Question

Explain how macroeconomic events such as inflation, recession, and high interest rates; and political events such as Brexit can impact your investment plans and outcomes. Provide supporting data   

Answer 1

Inflation impact on investment plans and outcomes:

• Inflation is bad for those who are planning for investment. It erodes the purchasing power of your money.
• Low-interest rates are also of no help as the living cost increases due to inflation and make it harder for the return to b high.
• Higher inflation can also drive down the price of bonds.
• Bonds become less attractive because one is locked in at interest rates that may not keep up with the cost of living in years to come.
• Investing in equities also carry a higher risk as losses as one might not get the same amount one has put in.

Recession impact on investment plans and outcomes:

• The value of bought stocks would likely to fall.
• Those who are near retirement are the most affected because of the recession.
• A permanent change in financial plans may occur due to the withdrawal of investments which has already lost a significant amount and value.
• There's always a job threat because of which you may have to halt your investment plans for the future and a lot of time would be gone for planning it again and working on it.

High-interest rates impact on investment plans and outcomes:

With high-interest rates, the risk appetite increases.

• The risk-free returns go up as the government bonds yield a rise.
• The corporate bonds also give better returns because of the outcome of govt bonds.
• investors will naturally opt for a higher fixed rate of returns rather than an uncertain and potentially lower rate of return from equities.
• Investment is more liked to be inclined towards fixed income securities like bonds, fixed deposits etc.

Brexit impact:

• The UK govt bonds have become more volatile and risky to invest in.
• A very gradual interest rate increase is going to take investors away from govt bond investment. So, investing in this particular area would not be in the investment plan.
• The uncertain political and economic outlook is going to temper the stock exchange of the UK.

For data and graphs reference :

https://inflationdata.com/inflation/images/

https://www.wealthify.com/blog/what-effect-could-brexit-have-on-your-investments