Why it’s important not to make rash financial decisions based on Budget speculation.
Every November, the UK budget announcement attracts headlines and speculation about tax changes, spending plans, and their impact on the economy. While this anticipation is natural, making financial decisions based solely on speculation can be risky. History shows that speculation and reality often diverge, leading individuals who act prematurely to make avoidable mistakes.
1. Speculation vs. Reality: A Risky Gap
Forecasts ahead of a budget often overestimate or underestimate economic outcomes. For example, analysts’ predictions about GDP growth, tax policies, or spending priorities frequently diverge from reality. An example of this was last year’s budget when vast sums of money were withdrawn from pensions based on possible changes to the maximum amount of tax-free cash available. No changes happened and speculation is once again rife that this may happen in this year’s budget.
2. The Pitfalls of Short-Term Speculation
Average annual return – Speculation versus long term investment:
Speculative trading around budget announcements can tempt individuals to “time the market.” However, short-term speculation generally underperforms long-term investing strategies.
On average, long-term investments significantly outperform short-term speculation. The volatility of reacting to news cycles can erode returns, while patient investing allows compounding to work effectively.
3. The Value of Professional Financial Advice
One of the best defences against making rash financial moves is to seek professional financial advice. At Clear we help individuals look beyond short-term noise, focusing instead on long-term goals and tailored strategies.
Over a 15-year horizon, investors who seek financial advice can see considerably higher returns compared to those who do not. This highlights the importance of expert guidance, particularly in uncertain times.
Conclusion
While November’s budget will undoubtedly spark speculation, it’s crucial to avoid making hasty financial decisions based on uncertain predictions. History shows that speculation and reality rarely align perfectly, and short-term bets can harm long-term financial health. It is important to stick to your long-term plan and whilst media speculation can be worrying keeping focused and calm will help you achieve your long-term goals and objectives.
Constraints cause creativity
Disruptions to routine is really annoying, especially in the morning when you are half asleep.
The recent tube strike forced commuters to find alternative methods of travelling.
But psychologically, there CAN be big positives to being made to do something different…
In February 2014, there was another strike on the London Underground.
As this was pre-COVID, it meant:
- Working from home wasn’t a thing.
- Travel planning apps like Citymapper didn’t exist.
So, this meant people had to get into work, and they had to work it out for themselves! Lots of them discovered something different about the London Underground map – it’s great for subterranean work, but it’s terrible for moving around above ground!
Take, for example, the little section around St Paul’s.
On the tube map, Covent Garden and Farringdon look about the same distance away. In the real world, Covent Garden is nearly a mile further from St Paul’s than Farringdon.
Or look at Cannon Street; within touching distance of St Paul’s on the tube map, whereas Blackfriars is a distance away. Yet, they’re exactly the same distance from St Paul’s!
Source: TFL/7IM
Up to that point, a lot of people had moved to London, looked at a tube map, worked out their commute and then just put their head down every morning, and got on with their commute.
It took the disruption of a strike for some of them to realise that they had other choices. Some realised there were actually quicker routes to work like getting off a few stops earlier, or even using a different station. Others found that they preferred to walk for 15 minutes, rather than be on the tube for 5 minutes.
They were forced to experiment with a key part of their day. Interestingly 1 in 20 commuters changed their route permanently following the strike.
Economic theory suggests that anyone doing something regularly should make sure it’s done in the optimal way. Particularly something as draining as commuting!
And yet it took external events to force people to really think about their route.
This same psychology applies to finance.
People should do something… but they might need a bit of help to do so, whether that’s save more, spend less, or think more carefully about where their investments are.
And the number needing to change is probably a lot more than 1 in 20!
Rise or return
China has the second largest stock market in the world, after the United States.
And over the past decade, India has made its way steadily into the top five largest equity markets, just below Japan at the moment.
Both countries are experiencing economic growth at rates the West can only dream of … and both have, of course, HUGE populations.
Source: https://commons.wikimedia.org/w/index.php?curid=98756377
It’s being said that China and India are becoming important political and economic powers. But that does depend on your perspective as you could quite easily make the argument that the two Asian nations are returning to being global powers.
Angus Maddison, a British economist, spent his career digging into history to try and put things in a modern perspective, reconstructing the size and make-up of the global economy going back thousands of years.
Looking at his data, you could argue that the story of the last millennium was actually one of Asian dominance.
Source: https://www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-database-2010
China and India represented more than half of the world’s economy for 800 years out of the thousand! The last 200 years might merely have been a blip in the trend as technology supercharged the Western world.
The modern investment world came about during the 200-year blip. The MSCI (Morgan Stanley Capital International) ACWI (All Country World Index) global stock index has just 3% allocated to China, and less than 2% to India.
Over a couple of centuries, better technology can overcome population differences. But if it gets back to a level playing field, weight of numbers comes back in.
China, today, has the same levels of internet use as the US 10 years ago, India is where China was just six years ago. Each country is producing 1.5 million odd engineers every year.
Whether a rise or a return, something’s happening.
Investment benchmarks should reflect the next century, not the old one …
Households exhibit renewed confidence in their financial outlook for the year-ahead
▪ Households upbeat about future financial climate for the first time in 11 months
▪ Current financial strain eases further
▪ Labour market sentiment nears all-time high
The first guerilla marketing
The advertising world has changed a great deal in the last 100 years. From newspapers and magazines to billboards and radio stings, to banner ads and sponsored TikToks. Grabbing the attention has always been the aim. To make you think of a product, or a service, or even a company when you are thinking of something completely different.
Just ask Dan and the Sterling Cooper gang.
There are of course modern equivalents of Don: sticking Red Bull athletes into space, having drumming gorillas sell chocolate, or almost all of Guinness’ TV ads in the 2000’s.j
But one of the favourite guerilla campaign pre-dates the Second World War – and you can still see it today!
In London in the 1920’s, there were strict rules on what businesses could and couldn’t do to advertise. The definitely were not allowed to put billboards along the River Thames – one of the busiest commercial and passenger areas in the world at the time.
But the Liebig Extract of Meat Company (LEMCO) found a loophole!
They were remodelling a Thames-side warehouse, no billboards or posters allowed. But what about windows?!
They put three windows into each side of their warehouse tower … in the shapes of a circle, a cross and a circle, and there suddenly was their key product – the OXO cube and it was the only riverside advertisement in London! And it’s still around a century later, that’s good advertising!
Naturally recent advertising has shifted dramatically online. 55% of global advertising spend (excluding China) has been captured by Meta, Amazon and Alphabet.
This chart from the US shows the shifts over time (and especially the recent rise of the digital world).
Source: Bureau for Labor Statistics
Algorithms along with the clever use of cookies, search tokens ad web optimism can target the consumer in a way that hoping they will look at a building never will, but who will be talking about ‘the best banner ads of the 2020s’ in one hundred years’ time?
