Key factors that may pull retail investors into the trap of short-term thinking in 2024 include:

• Allure of current high cash rates 
• Weak economic growth outlook 
• Upcoming elections could increase volatility again

Challenges such as a weak economic outlook, combined with the allure of high cash rates could trap retail investors in a cycle of short-term thinking, warns Hymans Robertson Investment Services (HRIS). Upcoming elections could be another significant driver of short-term-thinking for Advisers’ clients, they further warn. To avoid getting caught out, retail investors should be taking a long-term strategic approach, supported by robust diversification, says the leading DFM.

Commenting on how retail investors can best approach the upcoming challenges in 2024, William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS) says: 

“In the face of the turbulence we experienced last year many retail investors found it hard to maintain a long-term view, most notably with cash savings rates looking attractive relative to recent history. However, cash and inflation are not allies. £100 in 1992 is now only worth £48, and cash has historically underperformed equities over the long-term. Indeed, equities have outperformed cash by over 600% or, more than 4% per annum over the last 30 years. IFAs, we work with who have highlighted those facts to clients found that it’s helped to reassure them and enable them to better assess the impact of any knee-jerk switch out of risk assets into cash.

“Inflation peaked at 11.1% in 2022 and the Bank of England took an aggressive approach, increasing interest rates higher than they had been in 15 years. Now that rate cuts are likely on the horizon, investors will be focused on how the higher interest rates have impacted economic growth. But, global growth remains robust and it’s important for worried retail investors to remember that markets (and news headlines) will move quicker than most investors can. Given this, a longer-term strategic approach that prioritises diversification is best, as it will help to avoid risks while also capturing opportunities.

“In 2024, more than half the world’s population will be eligible to vote in more than 70 elections. Elections can impact markets in various ways. When polls are tight, for example, uncertainty can lead to market volatility. Markets can sometimes be supported by governments’ tendencies to move toward pro-growth policies in the lead-up to an election as they try to gain favour with the electorate. But ultimately, over the longer-term, the evidence suggest that markets and economies tend to be driven by stability and strong underlying economic fundamentals.”