Let’s not dodge the issue – last year was a shaky time for global stock markets, especially the last three months of the year. As a result, you may have seen the value of your portfolio change. And rightfully, you might have some questions about that.
In this article, we’ll explain:
- What’s going on in the stock market
- What this means for you and your investment
- How Inyova is reacting to this situation
- How your investment is designed for long-term growth (despite some turbulence along the way!).
Finally, we’ll answer the question: Is there any good news? Spoiler alert: There is! 🎉
What’s going on in the stock market right now
Glance at the recent performance of the S&P500, and you might think that the entire stock market was booming at the moment. As it happens, the growth in this index, which tracks America’s 500 biggest companies, is being driven mainly by five companies: Apple, Microsoft, Nvidia, Tesla and Google.
The huge growth of these stocks creates the illusion that the entire stock market is growing quickly at the moment. The reality is, many companies have seen a drop in their stock price. And that comes down to two big issues:
- Uncertainty around Omicron. Besides the ‘usual’ Covid fears, Omicron has some people wondering whether a massive disruption to the workforce is around the corner. With so many workers in quarantine, 4,000 flights in the USA were cancelled during the peak Christmas travel rush.
- Rising inflation and interest rates. This creates a domino effect where it can be harder for companies to borrow money, which means slower innovation… which makes companies less attractive to some investors… And if enough investors sell their stocks, the stock price of the company falls. Recently, more investments have shifted towards ‘traditional’ companies and away from smaller, innovative companies.
What does this mean for you and your investment?
With Inyova, your portfolio is well diversified – with 35-40 individual stocks, spread across different industries, regions, company sizes, and other factors. As part of this diversification, your investment includes some smaller, more innovative companies, which are still in a growth phase.
In times like these, this can mean that your portfolio temporarily performs worse in comparison to major benchmarks such as the S&P500. This is because the S&P500 only tracks the 500 largest companies on the New York Stock Exchange and NASDAQasdaq Composite.
This is further exaggerated by the fact that the S&P500 (and most other benchmarks) give more ‘weight’ to the companies that are worth the most. For example, Apple and Microsoft account for 13% of the S&P500, whereas the 150 smallest companies in the index represent less than 0.05% each.
How is Inyova reacting to this situation?
Firstly, it’s important to understand that we expect these dips to happen from time to time, and we design your portfolio to withstand these fluctuations in the long-term. It’s important not to panic and sell your stocks during a low point in the market – this is a sure way to turn “paper losses” into real losses.
All Inyova portfolios are designed to generate positive impact alongside long-term returns. As part of our service to you, we continuously review all companies in your portfolio to ensure they continue to meet strict financial and sustainability standards. When a company slips below these standards, we remove it and rebalance your portfolio.
We are also adding new companies to our universe, including additional larger companies and companies that have a long track record of consistent earnings.
Is there any good news?
Yes! The good news is that many decades of financial data show the markets trending upwards in the long term, despite short-term turbulence along the way. As this graph shows, the stock markets took a major hit during the Global Financial Crisis that happened around 15 years ago. But investors who sat tight and rode out the storm for a few years were soon making strong gains once again. For context, your Inyova portfolio is designed to follow the trend of the major European and US indexes in the long term.
Stock market performance 2005-2022
If you have any questions about your portfolio, you are welcome to reach out to our Customer Success team. You can email us on [email protected] or call 044 271 50 00. We’re here to help!