changing the rules on how early you can take benefits from your personal pension.  Broadly, if you are David Tennant (born April 71) or older you can still take your pension benefits at 55 but if you are David Blane (born April 73) or younger you will have to take your pension no earlier than age 57.  If you were born between the two Davids, you will have a window from your 55th birthday up until 6 April 2028 to take benefits before the National Pension minimum age increases to 57. If you don’t access your pension during this time, you will need to wait until your 57th birthday. So that’s all clear then!



We are in the process of upgrading our administrative systems to a new cloud-based platform. This will offer us a higher degree of security and enable us to take advantage of the latest developments in integrating information sources so that we can provide ever more timely portfolio reports and valuations to you – and also manage the “back office” ourselves more efficiently.

The reports we provide to you will look different – and there may be some temporary disruption to our normal reporting over the next few months as we learn the new systems. However, we are confident that the result will be an improved service to all our clients.


If you have any questions please do contact us in the usual way. Thank you for placing your financial planning and investment work with us.


Flowers McEwan

October 2022


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